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FINANCIAL ACCOUNTING > Chapter I > Flashcards

Chapter I Flashcards

1
Q

Accounting

A

involves entire process of IDENTIFYING, RECORDING, COMMUNICATING econ events.

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2
Q

Bookkeeping

A

involves ONLY recording of econ events

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3
Q

Managerial accounting

A

provides INTERNAL REPORTS to help users make DECISIONS about their companies

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4
Q

Financial accounting

A

provides econ and fin info for investors, creditors, and other external users

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5
Q

Ethics standards of conduct judged as _____

A

+ Right/wrong
+ Honest/dishonest
+ Fair/not fair

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6
Q

Generally accepted accounting principles (GAAP)

A

Common standards indicate how to report economic events.

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7
Q

Relevance

A

fin info to make different decision

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8
Q

Convergence

A

process reduce diff between GAAP vs IFRS

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9
Q

Historical cost principle

A

company record assets at their cost

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10
Q

Fair value principle

A

assets and liabilities should be reported at fair value (price received to sell an asset or settle a liability)

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11
Q

Monetary unit assumption

A

requires company including in acc records only transaction data expressed in terms of money.

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12
Q

Econ entity assum

A

activities of entity kept separate and distinct from the activities of its owner and all other econ entities.

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13
Q

Proprietorship

A
  • owned by 1 per
  • owner is often manager/operator
  • small amount of capital to start
  • owner takes all profits or losses
  • personally liable for all debts
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14
Q

Partnership

like sole proprietorship

A
  • owned by 2 more

- partners share profits and loses (based on prearranged agreement)

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15
Q

Corporation

A
  • chartered by state and legally separate from owners (stockholders)
  • elect a board of directors to run business
  • elect a board of directors
  • transfer all/part of ownership shares to other investors at any time
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16
Q

Assets

A
  • Resources a business owns
  • Provide future services or benefits
  • Cash, supplies, equipment
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17
Q

Liabilities

A
  • Claims against assets (existing debts and obligations).
  • Creditors - party to whom money is owed.
  • Accounts payable, Notes payable, Wages payable, Taxes payable
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18
Q

Stockholders’ Equity

A
  • Ownership claim on total assets.
  • Referred to as residual equity
    = Common stock + retained earnings
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19
Q

residual equity

A

equity “left over” after creditors’ claims are satisfied

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20
Q

Common stock

A

total amount paid in by stockholders for shares they purchase

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21
Q

retained earnings =

A

revenues - expenses - dividends.

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22
Q

sources of revenue

A

sales, fees, services, commissions, interest, dividends, royalties, and rent.

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23
Q

Dividends

A

Distribution of cash/other assets to stockholders

Not an expense

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24
Q

Expenses

A

salaries expense, rent expense, utilities expense, tax expense, …

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25
Q

Transactions

A

Business’s economic events recorded by accountants

  • Internal/External
  • Not all are represented
  • Each has DUAL EFFECT on acc equation (x2 engine technique)
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26
Q

Income Statement

A
  • Profitability of comp’s operations spec period time

- Lists R -> E, NI (NL)

27
Q

Retained Earnings Statement

A

Changes in retained earnings (#period time)

28
Q

Balance sheet

A

assets -> liabilities and stockholders’ equity spec date

-> Total assets

29
Q

Statement of Cash Flows

A

Info on cash receipts and payments (#period time)

Answer: Where from? What used? What change in cash balance?

