Chapter 1 Test 1

Question 1

Finacial Accounting/Reporting

Answer 1

the process of preparing those reports with information

Question 2

Two Finacial Reporting Systems

Answer 2

US GAAP and International Fina Reporting Standards

Question 3

Overview of Business Activities

Answer 3

1. Establish goals and strategies
2. Obtaining financing
3. Making investments
4. Conducting Operations

Question 4

Goals

Answer 4

are the end results toward the firm directs energies

Question 5

Strategies

Answer 5

are the means for achieving goals

Question 6

What affects a firms goals and strategies

Answer 6

1. goals/strategies of competitors
2. barriers to entry of an industry
3. nature of demand
4. existence and naature of goverment reg.

Question 7

Financing

Answer 7

to carry out plans firms need financing (funds from owners and creditors) Owners provide funds

Question 8

Publicy Traded

Answer 8

firms whose shares trade in active markets

Question 9

dividends

Answer 9

are a distribution of assets often cash to owners

Question 10

dividends

Answer 10

are a distribution of assets often cash to owners

Question 11

Creditors

Answer 11

provide funds that the firm must repay in specific amounts at specific dates. Long term = greater than a year Short term = less than a year

Question 12

What kind of credit is long term

Answer 12

Bonds

Question 13

(Make Investments) Investing Activities

Answer 13

a firm makes investments to obtain the productive capacity to carry out its business activities

Question 14

Land, buildings, and equipment

Answer 14

investment provides capacity to manufacture and sell products and to create and sell services. (long term)

Question 15

patents, licenses, and other contracual rights

Answer 15

these investments provide rights to use ideas and process (intangible)

Question 16

Common shares or bonds of other firms

Answer 16

these investment s make a firm an owner or creditor of another firms (short term) (involves equity)

Question 17

Inventories

Answer 17

firms maintain an inventory of products to sell to customers

Question 18

Accounts recievable from customers

Answer 18

amounts owed to a firm by its customers for a short period of time. 30 days or less.

Question 19

Cash

Answer 19

Most firms maintain cash balances to pay thier current buills

Question 20

Operation Activities

Answer 20

1. Purchasing - acquires
2. Production - manufacturing firm combines raw materials and labor
3. Marketing - oversees selling and distribution
4. Administration - data processing, human resource
5. Research and Development - undertake operations to discover new knowledge

Question 21

Annual Report to Shareholders

Answer 21

Firms communicate the results of their business activities

Question 22

Managements Discussion and Analysis

Answer 22

regulatory requirements applicable to publicly traded firms require the inclusion of

Question 23

4 Principle Finacial Reports

Answer 23

1. Balance sheet
2. Income statement
3. Statement of cash flows
4. Statement of shareholders equity
   * 5. notes to the fina statements.

Question 24

What is the most common acct period for external reporting

Answer 24

fiscal year

Question 25

How many reporting periods

Answer 25

2 Beginning and Ending Statements

Question 26

Monetary Amount

Answer 26

Fina statements report a numerical amount.

Question 27

Balance Sheet aka statement of fina position

Answer 27

provides information at a point in time on the firms productive resources and the financing use dot pay for those resources.

Question 28

Assets

Answer 28

are economic resources with the potential to provide future economic benefits to a firm.

Question 29

Liabilities

Answer 29

are creditors claims

Question 30

Shareholder Equity

Answer 30

shows the amount of funds owners have produced either by buying shares or by reinvesting the net assets generated by earnings.

Question 31

Retained Earnings

Answer 31

represents the (net assets)=(total assets - total liabilities) derives dividends from earnings.

Question 32

Current Assets and Current Liabilites

Answer 32

Timeline of a year or less

Question 33

Non-current assets, liabilities, and shareholders equity

Answer 33

greater than a year timeline

Question 34

Historical Amount

Answer 34

reflects the acquisition cost of assets or the amount of funds originally obtained from creditors or owners

Question 35

Current Amount

Answer 35

Fair Value

Question 36

Income Statement (profit and loss)

Answer 36

Net Income = revenues minus expenses

Report sources of rev and exp.

Question 37

Revenues, Expenses, net loss

Answer 37

Revenues = inflows
Expenses = outflows
Net Loss = Expenses are more than revenues

Question 38

Statement of Cash Flows

Answer 38

reports information about cash generated from operating, investing, and financing activities during the period.

Question 39

Investing Activities

Capital Expenditures

Answer 39

acquisition of buildings, equipment, and other noncurrent assets to maintain or expand thier productivie capacity.

Question 40

Financing Activities

Answer 40

firms obtain financing to support operating and investing activities by issuing debt or common share.

Question 41

Statement of Shareholder Equity

Answer 41

displays components of common shares, retained earnings, and change in those components.

Question 42

Notes

Answer 42

describe the accounting guidance that the firm uses to prepare those financial statements.

Question 43

Financial Reporting Process

Answer 43

1. Managers and governing boards of reporting entities
2. Accounting standards setters and regulatory bodies
3. Independent external auditors
4. Users of fina. statements

Question 44

Managers

Answer 44

agents of the shareholders and have repsonsiblity safeguarding and properly using the firms resources

Question 45

Governing Board

Answer 45

Stakeholder elected, sometimes called the board of director. establishing major decisions.

Question 46

SEC

Answer 46

an agency of the federal goverment, has the authority to establish accounting standards.

Question 47

FASB or Fina Acct Standards Board

Answer 47

private sector body with 7 voting members, make standard setting decisions guided by a conceptual framework that addresses the following issues:

• objective of fina reporting
• Qualitativen characteristics of accounting information
• – Relevance, Rep. Faithfulness,

Question 48

International Accounting Standards Board

Answer 48

is an independent accounting standard setting entity with voting members from several countries.

Question 49

Goal of Convergence

Answer 49

is to eliminate differences between US GAAP and IFRS and to improve the resulting standards.

Question 50

Sarbanes-Oxley Act of 2002

Answer 50

established the Public Company Accounting Ovesight Board which is responsible for monitoring the quality of audits of SEC registrants

Question 51

Recognition

Answer 51

recognize items as being depicted in words and numbers on the face of the financial statements

Question 52

Realization

Answer 52

refers to converting a non cash item into cash

Question 53

Materiality

Answer 53

captures the notion that fina. reports need not include items that are small as to be meaning less to users

Question 54

Accounting period convention

Answer 54

refers to the length of fina reporting periods

Question 55

Two approaches to measuring operating performance

Answer 55

1. the cash basis of accounting

2. the accrual basis of accounting

Question 56

Cash Basis of Accounting

Answer 56

a firm measures performance from selling goods and providing services as it recieves cash from customers and make cash expenditures to providers of goods

Question 57

Accrual Basis of Accounting

Answer 57

recognizes revenue when a firm sells goods or renders services

Question 58

Basic Accounting Equation

Answer 58

Assets = Liabilities + Shareholders Equity