Chapter 1: Vocab

Question 1

business

Answer 1

An organization in which basic resources (inputs) are assembled and processed to provide goods or services (outputs) to customers.

Question 2

profit

Answer 2

The difference between the amounts received from customers for goods and services and the amounts paid for the inputs used to provide the goods and services.

Question 3

service business

Answer 3

Provides services rather than products to customers.

Question 4

merchandising businesses

Answer 4

Sell products they purchase from other businesses to customers.

Question 5

manufacturing businesses

Answer 5

Change basic inputs into products that are sold to customers.

Question 6

accounting

Answer 6

An information system that provides reports to users about the economic activities and condition of a business.

Question 7

management accounting

Answer 7

The area of accounting that provides internal users with information.

Question 8

private accounting

Answer 8

Managerial accounting by a business.

Question 9

financial accounting

Answer 9

The area of accounting that provides external users with information.

Question 10

General-purpose financial statements

Answer 10

One type of financial accounting report that is distributed to external users.

Question 11

Ethics

Answer 11

Moral principles that guide the conduct of individuals.

Question 12

Sarbanes-Oxley Act of 2002 (SOX)

Answer 12

Established a new oversight body for the acounting profession called the Public Company Accounting Oversight Board (PCAOB).

Question 13

public accounting

Answer 13

Accounting services provided on a fee service.

Question 14

Certified Public Accountants (CPAs)

Answer 14

Public accountants that have met a state’s education, experience and examination requirements.

Question 15

generally accepted accounting principles (GAAP)

Answer 15

Principles that allow investors and other users to compare one company to another.

Question 16

Financial Accounting Standards Board (FASB)

Answer 16

The regulating body responsible for developing accounting principles.

Question 17

Securities and Exchange Commission (SEC)

Answer 17

An agency of the U.S. government that has the authority over the accounting and financial disclosures for companies whose shares of ownership (stock) are traded and sold to the public. Normally accepts accounting principles established by FASB.

Question 18

International Accounting Standards Board (IASB)

Answer 18

Creates principles that are generally accepted in many countries outside the U.S.

Question 19

business entity concept

Answer 19

Limits the economic data in an accounting system to data directly related to the activities of the business.

Question 20

proprietorship

Answer 20

A business owned by one individual.

Question 21

partnership

Answer 21

A business owned by two or more individuals.

Question 22

corporation

Answer 22

A business organized under state or federal statutes as a separate legal taxable entity.

Question 23

limited liability company (LLC)

Answer 23

A business that combines the attributes of a partnership and a corporation.

Question 24

objectivity concept

Answer 24

A concept that requires that the amounts recorded in the accounting records be based on objective evidence.

Question 25

unit of measure concept

Answer 25

A concept that requires that economic data be recorded in dollars.

Question 26

assets

Answer 26

The resources owned by a business.

Question 27

liabilities

Answer 27

The rights of creditors; the debts of a business.

Question 28

owner’s equity

Answer 28

The rights of the owners of a business.

Question 29

the accounting equation

Answer 29

Assets = Liabilities + Owner’s Equity; Assets - Liabilities = Owner’s Equity

Question 30

business transaction

Answer 30

An economic event or condition that directly changes an entity’s financial condition or its results of operation.

Question 31

accounts payable

Answer 31

The liability created by a purchase on account.

Question 32

prepaid expenses

Answer 32

Items such as supplies that will be used in the business in the future.

Question 33

revenue

Answer 33

The amount a business receives by selling goods or services to a customer.

Question 34

fees earned

Answer 34

What revenue from providing services is recorded as.

Question 35

sales

Answer 35

What revenue from the sale of merchandise is recorded as.

Question 36

account receivable

Answer 36

When a business accepts payment at a later date than at the time when services are provided or goods are sold.

Question 37

expense

Answer 37

Assets used in the process of earning revenue.

Question 38

financial statements

Answer 38

Accounting reports prepared for users. Includes income statement, statement of owner’s equity, balance sheet, and statement of cash flows. Balance sheet is for a moment in time.

Question 39

matching concept

Answer 39

This concept is applied by matching the expenses incurred during a period with the revenue that those expenses generated.

Question 40

net income

Answer 40

Also called net profit or earnings. It is the excess of revenue over expenses. If expenses exceed revenue, the excess is a net loss.

Question 41

ratio of liabilities to owner’s equity

Answer 41

A ratio useful in analyzing the ability of a company to pay its creditors. The radio of liability to owner’s equity is the total liabilities divided (/) by the total owner’s equity.