30
Q
  1. Which NOT a step in accounting process?
    (a) Identification. (c) Recording.
    (b) Verification. (d) Communication.
A

b

31
Q
  1. Which about users of acc info is INCORRECT?
    (a) Management is an internal user.
    (b) Taxing authorities are external users.
    (c) Present creditors are external users.
    (d) Regulatory authorities are internal users.
A

d

32
Q
  1. The historical cost principle states that:
    (a) assets should be initially recorded at cost and adjusted when the fair value changes.
    (b) activities of an entity are to be kept separate and distinct from its owner.
    (c) assets should be recorded at their cost.
    (d) only transaction data capable of being expressed in terms of money be included in the accounting records.
A

c

33
Q
  1. Which about basic assumptions is correct?
    (a) Basic ass # acc princ.
    (b) Econ entity ass states there should be a particular unit of accountability.
    (c) Monetary unit ass enables acc to measure employee morale.
    (d) Partnerships are not econ entities.
A

b

34
Q
  1. The three types of business entities are:
    (a) proprietorships, small businesses, and partnerships.
    (b) proprietorships, partnerships, and corporations.
    (c) proprietorships, partnerships, and large businesses.
    (d) financial, manufacturing, and service companies.
A

b

35
Q
  1. Net income will result during a time period when:
    (a) assets exceed liabilities.
    (b) assets exceed revenues.
    (c) expenses exceed revenues.
    (d) revenues exceed expenses.
A

d

36
Q
  1. As December 31, 2015, Reed Company has assets of $3,500 and stockholders’ equity of $1,500.
    => liabilities = ?
    (a) $1,500. (c) $2,500.
    (b) $1,000. (d) $2,000.
A

d

37
Q
  1. Performing services on account will have the following effects on components of basic acc equation:
    (a) increase assets and decrease stockholders’ equity.
    (b) increase assets and increase stockholders’ equity.
    (c) increase assets and increase liabilities.
    (d) increase liabilities and increase stockholders’ equity.
A

b

38
Q
  1. Which not recorded in the acc records?
    (a) Equipment is purchased on account.
    (b) An employee is terminated.
    (c) A cash investment is made into the business.
    (d) The company pays a cash dividend.
A

b

39
Q
  1. During 2015, Seisor Company’s assets decreased
    $50,000 and its liabilities decreased $90,000 => Its stockholders’ equity:
    (a) increased $40,000. (c) decreased $40,000.
    (b) decreased $140,000. (d) increased $140,000.
A

a

40
Q
  1. Payment of account payable affects components of acc equation.
    (a) Decreases stockholders’ equity and decreases
    liabilities.
    (b) Increases assets and decreases liabilities.
    (c) Decreases assets and increases stockholders’ equity.
    (d) Decreases assets and decreases liabilities.
A

d

41
Q
  1. Which FALSE?
    (a) A statement of cash flows summarizes info about the cash inflows (receipts) and outflows (payments) for a specific period of time.
    (b) A balance sheet reports the assets, liabilities, and
    stockholders’ equity at a specific date.
    (c) An income statement presents the revenues, expenses, changes in stockholders’ equity, and resulting net income or net loss for a specific period of time.
    (d) A retained earnings statement summarizes the changes in retained earnings for a specific period of time.
A

c

42
Q
  1. On the last day of the period, Alan Cesska Company buys a $900 machine on credit. This transaction will affect the:
    (a) income statement only.
    (b) balance sheet only.
    (c) income statement and retained earnings statement only.
    (d) income statement, retained earnings statement and balance sheet.
A

b

43
Q
  1. The financial statement that reports assets, liabilities and stockholders’ equity is:
    (a) income statement
    (b) retained earnings statement
    (c) balance sheet
    (d) statement of cash flows
A

c

44
Q
  1. Services performed by a public accountant include:
    (a) auditing, taxation, and management consulting.
    (b) auditing, budgeting, and management consulting.
    (c) auditing, budgeting, and cost accounting.
    (d) internal auditing, budgeting, and management
    consulting.
A

a

45
Q
  1. Why “Acc is ingrained in society and vital to econ system” ?
A
  • Maintain competitiveness of econ sys (to uplift business society).
  • give fin position of org VD: production, sale, pi => what good, what need improve
  • give idea of allocation of funds
  • calculate imp! metrics VD: growth rate of econ (to measure credibility)
46
Q
  1. Identify and describe 3 steps in the accounting process.
A

Identifying (select trans)
Recording (record, classìy, summarize)
Communicating (prepare, analyze, interpret)

47
Q
  1. (a) Who are internal users of acc data?

(b) How does acc provide relevant data to these users?

