Chapter 1 - Intro to Accounting

Question 0

The market for business resources involved which three distinct participants?

Answer 0

Consumers, conversion agents (businesses), and resource owners

Question 1

What is a market?

Answer 1

A market is a group of people or entities organized to exchange items of value.

Question 2

What is profit?

Answer 2

Value added by transforming resources into products or services desired by customers

Question 3

What are investors?

Answer 3

Companies or individuals who give assets or services in exchange for security certificates representing ownership interest

Question 4

What are creditors?

Answer 4

Creditors are individuals or organizations that have loaned goods or services to a business. Instead of a share of the business, creditors expect the business to repay borrowed resources plus a specified fee called interest.

Question 5

What is interest?

Answer 5

Interest is the fee paid for the use of funds; represents expense to the borrower and revenue to the lender (creditor)

Question 6

What are assets?

Answer 6

An asset is the economic resources used to produce revenue which is expected to provide future benefit to the business.
The resources controlled by a business.

Question 7

What it liquidation?

Answer 7

Liquidation is the process of dividing up and organizations assets and return them to the resource providers. And business liquidations, creditors normally have first priority; after creditor claims have been satisfied any remaining assets are distributed to the company’s owners

Question 8

What are stakeholders?

Answer 8

Parties interested in operations of the business, including owners, lenders, employees, suppliers, customers, and government agencies

Question 9

What is financial accounting?

Answer 9

Branch of accounting focused on the business information needs of external users (creditors, investors, governmental agencies, financial analyst, etc.); it’s objective is to classify it record business events and transactions to produce external financial reports (income statement, balance sheet, statement of cash flows, and statement of changes in equity)

Question 10

What is managerial accounting?

Answer 10

Fruits of accounting focused on the information needs managers others working within the business, it’s objective is to gather and report information to the business. Managerial accounting information is not regulated reported to the public. Managerial accounting tends to be more detailed than financial accounting.

Question 11

What do you accountants do?

Answer 11

Accountants identify record analyzed and communicate information about the economic events that affect organizations. They may work in either public accounting or private accounting.

Question 12

Define audit;

What are audit services?

Answer 12

Detailed examination of some aspect of a company’s accounting records or operating procedures in order to report the results to interested parties

Audit services involved examining the companies accounting records in order to issue an opinion about whether the company’s financial statements conform to generally accepted accounting principles.

Question 13

What is the Financial Accounting Standards Board (FASB)?

Answer 13

Private, independent standard-setting body established for the accounting profession that is been delegated by the authority of the SEC to establish most of the accounting rules and regulations for public financial reporting (GAAP).

Question 14

When is a company is not required to follow GAAP?

Answer 14

In managerial accounting reports; that is, in internal reports

Question 15

What are reporting entities?

Answer 15

Businesses are other organizations for which financial statements are prepared

Question 16

Through which for financial statements to businesses communicate information to stakeholders?

Answer 16

1) income statement
2) statement of changes in equity
3) balance sheet
4) statement of cash flows

Question 17

What are the elements of financial statements?

Answer 17

Information reported and financial statements is organized into 10 categories known as elements.

1. assets
2. liabilities
3. equity
4. contributed Capitol
5. Revenue
6. expenses
7. distributions
8. net income
9. Gains
10. Losses

Question 18

What is common stock? What is a synonym?

Answer 18

Common stock is a basic class of corporate stock that has no preferencial claim on assets or dividends; certificates that evidence ownership in the company.

Another word for common stock is contributed capital

Question 19

What is equity? What are other terms for equity?

Answer 19

Equity is with the owners of the entity have invested in enterprise. It represents with the business owners. It is also a reflection of the capital left in the business after acids are used to pay off any outstanding liabilities.

Equity may also be called stockholders equity, owners capital, and partners equity

Question 20

What is an account?

Answer 20

And account is a record of classified and summarize transaction; component of financial statement elements

Question 21

What are liabilities?

Answer 21

Obligations a business has to its creditors

Obligations of the business to relinquish assets, provide services, or accept other operations

*When a business receives cash from creditors it accept an obligation ation to return the cash to the creditors at some future date

Question 22

What are the three sources businesses use to gain assets?

