Chapter 15

Question 1

GAAP

Answer 1

General Accepted Accounting Principles and sets standards or guidelines that accounts follow

Question 2

Four basic rules all accounting must adhere

Answer 2

Consistency, relevance, reliability, comparability

Question 3

Role of FASB

Answer 3

Financial Accounting Standards Board responsible for evaluating, setting, and modifying GAAP

Question 4

Steps in Accounting Cycle

Answer 4

Recording transactions, classify transactions, summarize transactions, and produce financial statements

Question 5

Accounting Equation

Answer 5

Assets (what company owns)= liability (what company owes) plus owners equity

Question 6

Double- entry bookkeeping

Answer 6

Transactions are recorded and they must have an offsetting transaction

Question 7

Four financial statements

Answer 7

Balance sheet, income statement, statement of owners equity, and statement of cash flow

Question 8

Accrual accounting

Answer 8

Recognizes revenue and expenses when they occur, not when cash actually changes hands

Question 9

Four categories of financial ratio

Answer 9

Liquidity, activity, profitability, leverage

Question 10

Current Ratio
Inventory Turnover
Net profit margin
Debt ratio

Answer 10

Current: current assets divided by current liabilities

Turnover: cost of goods sold divided by average inventory

Net profit: net income divided by sales

Debt ratio: total liabilities divided by total assets

Question 11

Budget

Answer 11

Plan and control tool that reflects the company’s expected sales revenue, operating expenses, cash receipts, and cash outlays

Question 12

Cash budget organized

Answer 12

Prepared monthly, cash receipts are listed first, then cash outlays, cash purchases, payment of past credit, and operating expenses

Question 13

International Accouting Standard Board

Answer 13

Provided consistency in finical reporting and accounting rules. They developed the International Finical Reporting Standards