Chapter 1 KEY WORDS

Question 1

Accounting

Answer 1

Service-pased profession that provides reliable and relevant financial information useful in making decisions

Question 2

Accounting Equation

Answer 2

Expression of the relationship between the assets and the claims on those assets

Question 3

Accounting event

Answer 3

Economic ocurrence that changes a company’s assets, liabitlies, or equity

Question 4

Accounting period

Answer 4

Span of time covered by the financial statements, normailly one year, but may be a quarter, a month

Question 5

Accounts

Answer 5

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

Question 6

Annual report

Answer 6

Document in which an orgnanization provides information to stockholders, usually on an annual basis

Question 7

Articulation

Answer 7

Financial statement are interrelated
- Net income (reported statement = beginning retained earnigs (statement of changes in stockholders’ equity

Question 8

Asset Source Transcation

Answer 8

Transaction that increases an asset and a claim on assets
Types:
1. Acquisitions from owners (equity)
2. Borrowing from creditiors (liabilities
3. Earnings from Operations (revenues)

Question 8

Asset exchange transaction

Answer 8

Transcation that decreases one asset while increasing another asset. TOTAL ASSET DOES NOT CHANGE

Question 9

Asset Use Transcation

Answer 9

Transaction the decreases both an asset and a claim. Types
1. Distributions (transfer to owners, dividends)
2. Liability payments (creditors)
3. Expenses (costs incurred to operate the business)

Question 10

Asset

Answer 10

Economic resource used to produce revenue that it is expected to procide future benefit to business

Question 11

Balance sheet

Answer 11

Financial statement that reports a company’s assets and the corresponding claims on those assets as of a specific date

Question 12

Claims

Answer 12

Owners and creditos interests in a business’ assets

Question 13

Closing

Answer 13

Transferrinf balance from temporary accounts (revenue, expenses and dividends) to the permanent account (retained earnings)

Question 14

Common Stock

Answer 14

Corporate stock that carries no preferences as to claims on assets or dividens, evidence ownership in a company

Question 15

Credutirs

Answer 15

Loaned goods or services to business (loans means prestar)

Question 16

Dividend

Answer 16

Transfer of wealth from a business to its owners

Question 17

Double-entry accounting

Answer 17

Provides checks and balances by recording two sides for every transaction

Question 18

Earnings (net income)

Answer 18

Revenue - expenses, profit

Question 19

Elements

Answer 19

Assets, liabilities, equity, contributed capitalm revenue, gain, losses, distributions, and net income

Question 20

Expenses

Answer 20

Economic sacrifices (decreases in assets or increases in liabilities) that incurred in the process of generating revenue

Question 21

Financial Accounting

Answer 21

Focused on the business information needs for EXTERNAL USERS (gov, investors, creditors etc) to classify and record business events and transactions to produce external financial reports)

Question 22

Financial Accounting Standards BoARD

Answer 22

Private, independent standard-setting body established by the accounting profession that has been delegated the authority by the SEC to establish most of the accounting rules and regulation for public finacial reporting

Question 23

Financial resources

Answer 23

Money or credit supplied to a business by investors and creditors

Question 24

Financial statements

Answer 24

Primary means of communicating the financial information of an organization to the external users. Income Statement, statement of changes in equity, balance sheet, and state of cash flows

Question 25

Financing activities

Answer 25

Cash inflows and outflows from transtions with investor and creditos, cash reipts from issuing stocks, borrowing activities, pay dividents

Question 26

Operating activities

Answer 26

Cash inflows from and outflow for routing, everyday business operation, revenue and expense transactions

Question 27

Investing activities

Answer 27

Cash inflows and outflows associated with buying or selling long-term assets. Lending activities and investments in the debt and equity of other companies

Question 28

General Ledger

Answer 28

Set of all account used in a given accounting system, organized in financial statement order

Question 29

Generally accepted acounting principles

Answer 29

Rules and practices that accountants agree to follow in financial reports prepared for public distributions

Question 30

Going Concern assumtpion

Answer 30

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

Question 31

Historical cost concept

Answer 31

Accounting practice of reporting assets at the actual price paid for them when purchased regardless of estimated changes in market value

Question 32

Income

Answer 32

Added value created in transforming resources into more desirable states

Question 33

Income Statement

Answer 33

Reports profitability, measures the difference between revenues and expenses for the accounting period

Question 34

Interest

Answer 34

Fee paif for the use of funds, expense to the borrowe and revenue to lender

Question 34

International Financial Reporting Standards (IFRS)

Answer 34

Pronouncements established by the International Accounting Standards Board that provide guidance for the preparation of financial statements.

Question 34

Investors

Answer 34

Company or individual who gives assets or services in exchange for security certificates representing ownership interests

Question 34

International Accounting Standards Board

Answer 34

Private, independent body that establishes International Financial Reporting Standards (IFRS). The IASB’s authority is established by various governmental institutions that require or permit companies in their jurisdiction to use IFRS.

Question 35

labor resources

Answer 35

The intellectual and physical efforts of individuals used in the process of providing goods and services to customers.

Question 36

Liabilities

Answer 36

Obligations of a business to relinquish assets, provide services, or accept other obligations

Question 37

Liquidaition

Answer 37

Process of dividing up an organization’s assets and returning them to the resource providers. In business liquidations, creditors normally have first priority; after creditor claims have been satisfied, any remaining assets are distributed to the company’s owners (investors).

Question 38

Liquidity

Answer 38

Ability to convert assets to cash quickly and meet short-term obligations

Question 39

Managerial accounting

Answer 39

Focused on the information needs of managers and other working within the business. objective is to gather and report information that adds value to the business.

Question 40

Market

Answer 40

Group of people or entities organized to buy and sell resources

Question 41

Matching concept

Answer 41

Recognizing expenses in the same accountign preiod as the revenues they produce. Methods
1. Expenses with revenue
2. Expenses with perioud they are incurred
3. Expenses systematically with revenues

Question 42

Net income

Answer 42

Increase in equity resulting from operating the business

Question 43

Net loss

Answer 43

Decrease in equity resulting from operating in business

Question 43

Not-for-profit entities

Answer 43

Organization primarily for motives other than making a profit, such as providing goods and services for the social good.

Question 44

Permanent accounts

Answer 44

Balance sheet accounts; contain information carried forward from one accounting period to the next

Question 45

Retained earnings

Answer 45

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

Question 46

Profit

Answer 46

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

Question 47

Reporting entities

Answer 47

Businesses or other organizations for which financial statements are prepared.

Question 48

Revenue

Answer 48

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

Question 49

Service businesses

Answer 49

Organizations such as accounting and legal firms, dry cleaners, and insurance companies that provide services to consumers

Question 50

Merchandising businesses

Answer 50

Companies that buy and resell merchandise inventory.

Question 51

Stakeholders

Answer 51

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

Question 52

Statement of cash flow

Answer 52

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 53

Statement of changes in stockholders’ equity

Answer 53

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

Question 54

Stewardship

Answer 54

Refers to a business’s duty to protect and use the assets of the company for the benefit of the owners (the firm’s stockholders).

Question 55

Stockholders

Answer 55

Owners of corporation

Question 56

Stockholder’s equity

Answer 56

portion of the assets that is owned by the stockholders.

Question 57

Temporary accounts

Answer 57

Accounts used to collect retained earnings data applicable to only the current accounting period (revenues, expenses, and ­distributions); sometimes called nominal accounts.