Chapter 18 - Accounting

Question 1

What is a balance sheet

Answer 1

reports financial position of a firm on a particular day

assets = liabilities + owner’s equity

Question 2

Bookkeeping

Answer 2

part of accounting that includes the mechanical part of recording data

Question 3

Accounting

Answer 3

includes classifying, summarizing, interpreting, and reporting data to management

Question 4

Journals

Answer 4

first place bookkeepers record transactions

Question 5

Ledgers

Answer 5

are specialized accounting books that arrange transactions by homogeneous groups

Question 6

What are the 6 steps of the accounting cycle

Answer 6

1) Analyzing documents
2) Recording info into journals
3) Posting that info into ledgers
4) Developing a a trial balance
5) Preparing financial statements
6) Analyzing financial statements

Question 7

Private Accountant

Answer 7

• works for a single company

- perform internal audits

Question 8

Public Accountant

Answer 8

• provides services for a fee to a variety of companies

- supply independent audits

Question 9

Managerial Accounting

Answer 9

-provides info for panning and control purposes to managers within the firm to assist them in decision making

Question 10

Financial Accounting

Answer 10

-provides info in the form of the 3 basic financial statements to managers and external users of data such as creditors and leaders

Question 11

How can computer help accountants

Answer 11

• computers can record and analyze data and provide financial reports
• software can ensure that the accounting equation is always in balance when recording each transaction

Question 12

What is a income statement

Answer 12

an income statement records revenues, costs, and expenses for a specific period of time
the formulas used are :
Revenue - Cost of goods sold = Gross margin
Gross Margin - Operating expenses = Net income b4 taxes
Net income b4 taxes - Taxes = Net income (or net loss)

Question 13

What is a cash flow statement?

Answer 13

• cash flow is the difference b/w cash receipts (money coming in) and cash disbursements (money going out)
• reports cash receipts and disbursements related to the firms major activities; operations, investing and financing

Question 14

Amortization

Answer 14

• an application of the matching principle
• is the transfer of the cost of a tangible asset to the income statement (writeoff) over its estimated useful life as an offset against the revenue earned from the use of this asset

Question 15

LIFO

Answer 15

means last in, first out

Question 16

FIFO

Answer 16

means first in, first out

Question 17

4 categories of ratios

Answer 17

liquidity ratios, leverage (debt) ratios, profitability (performance) ratios, and activity ratios