Chapter 17

Question 1

Accounting

Answer 1

The recording, classifying, summarizing, and interpreting of financial events and transactions provide management and other interested the information they need to make good decisions.

The language of business.

Question 2

Accounting Cycle

Answer 2

a six-step procedure that results in the preparation and analysis of the major financial statements.

Question 3

Bookkeeping

Answer 3

the recording of business transactions. Bookkeepers divide a firm’s transactions into meaningful categories and then posting them into a record book or computer program which is called a Journal.

Question 4

Financial Statement

Answer 4

a summary of all the transactions that have occurred over a particular period of time (3 months; 6 months; 12 months).

Question 5

Balance Sheet

Answer 5

reports a firm’s financial condition at a specific time and is composed of three major accounts: assets, liabilities, and owners’ equity.

Question 6

Income Statement

Answer 6

shows a firm’s profit after costs, expenses, and taxes it; it summarizes all of the resources that have come into the firm (revenue), all the resources that have left the firm, expense, and the resulting net income or net loss.

Question 7

Statement of Cash flows

Answer 7

reports cash recipients and disbursements related toa f firm’s three major activities.

Question 8

Fundamental accounting equation

Answer 8

• Assets = liabilities + owner’s equity

Question 9

Assets

Answer 9

economic resources (things of value) owned by a firm; items can be tangible or intangible.

Question 10

Liquidity

Answer 10

the ease with which an asset can be converted into cash.

Question 11

Current Assets

Answer 11

items that can or will be converted into cash within one year.

Question 12

Fixed assets

Answer 12

assets that are relatively permanent, such as land, buildings, and equipment.

Question 13

Intangible assets

Answer 13

long term assets, trademarks, copyrights, that have no physical form but do have value.

Question 14

Liabilities

Answer 14

what the business owes to others (debts).

Question 15

Accounts payable

Answer 15

current liabilities involving money owed to others for merchandise or services purchase on credit but not yet paid for.

Question 16

Owners’ equity

Answer 16

the amount of the business that belongs to the owners minus any liabilities owed by the business.

Question 17

Retained earnings

Answer 17

the accumulated earnings from a firm’s profitable operations that were invested in the business and not paid out to stockholders in dividends.

Question 18

Net income or net loss

Answer 18

revenue left over after all costs and expenses, including taxes, are paid, if none exists, then the firm has suffered a loss.

Question 19

Income statement formula:

Answer 19

Revenue – CGS – Gross profit – operating expenses = net income before taxes – taxes = net income or net loss.

Question 20

Revenue

Answer 20

the monetary value a firm received for goods sold, services rendered, or other payments.

Question 21

Cost of goods sold (or manufactured)

Answer 21

a measures of the cost of merchandise sold or cost of raw materials and supplies used for producing items for resale.

Question 22

Gross profit or gross margin

Answer 22

how much a firm earned by buying or making and selling merchandise.

Question 23

Operating Expense

Answer 23

costs involved in operating a business, such as rent, utilities, and salaries.

Question 24

Depreciation

Answer 24

the systematic write-off of the cost of a tangible asset over its estimated useful life.

Question 25

Cash Flows

Answer 25

the difference between cash coming in and cash going out of a business. Managing cash flow is a key consideration of a business, especially a small business.

Question 26

Financial Accounting

Answer 26

accounting information and analyses prepared for people outside the organization.

Question 27

Annual report

Answer 27

a yearly statement of the financial condition, progress, and expectations of an organization.

Question 28

Private accountant

Answer 28

an accountant who works for a single firm, government agency, or nonprofit organization.

Question 29

Public accountant

Answer 29

an accountant who provides accounting services to individuals or businesses on a fee basis.

Question 30

Certified Public Accountant (CPA)

Answer 30

an accountant who passes a series of examinations established by the American institute of certified public accountants (AICPA).

Question 31

Managerial accounting

Answer 31

accounting used to provide information and analyses to managers within the organization to assist them in decision making.

Question 32

Auditing

Answer 32

the job of reviewing and evaluating the information used to prepare a company’s financial statements.

Question 33

Tax Accountants

Answer 33

an accountant trained in tax law and responsible for preparing tax returns or developing tax strategies.