Chapter 1 Terminology

Question 1

Difference between financial and managerial accounting?

Answer 1

Financial - external decision-makers
Managerial - internal decision-makers

Question 2

Creditor

Answer 2

Person or business that another business owes money to (they extend credit)

Question 3

Chartered Global Management Accountant (CGMA)

Answer 3

advanced CPA

Question 4

Certified Management Accountant (CMA)

Answer 4

Works for only 1 company

Question 5

Certified Financial Planner (CFP)

Answer 5

Helps individuals

Question 6

Financial Accounting Standards Board (FASB)

Answer 6

Private organization that oversees creation of accounting standards in the US

Question 7

Securities and Exchange Commission (SEC)

Answer 7

US governmental agency that oversees US financial markets and the FASB

Question 8

Generally Accepted Accounting Principles (GAAP)

Answer 8

main US accounting rule book, formed by FASB

Question 9

International Financial Reporting Standards (IFRS)

Answer 9

Global guidelines set by IASB

Question 10

International Accounting Standards Board (IASB)

Answer 10

Private organization that sets global guidelines (IFRS)

Question 11

Faithful representation

Answer 11

Part of GAAP, requires information is complete, neutral, and error-free

Question 12

Economic entity assumption

Answer 12

one business is its own economic unit

Question 13

Limited liability company (LLC)

Answer 13

Each member is only liable for his own actions and pays taxes on his own share of earnings

Question 14

Cost Principle

Answer 14

Acquired assets and services should be recorded at the actual cost of the transaction, not the fair (market) value

Question 15

Fair (market) value

Answer 15

current price if the asset is sold

Question 16

Going concern assumption

Answer 16

assumes entity will remain in operation for the foreseeable future

Question 17

Monetary unit assumption

Answer 17

items on financial statements must be measured in terms of monetary unit ($)

Question 18

Audit

Answer 18

examination of a company’s financial statements and records

Question 19

Sarbanes-Oxley Act (SOX)

Answer 19

requires management to review internal control and take responsibility for accuracy and completeness of financial reports (reduces risk of scandal)

Question 20

Public Company Accounting Oversight Board (PCAOB)

Answer 20

Created by SOX as a watchdog agency, monitors the work of independent accountants who audit public companies

Question 21

Accounting Equation

Answer 21

Assets = Liabilities + Stockholder’s Equity
Assets - Liabilities = Stockholder’s Equity

Question 22

Stockholder’s Equity

Answer 22

Stockholders’ claims to the assets of a business (net worth of the business)

Question 23

Contributed capital

Answer 23

Owner contributions to a corporation (ex. common stock)

Question 24

Common stock

Answer 24

basic ownership of a corporation

Question 25

Retained earnings

Answer 25

equity earned by profits, not given to stockholders

Question 26

Dividends

Answer 26

Earnings given to stockholders

Question 27

Revenue

Answer 27

Income before expenses are paid

Question 28

Expenses

Answer 28

Cost of goods and services (ex. rent, salaries, advertising, utilities)

Question 29

Net income

Answer 29

Happens if revenue exceeds expenses

Question 30

Net loss

Answer 30

Happens if expenses exceed revenue