Chapter 1 Vocab

Question 1

Assets

Answer 1

resources of the company

Question 2

Liabilities

Answer 2

amounts owed

Question 3

Stockholders’ Equity

Answer 3

stockholders’ investment

Question 4

Accounting Equation

Answer 4

A = L + SE

Question 5

Dividends

Answer 5

distributions to stockholders

Question 6

Revenues

Answer 6

sales of products or services

Question 7

Expenses

Answer 7

costs of providing sales

Question 8

Net Income Equation

Answer 8

R - E = NI

Question 9

Financing Activities

Answer 9

transactions the company has w/ investors and creditors

Question 10

Investing Activities

Answer 10

transactions involving the purchase and sale of resources that are expected to benefit the company for several years

Question 11

Operating Activities

Answer 11

transactions that relate to the primary operations of the company

Question 12

GAAP - Generally Accepted Accounting Principles

Answer 12

the rules that Accountants must follow in recording transactions and reporting results

Question 13

Financial Statements

Answer 13

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

Question 14

Income Statement

Answer 14

reports the company’s revenues & expenses over an interval of time

Question 15

Statement of Stockholders’ Equity

Answer 15

summarizes the changes in stockholders’ equity over an interval of time

Question 16

SE Equation

Answer 16

SE = Common Stock + Retained Earnings

Question 17

Balance Sheet

Answer 17

presents the financial position of the company on a particular date

Question 18

Statement of Cash Flows

Answer 18

measures activities involving cash receipts & cash payments over an interval of time

Question 19

MD&A - Management Discussion & Analysis

Answer 19

includes management’s view on significant events, trends, and uncertainties pertaining to the company’s operations and resources

Question 20

Note Disclosures

Answer 20

offer additional information either to explain the information in financial statements of to provide information not presented in the financial statements

Question 21

Auditors

Answer 21

trained individuals hired by a company as an independent party to express a professional opinion of the extent to which financial statements are prepared in compliance with GAAP & are free of material misstatement

Question 22

What are the 2 fundamental qualitative characteristics that make accounting information useful?

Answer 22

Relevance & Faithful Representation

Question 23

Relevance

Answer 23

accounting information that should possess confirmatory value and/or predictive value

Question 24

Confirmatory Value

Answer 24

information provides feedback on past activities

Question 25

Predictive Value

Answer 25

Information is useful in helping to forecast future outcomes

Question 26

Materiality

Answer 26

the nature or amount an item has the ability to affect decisions

Question 27

Faithful Representation

Answer 27

accounting information is complete, neutral, and free from error.

Question 28

Completeness

Answer 28

all information necessary to describe an item is reported

Question 29

Neutrality

Answer 29

information that does not bias the decision maker

Question 30

Free from Error

Answer 30

reported amount reflect the best available information

Question 31

What are the 4 enhancing qualitative characteristics?

Answer 31

Comparability, Verifiability, Timeliness, & Understandability

Question 32

Comparability

Answer 32

ability to see the similarities & differences b/w 2 different business activities

Question 33

Verifiability

Answer 33

implies a consensus among different measures

Question 34

Timeliness

Answer 34

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

Question 35

Understandability

Answer 35

the ability for users to understand the information w/in the context of the decision they are making

Question 36

What are the 4 basic assumptions that must be made to support the existence of GAAP?

Answer 36

Economic entity, Monetary unit, Periodicity, Going concern

Question 37

Economic Entity

Answer 37

economic events can be identified w/ a particular economic body

Question 38

Monetary Unit

Answer 38

a common denominator is needed to measure all business activities

Question 39

Periodicity

Answer 39

the economic life of a company can be divided into artificial time intervals for financial reporting

Question 40

Going Concern

Answer 40

in the absence of information to the contrary, it is anticipated that the business entity will continue to operate indefinitely