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Accounting > Chapter 1 - Basic Concepts > Flashcards

Chapter 1 - Basic Concepts Flashcards

0
Q

Any organization for which financial statements are prepared

A

Entity

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1
Q

Report giving accounting information.

A

Financial Statements

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2
Q

Valuable resources owned by an entity

A

Assets

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3
Q

Types of assets

A

Cash, equipment, other resources

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4
Q

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

A

Liabilities

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5
Q

Outside parties who have furnished resources to an entity

A

Creditor

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6
Q

Indicates how much credit had been extended to the entity

A

I

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7
Q

Indicated how much credit has been extended to the entity

A

Accounts Payable

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8
Q

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

A

Claim

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9
Q

Claims against _______

A

Assets

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10
Q

The total amount amount supplied by equity investors

A

Total paid-in capital

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11
Q

Profits generated by the entity

A

Earnings

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12
Q

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

A

Retained earnings

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13
Q

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

A

Equity investors

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14
Q

The type of claim equity investors have

A

Residual claim

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15
Q

What is a residual claim?

A

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

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16
Q

Which is a stronger claim: liabilities or equity?

A

Liabilities

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17
Q

Assets will always be equal to:

A

Liabilities + Equity

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18
Q

Any assets not claimed by creditors will be claimed by:

A

Equity Investors

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19
Q

Why is it called a balance statement?

A

Because assets must always balance (equal) equity

+ liability

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20
Q

Dual-aspect Concept

A

States that assets must always dual equity + liability

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21
Q

Accounting concept # 1

A

Assets = Liabilities + Equity

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22
Q

Net Assets

A

Equity

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23
Q

Equity is always the difference between…

A

Assets and liabilities

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24
Q

Money-measurement concept

A

Convert different facts to monetary amounts to make them uniform.

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25
Q

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

A

Monetary amounts

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26
Q

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

A

Entity Concept

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27
Q

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

A

Going-Concern Concept

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28
Q

A “Concern” is another name for?

A

An Entity

29
Q

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

A

Going-Concern Concept

30
Q

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

A

Yes

31
Q

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

A

Does not

32
Q

The name of what an asset is “worth”

A

Fair Value or Market Value

33
Q

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

A

Fair Value

34
Q

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

A

Cost at time of purchase

35
Q

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

A

No

36
Q

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

A

Cost (or a number based on cost)

37
Q

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

A

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

38
Q

2 reasons why an asset would be measured at cost:

A
  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.
39
Q

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

A

When the asset is acquired.

40
Q

Monetary assets

A

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

41
Q

Are securities and bonds monetary or non-monetary assets?

A

Monetary

42
Q

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

A

Non-monetary

43
Q

Monetary assets are reported at:

A

Fair value

44
Q

Non-monetary assets are reported at?

A

Cost (or an amount based on cost)

45
Q

Balance sheet reports the amounts of what 3 things?

A
  1. Assets
  2. Liabilities
  3. Equity
    Assets = liability + equity
46
Q

Valuable resources

A

Assets

47
Q

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

A
  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
48
Q

Assets and liabilities are each divided into these two categories:

A
  1. Current

2. Noncurrent

49
Q

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

A

Current assets

50
Q

Groceries on a shelf are current or non current assets?

A

Current

51
Q

Liabilities

A

Claims from outside parties

52
Q

Current Ratio

A

Current Liabilities

53
Q

Current assets - $80
Current liabilities - $60

What is current ratio?

A

1.3 to 1

54
Q

Equity consists of capital obtained from sources that are not:

A

Liabilities

55
Q

Amount of capital supplied by equity investors:

A

Paid-in capital

56
Q

Two types of paid-in capital

A
  1. Common stock

2. Additional paid-in capital

57
Q

Do transactions between individual shareholders affect the entity?

A

No

58
Q

Amount of equity earned and retained by the entity:

A

Retained earnings

59
Q

Retained earnings = ___ - dividends

A

Earnings (profits)

60
Q

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

A

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

61
Q

Are retained earning cash!

A

No

62
Q

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

A

Sources

63
Q

Sources of funds used to acquire assets:

A
  1. Liabilities

2. Equity

64
Q

Equity consists of the following 2 things:

A
  1. Funds obtained from equity investors

2. Retained earnings resulting from the entity’s profitable operation

65
Q

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

A

Creditors (they can sue)

66
Q

What kind of claim do equity investors have on creditors?

A

A residual claim

67
Q

Is goodwill an asset?

A

No, not unless it was purchased.

68
Q

Current assets to current liabilities is called the:

A

Current ratio

69
Q

Is retained earnings the same as cash?

A

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

Accounting (7 decks)

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