Chapter 1: Accounting - The Language of Business

Question 1

Account

Answer 1

A summary record of the changes in a particular asset, liability, or owners’ equity (p. 11)

Question 2

Account Payable

Answer 2

A liability that results from a purchase of goods or services on open account (p. 13)

Question 3

Accounting

Answer 3

The process of identifying, recording, and summarizing economic information and reporting it to decision makers (p. 3)

Question 4

Accounting System

Answer 4

The series of steps an organization uses to record financial data and convert them into informative financial statements (p. 6)

Question 5

Additional Paid-In Capital

Answer 5

When issuing stock, the excess of the total amount the company receives for the stock over the par value of the shares (p. 20)

Question 6

American Institute of Certified Public Accountants (AICPA)

Answer 6

The principal professional association of CPAs (p. 26)

Question 7

Annual Report

Answer 7

A document prepared by management and distributed to current and potential investors to inform them about the company’s past performance and future prospects (p. 7)

Question 8

Assets

Answer 8

Economic resources that a company expects to help generate future cash inflows or help reduce future cash outflows (p. 9)

Question 9

Audit

Answer 9

An examination of a company’s transactions and the resulting financial statements (p. 25)

Question 10

Auditor

Answer 10

A person or firm who examines the information used by managers to prepare the financial statements and attests to the credibility of those statements (p. 25)

Question 11

Auditor’s Opinion

Answer 11

(Independent Opinion)
A report describing the scope and results of an audit. Companies include the opinion with the financial statements in their annual reports (p. 25)

Question 12

Balance Sheet

Answer 12

Statement of Financial Position

A financial statement that shows the financial status of an organization at a particular instant in time (p. 9)

Question 13

Balance Sheet Equation

Answer 13

Assets = Liabilities + Owners’ Equity (p. 9)

Question 14

Board of Directors

Answer 14

A body elected by the shareholders to represent them. It is responsible for appointing and monitoring the managers, among other duties (p. 22)

Question 15

Certified Public Accountant (CPA)

Answer 15

In the United States, a person earns this designation by meeting standards of both knowledge and integrity set by a State Board of Accountancy. Only CPAs can issue official opinions on financial statements in the United States (p. 25)

Question 16

Chief Executive Officer (CEO)

Answer 16

The top manager in an organization (p. 22)

Question 17

Closely Held

Answer 17

Privately owned.
A corporation owned by a family, a small group of shareholders, or a single individual, in which shares of ownership are not publicly sold (p. 18)

Question 18

Common Stock

Answer 18

Par value of the stock purchased by common shareholders of a corporation (p. 20)

Question 19

Common Stockholders

Answer 19

The owners who have a “residual” ownership in the corporation (p. 21)

Question 20

Compound Entry

Answer 20

A transaction that affects more than two accounts (p. 13)

Question 21

Corporation

Answer 21

A business organization that is created by individual state laws (p. 17)

Question 22

Creditor

Answer 22

A person or entity to whom a company owes money (p. 14)

Question 23

Entity

Answer 23

An organization or a section of an organization that stands apart from other organizations and individuals as a separate economic unit (p. 10)

Question 24

FASB Financial Standards Codification

Answer 24

A compilation of all standards and other elements of U.S. GAAP into a single searchable database that is organized by topic to make it easy to research financial reporting issues (p. 23)

Question 25

Financial Accounting

Answer 25

The field of accounting that serves external decision makers, such as stockholders, suppliers, banks, and government agencies (p. 7)

Question 26

Financial Accounting Standards (U.S. GAAP)

Answer 26

The set of GAAP that applies to financial reporting in the United States (p. 23)

Question 27

Financial Accounting Standards Board (FASB)

Answer 27

The independent private sector body that is responsible for establishing GAAP in the United States (p. 23)

Question 28

Form 10-K

Answer 28

A document that U.S. companies file annually with the Securities and Exchange Commission. It contains the companies' financial statements (p. 7)

Question 29

Generally Accepted Accounting Principles (GAAP)

Answer 29

The term that applies to all the broad concepts and detailed practices to be followed in preparing and distributing financial statements. It includes all the conventions, rules, and procedures that together comprise acceptable accounting practice (p. 23)

Question 30

Generally Accepted Auditing Standards (GAAS)

Answer 30

Standards issued by the Public Company Accounting Oversight Board that prescribe the minimum steps that an auditor must take in examining the transactions and financial statements and issuing an auditor's opinion (p. 27)

