Chapter 1 - Introduction to Financial Statements

Question 1

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

Answer 1

Accounting

Question 2

Payments of cash from a corporation to its stockholders.

Answer 2

Dividends

Question 3

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

Answer 3

Expenses.

Question 4

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

Answer 4

Income statement

Question 5

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

Answer 5

Liabilities

Question 6

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.

Answer 6

Management discussion and analysis (MD&A)

Question 7

The amount by which revenues exceed expenses.

Answer 7

Net income

Question 8

The amount by which expenses exceed revenues.

Answer 8

Net loss

Question 9

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

Answer 9

Notes to the financial statements

Question 10

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

Answer 10

Partnership

Question 11

The amount of net income retained in the corporation.

Answer 11

Retained earnings

Question 12

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.

Answer 12

Annual report

Question 13

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

Answer 13

Retained earnings statement

Question 14

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.

Answer 14

Revenue

Question 15

Regulations passed by Congress to reduce unethical corporate behavior.

Answer 15

Sarbanes-Oxley Act (SOX)

Question 16

A business owned by one person.

Answer 16

Sole proprietorship

Question 17

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

Answer 17

Statement of cash flows

Question 18

The owners’ claim to assets.

Answer 18

Stockholders’ equity

Question 19

Resources owned by a business.

Answer 19

Assets

Question 20

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.

Answer 20

Auditor’s report

Question 21

A financial statement that reports the assets and claims to those assets at a specific point in time.

Answer 21

Balance sheet

Question 22

Name the basic accounting equation.

Answer 22

Assets = Liabilities + Stockholders’ Equity

Question 23

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

Answer 23

Certified public accountant (CPA)

Question 24

Term used to describe the total amount paid in by stockholders for the shares they purchase.

Answer 24

Common stock

Question 25

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

Answer 25

Corporation