A

(a) Internal users are managers who plan, organize, and run the business
(b) Managerial accounting provides internal reports to make decision

48
Q
  1. What uses of fin acc info are made by:
    (a) investors
    (b) creditors
A

(a) to buy, hold, sell shares

(b) to analyze the risks of granting credit or lending money.

49
Q
  1. Why “Bookkeeping and accounting are not #” ?
A

Bookkeeping is

  • process of recording fin trans and keeping fin records
  • small, one part of acc process
50
Q
  1. A purchased land $90,000 cash last year and now sell it $93,000. What amount should be reported for land on balance sheet now?
A

As cost principle, assets should be recorded at their cost => Balance sheet should report the land at $90,000 now

51
Q
  1. What is the monetary unit assumption?
A

only trans data can be expressed in terms of money included in the acc rec.

52
Q
  1. What is the economic entity assumption?
A

Under GAAP

Activities of entity kept separate and distinct from the activities of its owner and all other econ entities.

53
Q
  1. What are the 3 basic forms of business orgs for profit-oriented enterprises?
A

Proprietorship
Partnership
Corporation

54
Q
  1. Change org from proprietorship to corporation. Discuss some incorporation adv.
A
  • Allow to raise money easily by selling a part of ownership (sell shares)
  • Limited liabilities => not responsible for debts
  • Ownership be transferred without dissolving cor
    => Enjoy unlimited life
55
Q

11+12. (a) Basic accounting equation

(b) What items affect stockholders’ equity?

A

(a) Assets = Liabilities + Owner’s Equity

(b) owner’s investments, drawings, revenues, and expenses

56
Q
  1. Which are liabilities of jewelry stores?
    (a) Cash. (f) Equipment.
    (b) Accounts payable. (h) Service revenue.
    (c) Dividends. (g) Salaries and wages payable.
    (d) Accounts receivable.
    (e) Supplies. (i) Rent expense.
A

(b) Accounts payable

(g) Salaries and wages payable.

57
Q
  1. Can business enter trans in which only left side of basic acc equa is affected? Give ex.
A

YES.

Trans where increase in 1 asset (ex: equipment) is offset by decrease in another asset (ex: cash)

58
Q
  1. Are events recorded in acc rec? Explain.
    (a) The president of the company dies.
    (b) Supplies are purchased on account.
    (c) An employee is fired.
A

(a) No. Death is not trans (not affect acc equa)
(b) Yes. It affects asset
(c) No. It’s not trans (not affect acc equa)

59
Q
  1. How business trans affect basic acc equa.
    (a) Paid cash for janitorial services.
    (b) Purchased equipment for cash.
    (c) Invested cash in the business for stock.
    (d) Paid accounts payable in full.
A

(a) Dec assets and dec owner’s equity.
(b) Inc assets and dec assets.
(c) Inc assets and inc owner’s equity.
(d) Dec assets and dec liabilities.

60
Q
  1. Which in fin statemt items would appear?
    (a) Service revenue. (e) Retained earnings.
    (b) Equipment. (f) Salaries and wages payable.
    (c) Advertising expense.
    (d) Accounts receivable.
A

(a) Income statemt
(b) Balance sheet
(c) Income statemt
(d) Balance sheet
(e) Retained earnings statemt and balance sheet
(f) Balance sheet

61
Q
  1. Invest $10,000 in comp. Accountant recorded this as an inc in cash and revenues. Is this appropriate? Why/Why not?
A

No.
Not involve receipt of cash => not represent R.
This simply a additional investment (common stock) made by owner

62
Q
  1. “Does comp’s NI appear directly on income statemt and retained earnings statemt and it is included indirectly in balance sheet?” Agree/Disagree? Explain.
A

YES.
NI =R-E => income statemt
NI is included in capital acc appear in stockholders’ equity => balance sheet

63
Q

Faithful representation

A

Numbers and descriptions match what really existed or happened—they are factual.

FINANCIAL ACCOUNTING (5 decks)

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