Chapter 1 Key Words

Question 1

A system of maintaining records of a company’s operations and communicating that information to decision makers.

Answer 1

accounting

Question 2

accounting information that is provided for internal users

Answer 2

managerial accounting

Question 3

Measurement of business activities of a company and communication of those measurements to external parties for decision-making purposes

Answer 3

financial accounting

Question 4

An entity that is legally separate from its owners and even pays its own income taxes

Answer 4

corporation

Question 5

a business owned by one person

Answer 5

sole proprietorship

Question 6

business owned by two or more persons

Answer 6

partnership

Question 7

resources of a company

Answer 7

assets

Question 8

amounts owed to creditors

Answer 8

dividends

Question 9

Owners’ claims to resources, which arise primarily from contributions by the owners and company operations.

Answer 9

stockholders’ equity

Question 10

Equation that shows a company’s resources (assets) equal creditors’ and owners’ claims to those resources (liabilities and stockholders’ equity) (Assets = Liabilities + Stockholders’ Equity)

Answer 10

accounting equation

Question 11

Amounts recognized when the company sells products or services to customers.

Answer 11

revenues

Question 12

Profitability reported in the income statement, consisting of all revenues and expenses and most gains and losses
(Revenues - Expenses)

Answer 12

net income

Question 13

Costs of providing products and services and other business activities during the current period.

Answer 13

expenses

Question 14

Distributions to stockholders, typically in the form of cash

Answer 14

dividends

Question 15

Periodic reports published by the company for the purpose of providing information to external users

Answer 15

financial statements

Question 16

A financial statement that reports the company’s revenues and expenses over an interval of time

Answer 16

income statement

Question 17

A financial statement that summarizes the changes in stockholders’ equity over time.

Answer 17

statement of stockholders’ equity

Question 18

Amounts invested by stockholders when they purchase shares of stock; external source of equity.

Answer 18

common stock

Question 19

Earnings not distributed as dividends to stockholders over the life of the company.

Answer 19

retained earnings

Question 20

a financial statement that presents the financial position of the company on a particular date.

Answer 20

balance sheet

Question 21

A financial statement that measures activities involving cash receipts and cash payments over a period of time

Answer 21

statement of cash flows

Question 22

the rules of financial accounting

Answer 22

generally accepted accounting principles (GAAP)

Question 23

An independent, private body that has primary responsibility for the establishment of GAAP in the United States.

Answer 23

financial accounting standards board (FASB)

Question 24

The standards being developed and promoted by the International Accounting Standards Board.

Answer 24

international financial reporting standards (IFRS)

Question 25

An international accounting standard-setting body responsible for the convergence of accounting standards worldwide.

Answer 25

internation accounting standards board (IASB

Question 26

Trained individuals hired by a company as an independent party to express a professional opinion of the conformity of that company’s financial statements with GAAP

Answer 26

auditors

Question 27

A code or moral system that provides criteria for evaluating right and wrong behavior.

Answer 27

ethics

Question 28

Formally titled the Public Company Accounting Reform and Investor Protection Act of 2002, this act provides regulation of auditors and the types of services they furnish to clients, increases accountability of corporate executives, addresses conflicts of interest for securities analysts, and provides for stiff criminal penalties for violators

Answer 28

sarbances-oxley act (SOX)

Question 29

The ability of the information to be useful in decision making.

Answer 29

decision usefulness

Question 30

Accounting information that possesses confirmatory value and/or predictive value, and that is material.

Answer 30

relevance

Question 31

Accounting information that is complete, neutral, and free from error.

Answer 31

faithful representation

Question 32

The ability of users to see similarities and differences between two different business activities

Answer 32

comparability

Question 33

The use of similar accounting procedures either over time for the same company, or across companies at the same point in time

Answer 33

consistency

Question 34

a consensus among different measures

Answer 34

verifiability

Question 35

Information being available to users early enough to allow them to use it in the decision process.

Answer 35

timelessness

Question 36

Users must understand the information within the context of the decision they are making.

Answer 36

understandability

Question 37

Financial accounting information is provided only when the benefits of doing so exceed the costs

Answer 37

cost contraint

Question 38

All economic events with a particular economic entity can be identified.

Answer 38

economic entity assumption

Question 39

A unit or scale of measurement can be used to measure financial statement elements

Answer 39

monetary unit assumption

Question 40

The economic life of an enterprise (presumed to be indefinite) can be divided into artificial time periods for financial reporting.

Answer 40

periodicity assumption

Question 41

In the absence of information to the contrary, a business entity will continue to operate indefinitely

Answer 41

going concern assumption