Chapter 1 - Basic Concepts

Question 0

Any organization for which financial statements are prepared

Answer 0

Entity

Question 1

Report giving accounting information.

Answer 1

Financial Statements

Question 2

Valuable resources owned by an entity

Answer 2

Assets

Question 3

Types of assets

Answer 3

Cash, equipment, other resources

Question 4

The entity’s obligations to outside parties who have furnished resources

Answer 4

Liabilities

Question 5

Outside parties who have furnished resources to an entity

Answer 5

Creditor

Question 6

Indicates how much credit had been extended to the entity

Answer 6

I

Question 7

Indicated how much credit has been extended to the entity

Answer 7

Accounts Payable

Question 8

Creditors have a _______ against an entity for the value of a loan given

Answer 8

Claim

Question 9

Claims against _______

Answer 9

Assets

Question 10

The total amount amount supplied by equity investors

Answer 10

Total paid-in capital

Question 11

Profits generated by the entity

Answer 11

Earnings

Question 12

The amount of earnings not paid to investors in the form of dividends

Answer 12

Retained earnings

Question 13

The type of investor who receive common stock for the funds they provide

Answer 13

Equity investors

Question 14

The type of claim equity investors have

Answer 14

Residual claim

Question 15

What is a residual claim?

Answer 15

If the entity is dissolved, equity investors get whatever is left after the liabilities have been paid off.

Question 16

Which is a stronger claim: liabilities or equity?

Answer 16

Liabilities

Question 17

Assets will always be equal to:

Answer 17

Liabilities + Equity

Question 18

Any assets not claimed by creditors will be claimed by:

Answer 18

Equity Investors

Question 19

Why is it called a balance statement?

Answer 19

Because assets must always balance (equal) equity

+ liability

Question 20

Dual-aspect Concept

Answer 20

States that assets must always dual equity + liability

Question 21

Accounting concept # 1

Answer 21

Assets = Liabilities + Equity

Question 22

Net Assets

Answer 22

Equity

Question 23

Equity is always the difference between…

Answer 23

Assets and liabilities

Question 24

Money-measurement concept

Answer 24

Convert different facts to monetary amounts to make them uniform.

Question 25

Money measurement concept stares that accounting reports only measure those facts than can be stated as:

Answer 25

Monetary amounts

Question 26

The fact that accounts are kept for entities as distinguished from the persons associated with those entires is called the:

Answer 26

Entity Concept

Question 27

The assumption that an entity will keep on going from one year to the next is called:

Answer 27

Going-Concern Concept

Question 28

A "Concern" is another name for?

Answer 28

An Entity

Question 29

States that "accounting assumes that an entity will continue to operate indefinitely unless there is evidence to the contrary"

Answer 29

Going-Concern Concept

Question 30

If the entity is not a going-concern, do special accounting rules apply?

Answer 30

Yes

Question 31

Because of the going-concern concept, accounting [does / does not] report what the assets could be sold for if the entity ceases to exist

Answer 31

Does not

Question 32

The name of what an asset is "worth"

Answer 32

Fair Value or Market Value

Question 33

If reliable information is available, an asset is measured at it's....

Answer 33

Fair Value

Question 34

If a fair value isn't able to be known, what asset value is reported?

Answer 34

Cost at time of purchase

Question 35

In general, can land, buildings, equipment and inventories fair value be reliably measured?

Answer 35

No

Question 36

How are land, buildings, equipment and inventory assets values typically reported?

Answer 36

Cost (or a number based on cost)

Question 37

The Asset-Measurement concept states what about reporting values if different types of assets?

Answer 37

If reliable information is available, the amount of an asset is measured at its Fair Value. Otherwise, the measurement is based on its Cost.

Question 38

2 reasons why an asset would be measured at cost:

Answer 38

1. Estimating the fair value of the item may be expensive and unreliable 2. The entity may be using the item for the foreseeable future and thus does not need to know the fair value.

Question 39

When is the decision usually made as to whether an asset will be measured at Fair Value or at Cost?

Answer 39

When the asset is acquired.

Question 40

Monetary assets

Answer 40

Assets that have a claim on a specified amount of money.

Question 41

Are securities and bonds monetary or non-monetary assets?

Answer 41

Monetary

Question 42

Are buildings, land, equipment and inventory monetary or non-monetary assets?

Answer 42

Non-monetary

Question 43

Monetary assets are reported at:

Answer 43

Fair value

Question 44

Non-monetary assets are reported at?

Answer 44

Cost (or an amount based on cost)

Question 45

Balance sheet reports the amounts of what 3 things?

Answer 45

1. Assets 2. Liabilities 3. Equity Assets = liability + equity

Question 46

Valuable resources

Answer 46

Assets

Question 47

The three test an item must pass in order to be considered an Asset?

Answer 47

1. Item must be controlled by the entity (usually means "owned" 2. Item must be valuable to entity 3. Item must have been acquired at a measurable cost

Question 48

Assets and liabilities are each divided into these two categories:

Answer 48

1. Current | 2. Noncurrent

Question 49

Cash and other assets that are expected to be converted into cash or used up in the near future (within 1 year) are called:

Answer 49

Current assets

Question 50

Groceries on a shelf are current or non current assets?

Answer 50

Current

Question 51

Liabilities

Answer 51

Claims from outside parties

Question 52

Current Ratio

Answer 52

Current Assets ------------------ Current Liabilities

Question 53

Current assets - $80 Current liabilities - $60 What is current ratio?

Answer 53

1.3 to 1

Question 54

Equity consists of capital obtained from sources that are not:

Answer 54

Liabilities

Question 55

Amount of capital supplied by equity investors:

Answer 55

Paid-in capital

Question 56

Two types of paid-in capital

Answer 56

1. Common stock | 2. Additional paid-in capital

Question 57

Do transactions between individual shareholders affect the entity?

Answer 57

No

Question 58

Amount of equity earned and retained by the entity:

Answer 58

Retained earnings

Question 59

Retained earnings = ___ - dividends

Answer 59

Earnings (profits)

Question 60

Do retained earnings reflect only the previous year of retained earnings?

Answer 60

No, shows all equity that has accumulated since the entity began

Question 61

Are retained earning cash!

Answer 61

No

Question 62

The right hand side of a balance sheet shows the ______ of capital

Answer 62

Sources

Question 63

Sources of funds used to acquire assets:

Answer 63

1. Liabilities | 2. Equity

Question 64

Equity consists of the following 2 things:

Answer 64

1. Funds obtained from equity investors | 2. Retained earnings resulting from the entity's profitable operation

Question 65

Who has stronger claim on assets - creditors or equity investors?

Answer 65

Creditors (they can sue)

Question 66

What kind of claim do equity investors have on creditors?

Answer 66

A residual claim

Question 67

Is goodwill an asset?

Answer 67

No, not unless it was purchased.

Question 68

Current assets to current liabilities is called the:

Answer 68

Current ratio

Question 69

Is retained earnings the same as cash?

Answer 69

No, it is part of the owner's claim on the assets