Chapter 1 Vocabulary

Question 1

account form

Answer 1

The form of balance sheet that resembles the basic format of the accounting equation; with assets on the left side and Liabilities and Stockholder’s Equity sections on the right side.

Question 2

accounting

Answer 2

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

Question 3

balance sheet

Answer 3

A list of the assets; liabilities; and owner’s equity as of a specific date; usually at the close of the last day of a month or a year.

Question 4

business

Answer 4

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

Question 5

business entity concept

Answer 5

A concept of accounting that limits the economic data in the accounting system to data related directly to the activities of the business.

Question 6

business transaction

Answer 6

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

Question 7

Commission

Answer 7

The process of transferring temporary accounts balances to permanent accounts at the end of the accounting period.

Question 8

common stock

Answer 8

The stock outstanding when a corporation has issued only one class of stock.

Question 9

corporation

Answer 9

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

Question 10

cost concept

Answer 10

A concept of accounting that determines the amount initially entered into the accounting records for purchases.

Question 11

dividends

Answer 11

Distribution of a corporation’s earnings to stockholders.

Question 12

earnings

Answer 12

The amount by which revenues exceed expenses.

Question 13

equity

Answer 13

An integrated business and information system used by companies to plan and control both internal and supply chain operations.

Question 14

ethics

Answer 14

Moral principles that guide the conduct of individuals.

Question 15

expenses

Answer 15

Assets used up or services consumed in the process of generating revenues.

Question 16

fees earned

Answer 16

Revenue from providing services.

Question 17

financial accounting

Answer 17

The branch of accounting that is concerned with recording transactions using generally accepted accounting principles (GAAP) for a business or other economic unit and with a periodic preparation of various statements from such records.

Question 18

Financial Accounting Standards Board (FASB)

Answer 18

The authoritative body that has the primary responsibility for developing accounting principles.

Question 19

financial statements

Answer 19

Financial reports that summarize the effects of events on a business.

Question 20

generally accepted accounting principles (GAAP)

Answer 20

Generally accepted guidelines for the preparation of financial statements.

Question 21

general-purpose financial statements

Answer 21

A type of financial accounting report that is distributed to external users. The term “general purpose” refers to the wide range of decision-making needs that the reports are designed to serve.

Question 22

income statement

Answer 22

A summary of the revenue and expenses for a specific period of time; such as a month or a year.

Question 23

interest revenue

Answer 23

Money received for interest.

Question 24

International Accounting Standards Board (IASB)

Answer 24

An organization that issues International Financial Reporting Standards for many countries outside the United States.

Question 25

liabilities

Answer 25

The rights of creditors that represent debts of the business.

Question 26

limited liability company (LLC)

Answer 26

A business form consisting of one or more persons or entities filing an operating agreement with a state to conduct business with limited liability to the owners; yet treated as a partnership for tax purposes.

Question 27

management

Answer 27

method A method of valuing inventory that reports the inventory at the lower of its cost or current market value (replacement cost).

Question 28

manufacturing business

Answer 28

A type of business that changes basic inputs into products that are sold to individual customers.

Question 29

matching concept

Answer 29

The comprehensive budget plan linking all the individual budgets related to sales; cost of goods sold; operating expenses; projects; capital expenditures; and cash.

Question 30

merchandising business

Answer 30

A type of business that purchases products from other businesses and sells them to customers.

Question 31

net income

Answer 31

An approach to transfer pricing that allows managers of decentralized units to agree (negotiate) among themselves as to the transfer price.

Question 32

net loss

Answer 32

The amount by which expenses exceed revenues.

Question 33

objectivity concept

Answer 33

A concept of accounting that requires accounting records and the data reported in financial statements to be based on objective evidence.

Question 34

owner’s equity

Answer 34

The owner’s right to the assets of the business.

Question 35

partnership

Answer 35

An unincorporated business form consisting of two or more persons conducting business as co-owners for profit.

Question 36

prepaid expenses

Answer 36

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

Question 37

private accounting

Answer 37

The field of accounting whereby accountants are employed by a business firm or a not-for-profit organization.

Question 38

profit

Answer 38

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

Question 39

proprietorship

Answer 39

A business owned by one individual.

Question 40

public accounting

Answer 40

The field of accounting where accountants and their staff provide services on a fee basis.

Question 41

Public Company Accounting Oversight Board (PCAOB)

Answer 41

Public Company Accounting Oversight Board (PCAOB) A new oversight body for the accounting profession that was established by the Sarbanes- Oxley Act.

Question 42

ratio of liabilities to stockholders’

Answer 42

A leverage ratio that measures the margin of safety of long-term creditors; calculated as the net fixed assets divided by the long-term liabilities.

Question 43

rent revenue

Answer 43

Money received for rent.

Question 44

retained earnings

Answer 44

Net income retained in a corporation.

Question 45

retained earnings statement

Answer 45

A summary of the changes in the retained earnings in a corporation for a specific period of time; such as a month or a year.

Question 46

revenues

Answer 46

Increases in assets from performing services or delivering products to customers.

Question 47

sales

Answer 47

The total amount charged customers for merchandise sold; including cash sales and sales on account.

Question 48

Sarbanes-Oxley Act

Answer 48

The relative distribution of sales among the various products available for sale.

Question 49

Securities and Exchange

Answer 49

An act passed by Congress to restore public confidence and trust in the financial statements of companies.

Question 50

service business

Answer 50

A business providing services rather than products to customers.

Question 51

statement of cash flows

Answer 51

A summary of the cash receipts and cash payments for a specific period of time; such as a month or a year.

Question 52

stockholders’ equity

Answer 52

The owners’ equity in a corporation.

Question 53

unit of measure concept

Answer 53

A concept of accounting requiring that economic data be recorded in dollars.