Chapter 1 GLOSSARY REVIEW

Question 1

Accounting

Answer 1

The information system that identifies, records, and communicates the economic events of an organization to interested users.

Question 2

Annual Report

Answer 2

A report prepared by corporate management that presents financial information including financial statements, a management discussion and analysis section, notes, and an independent auditor’s report.

Question 3

Balance Sheet

Answer 3

A financial statement that reports the assets

and claims to those assets at a specific point in time.

Question 4

Basic Accounting Equation

Answer 4

Assets = Liabilities + Stock- holders’ Equity.

Question 5

Certified Public Accountant (CPA)

Answer 5

An individual who has met certain criteria and is thus allowed to perform audits of corporations.

Question 6

Common Stock

Answer 6

Termusedtodescribethetotalamountpaid in by stockholders for the shares they purchase.

Question 7

Corporation

Answer 7

A business organized as a separate legal entity owned by stockholders.

Question 8

Dividends

Answer 8

Payments of cash from a corporation to its stockholders.

Question 9

Expenses

Answer 9

The cost of assets consumed or services used in the process of generating revenues.

Question 10

Income Statement

Answer 10

A financial statement that reports a company’s revenues and expenses and resulting net income or net loss for a specific period of time.

Question 11

Liabilities

Answer 11

Amounts owed to creditors in the form of debts and other obligations.

Question 12

Management Discussion and Analysis (MD&A)

Answer 12

A section of the annual report that presents management’s views on the company’s ability to pay near-term obligations, its ability to fund operations and expansion, and its results of operations.

Question 13

Stockholders’ Equity

Answer 13

The owners’ claim to assets.

Question 14

Statement of Cash Flows

Answer 14

A financial statement that provides financial information about the cash receipts and cash payments of a business for a specific period of time.

Question 15

Sole Proprietorship

Answer 15

A business owned by one person.

Question 16

Sarbanes-Oxley Act (SOX)

Answer 16

Regulations passed by Congress to reduce unethical corporate behavior.

Question 17

Revenue

Answer 17

The increase in assets or decrease in liabilities resulting from the sale of goods or the performance of services in the normal course of business.

Question 18

Retained Earnings Statement

Answer 18

A financial statement that summarizes the amounts and causes of changes in retained earnings for a specific time period.

Question 19

Retained Earnings

Answer 19

The amount of net income retained in the corporation.

Question 20

Partnership

Answer 20

A business owned by two or more persons associated as partners.

Question 21

Notes to the Financial Statements

Answer 21

Notes clarify information presented in the financial statements and provide additional detail.

Question 22

Net Loss

Answer 22

The amount by which expenses exceed revenues.

Question 23

Net Income

Answer 23

The amount by which revenues exceed expenses.

Question 24

Assets

Answer 24

Resources owned by a business.

Question 25

Auditor’s Report

Answer 25

A report prepared by an independent outside auditor stating the auditor’s opinion as to the fairness of the presentation of the financial position and results of operations and their conformance with generally accepted accounting principles.