Question 31

Governmental Accounting Standards Board (GASB)

Answer 31

The agency that regulates disclosures for governmental organizations in the United States (p. 31)

Question 32

Independent Opinion

Answer 32

See Auditor's Opinion

Question 33

International Accounting Standards Board (IASB)

Answer 33

An international body established to develop, in the public interest, a set of high quality, understandable, and enforceable global accounting standards (p. 24)

Question 34

International Auditing and Assurance Standards Board (IAASB)

Answer 34

A body established by the International Federation of Accountants that is working to standardize audit regulation around the globe (p. 27)

Question 35

International Financial Reporting Standards (IFRS)

Answer 35

The set of GAAP that applies to companies reporting in more than 100 countries around the world (p. 23)

Question 36

Inventory

Answer 36

Goods held by a company for the purpose of sale to customers (p. 12)

Question 37

Liabilities

Answer 37

Economic obligations of the organization to outsiders, or claims against its assets by outsiders (p. 9)

Question 38

Limited Liability

Answer 38

A feature of the corporate form of organization whereby corporate creditors (banks/suppliers/etc.) ordinarily have claims against the corporate assets only, and not against the personal assets of the owners (p. 17)

Question 39

Long-Lived Asset

Answer 39

An asset that a company expects to use for more than 1 year (p. 11)

Question 40

Management Accounting

Answer 40

The field of accounting that serves internal decision makers, such as top executives, department heads, college deans, hospital administrators, and people at other management levels within an organization (p. 7)

Question 41

Net Assets

Answer 41

Assets less liabilities (p. 10)

Question 42

Notes Payable

Answer 42

Promissory notes that are evidence of a debt and state the terms of payment (p. 9)

Question 43

Open Account

Answer 43

Buying or selling on credit, usually by just an "authorized signature" of the buyer (p. 13)

Question 44

Owners' Equity

Answer 44

The owners' claims on an organization's assets, or total assets less total liabilities (p. 9)

Question 45

Paid-In Capital

Answer 45

The total capital investment in a corporation by its owners, both at and subsequent to the inception of the business (p. 19)

Question 46

Paid-In Capital in Excess of Par Value

Answer 46

When issuing stock, the excess of the total amount the company receives of the stock over the par value of the shares (p. 20)

Question 47

Par Value

Answer 47

The nominal dollar amount printed on stock certificates (p. 20)

Question 48

Partnership

Answer 48

A form of organization that joins two or more individuals together as co-owners (p. 17)

Question 49

Private Accountants

Answer 49

Accountants who work for businesses, government agencies, and other nonprofit organizations (p. 25)

Question 50

Privately Owned

Answer 50

See Closely Held

Question 51

Public Accountants

Answer 51

Accountants who offer services to the general public on a fee basis (p. 25)

Question 52

Public Company Accounting Oversight Board (PCAOB)

Answer 52

An agency that regulates many aspects of public accounting and sets standards for audit procedures in the United States (p. 27)

Question 53

Publicly Traded Stock

Answer 53

Shares in the ownership of a company that are sold to the public (p. 7)

Question 54

Registered Public Accounting Firm

Answer 54

An accounting firm that registers with the PCAOB and therefore is allowed to audit companies with publicly traded stock in the United States (p. 27)

Question 55

Sarbanes-Oxley Act

Answer 55

The source of most government regulation of the accounting profession in the United States (p. 27)

Question 56

Securities and Exchange Commission (SEC)

Answer 56

The government agency responsible for regulating capital markets in the United States (p. 7)

Question 57

Shareholders' Equity

Answer 57

Owners' equity of a corporation. The excess of assets over liabilities of a corporation (p. 19)

Question 58

Sole Proprietorship

Answer 58

A business with a single owner (p. 17)

Question 59

Stated Value

Answer 59

See Par Value

Question 60

Statement of Financial Position

Answer 60

See Balance Sheet

Question 61

Stock Certificate

Answer 61

Formal evidence of ownership shares in a corporation (p. 18)

Question 62

Stockholders' Equity

Answer 62

See Shareholders' Equity

Question 63

Transaction

Answer 63

Any event that affects the financial position of an entity and that an accountant can reliably record in monetary terms (p. 10)

Question 64

Unlisted

Answer 64

See Closely Held/Privately Owned

Question 65

U.S. GAAP

Answer 65

See Financial Accounting Standards