Chapter 8

Question 1

Accounting

Answer 1

A system for recognizing, organizing, analyzing and reporting information about the financial transactions that affect an organization.

Question 2

Financial accounting

Answer 2

The branch of accounting that prepares financial statements for use by owners, creditors, suppliers and other other external stakeholders.

Question 3

Generally accepted accounting principles (GAAP)

Answer 3

A set of accounting standards that is used in the preparations of financial statements.

Question 4

Financial Accounting Standards Board (FASB)

Answer 4

The private board that establishes the generally accepted accounting principles used in the practice of financial accounting.

Question 5

Balance sheet

Answer 5

A financial statement that reports the financial position of a firm by identifying and reporting the value of the firm’s assets, liabilities and owners’ equity.

Question 6

Accounting equation

Answer 6

Assets = Liabilities + Owners’ Equity

Question 7

Assets

Answer 7

Resources owned by a firm

Question 8

Liabilities

Answer 8

Claims that outsiders have against a firm’s assets

Question 9

Owners’ equity

Answer 9

The claims a firm’s owners have against their company’s assets (often called “stockholders’ equity” on balance sheets of corporations).

Question 10

Income statement

Answer 10

The financial statement that reports the revenues, expenses and net income that resulted from a firm’s operations over an accounting period.

Question 11

Revenue

Answer 11

Increases in a firm’s assets that result from the sale of goods, provisions of services, or other activities intended to earn income

Question 12

Expenses

Answer 12

Resources that are used up as the result of business operations.

Question 13

Net income

Answer 13

The difference between the revenue a firm earns and the expenses it incurs in a given time period

Question 14

Statement of cash flows

Answer 14

The financial statement that identifies a firm’s sources and uses of cash in a given accounting period

Question 15

Horizontal analysis

Answer 15

Analysis of financial statements that compares account values reported on these statements over two or more years to identify changes and trends.

Question 16

Budgeting

Answer 16

A management tool that explicitly shows how firm will acquire and use the resources needed to achieve its goals over a specific period of time.

Question 17

Master budget

Answer 17

A presentation of an organization’s operational and financial budgets that represents the firm’s overall plan of action for a specified time period.

Question 18

Managerial (or management accounting)

Answer 18

The branch of accounting that provides reports and analysis to managers to help them make informed business decisions.

Question 19

Cost

Answer 19

The value of what is given up in exchange for something

Question 20

Fixed costs

Answer 20

Costs that remains the same when the level of productions changes within some relevant range.

Question 21

Variable costs

Answer 21

Costs that vary directly with the level of production.