Answer 22

First, the business can borrow assets from creditors.

The second source of assess semesters

The third source of assets its operation

Question 23

What are stockholders?

Answer 23

In accounting terms investors are called stockholders

Owners of a corporation

The business’s commitment to the stockholders is called stockholders equity

Question 25

What is a dividend?

Answer 25

The distribution of assets generated through earnings; transfer of wealth from a business to its owners
Dividends are NOT a return of assets acquired from the issue of common stock.

Question 26

What are claims?

Answer 26

Owners’ and creditors’ interest in a business’s assets

Question 27

What are retained earnings?

Answer 27

Portion of stockholders equity that includes all earnings retained in the business since inception (revenues minus expenses and distributions for all accounting periods)

Question 28

Accounts

Answer 28

Record of classified and summarized transaction data; component of financial statement elements.

Detailed information about the elements of financial statements is maintained in records commonly called accounts. For example, the elements assets may be organized into seperate accounts for cash, equipment, land, and so forth.

Question 29

What is the “going concern assumption?”

Answer 29

Accounting presumption that a company will continue to operate indefinitely, benefiting from its assets and paying its obligations in full; justifies reporting assets and liabilities in the financial statements.

Question 30

Accounting event

Answer 30

An economic event that changes an enterprise’s assets, liabilities, or stockholder’s equity

Question 31

Transaction

Answer 31

A particular kind of accounting event that involves transferring something of value between two entities.
Examples of transactions are acquiring assets from owners, borrowing money from creditors, and purchasing goods and services.

Question 32

Asset source transaction

Answer 32

A transactions that increases both an asset and a claim on assets; the three types of asset sources transactions are acquisitions from owners (equity), borrowings from creditors (liabilities), or earning from operations (revenues)

Question 33

Asset exchange transaction

Answer 33

A transaction, such as the purchase of land with cash, that decreases one asset and increase another asset; total assets remain unchanged

Question 34

Asset use transaction

Answer 34

A transaction that decreases both an asset and a claim on assets; the three types of asset use transactions are distributions (transfers to owners), liability payments (to creditors), or expenses (costs incurred to operate the business)

Question 35

Expenses

Answer 35

An economic sacrifice (decrease in assets or increase in liabilities) that is incurred in the process of generating revenues

Question 36

Revenue

Answer 36

The economic benefit (increase in assets or decrease in liabilities) gained by providing goods or services to customers

Question 37

Net income/ Net loss

Answer 37

Net income: Increase in equity resulting from operating the business
Net loss: Decrease in equity resulting from operating the business

Question 38

What is a promissory note?

Answer 38

Document a borrower is require to issue to the creditor (a bank) for a loan. A promissory note describes, other things, the amount of interest a company will pay and for how long it will borrow the money.

Question 39

What are the four categories of transactions?

Answer 39

1) Asset source transactions
2) Asset exchange transactions
3) Asset use transactions
4) Claims exchange transaction

Question 40

Articulation

Answer 40

Term used to describe the interrelationships among the various elements of the financial statements

Question 41

Statement of changes in stockholders’ equity

Answer 41

Statement that summarizes the transactions that affected the owners’ equity during an accounting period.

Question 42

Balance Sheet

Answer 42

Financial statement that reports a company’s assets and the corresponding claims (liabilities and equity) on those assets as of a specific date (usually at the end of the accounting period)

Question 43

Statement of Cash Flows

Answer 43

The financial statement that reports a company’s cash inflows and outflows for an accounting period, classifying them as operating, investing, or financing activities.

Question 44

Income Statement

Answer 44

Financial report of profitability; measures the difference between revenues and expenses for the accounting periods (whether or not cash has been exchanged)

Question 45

Matching Concept

Answer 45

Accounting principles of recognizing expenses in the same accounting period as the revenues they produce, using one of three methods: match expenses directly with revenues (e.g. cost of goods sold); match expenses to the period in which they are incurred; and match expenses systematically with revenues.

Question 46

Accounting period

Answer 46

Time span covered by the financial statements; normally one year, but may be a quarter, a month or some other time interval.

Question 47

Cash inflow

Cash outflow

Answer 47

Cash inflow: sources of cash

Cash outflow: uses of cash