Chapter 1 Vocabulary

Question 1

business

Answer 1

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 2

profit

Answer 2

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

Question 3

service businesses

Answer 3

provide services rather than products to customers (ex. Delta Air Lines- transportation services; The Walt Disney Company-entertainment services)

Question 4

merchandising businesses

Answer 4

sell products they purchase from other businesses to customers (ex. Wal-Mart- general merchandise; Amazon.com- Internet books, music, videos)

Question 5

manufacturing businesses

Answer 5

change basic inputs into products that are sold to customers (ex. Ford Motor Company- cars, trucks, vans,; Dell Inc.- personal computers)

Question 6

accounting

Answer 6

information system that provides reports to users about the economic activities and conditions of a business

Question 7

managerial accounting/management accounting

Answer 7

provides internal users with information

Question 8

private accounting

Answer 8

managerial accountants employed by a business

Question 9

financial accounting

Answer 9

provides external users with information

Question 10

general-purpose financial statements

Answer 10

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

Question 11

ethics

Answer 11

moral principles that guide the conduct of individuals

Question 12

public accounting

Answer 12

accountants and their staff who provide services on a fee basis

Question 13

Certified Public Accountants (CPAs)

Answer 13

public accountants who have met a state’s education, experience, and examination requirements

Question 14

generally accepted accounting principles (GAAP)

Answer 14

generally accepted guidelines for the preparation of financial statements

Question 15

Financial Accounting Standards Board (FASB)

Answer 15

primary responsibility for developing accounting principles

Question 16

Securities and Exchange Commission (SEC)

Answer 16

an agency of the U.S.Government that has authority over the accounting and financial disclosures for companies whose shares of ownership are traded and sold to the public

Question 17

International Accounting Standards Board (IASB)

Answer 17

generally accepted accounting principles across nations

Question 18

business entity concept

Answer 18

limits the economic data in an accounting system to data related directly to the activities of the business (the business is viewed as an entity separate from its owners, creditors, or other businesses)

Question 19

proprietorship

Answer 19

owned by one individual

Question 20

partnership

Answer 20

owned by two or more individuals

Question 21

corporation

Answer 21

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

Question 22

limited liability company (LLC)

Answer 22

combines the attributes of a partnership and a corporation

Question 23

cost concept

Answer 23

amounts are initially recorded in the accounting records at their cost or purchase price

Question 24

objectivity concept

Answer 24

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

Question 25

unit of measure concept

Answer 25

requires that economic data be recorded in dollars

Question 26

assets

Answer 26

resources owned by a company

Question 27

liabilities

Answer 27

rights of creditors are the debts of the business

Question 28

owner’s equity

Answer 28

rights of the owners

Question 29

accounting equation

Answer 29

A = L + OE (Assets = liabilities + owner’s equity)

Question 30

business transaction

Answer 30

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

Question 31

capital stock

Answer 31

stock issued to owners (stockholders)

Question 32

stockholders’ equity

Answer 32

owner’s equity in a corporation

Question 33

accounts payable

Answer 33

liability created by a purchase on account

Question 34

prepaid expenses

Answer 34

items such as supplies that will be used in the business in the future

Question 35

revenue

Answer 35

amount made by selling goods or services to customer

Question 36

fees earned

Answer 36

revenue from providing services

Question 37

sales

Answer 37

revenue from the sale of merchandise

Question 38

rent revenue

Answer 38

rent

Question 39

interest revenue

Answer 39

interest

Question 40

account receivable

Answer 40

asset; revenue is earned and recorded as if cash had been received

Question 41

expenses

Answer 41

assets used in the process of earning revenue (includes supplies used, payments for employee wages, utilities, and other services)

Question 42

retained earnings

Answer 42

stockholders’ equity created from business operations through revenue and expense transactions

Question 43

financial statements

Answer 43

reports providing information after transactions have been recorded and summarized for users

Question 44

income statement

Answer 44

summary of the revenue and expenses for a specific period of time (month or year)

Question 45

retained earnings statement

Answer 45

summary of the changes in retained earnings that have occurred during a specific period of time (month or year)

Question 46

balance sheet

Answer 46

a list of assets, liabilities, and stockholders’ equity as of a specific date (last day of a month or year)

Question 47

statement of cash flows

Answer 47

summary of the cash reciepts and cash payments for a specific period of time (month or year)

Question 48

matching concept

Answer 48

applied by matching the expenses incurred during a period with the revenue that those expenses generated

Question 49

net income/ net profit/ earnings

Answer 49

excess of the revenue over the expenses

Question 50

net loss

Answer 50

if the expenses exceed the revenue

Question 51

account form

Answer 51

resembles basic format of the accounting equation with the assets on the left and liabilities and stockholders’ equity sections on the right side

Question 52

ratio of liabilities to stockholders’ equity

Answer 52

relationship between liabilities and owner’s equity (total liabilities/total stockholders’ equity)