Chapter One Terms

Question 1

Financial Accounting

Answer 1

Focuses on the needs of external users

Question 2

Managerial Accounting

Answer 2

Focuses on the needs of internal users

Question 3

External Users

Answer 3

Users, who do not directly run the organization and have limited access to accounting information

Question 4

GAAP

Answer 4

Generally Accepted Accounting Principles

Question 5

FASB

Answer 5

Financial Accounting Standard Board (Sets GAAP)

Question 6

SEC

Answer 6

Securities and Exchange Commission (Gives task of setting GAAP).

Question 7

Measurement Principle Assumption

Answer 7

Accounting information is based on actual cost (cash value for items).

Question 8

Revenue Recognition Principle

Answer 8

Revenue is recognized when the goods or services are provided to the customer.

Question 9

Expense Recognition Principle

Answer 9

Expenses are recognized in the same period as their corresponding revenue.

Question 10

Full disclosure Principle

Answer 10

Any details behind financial statements that would impact User’s decisions need to be disclosed.

Question 11

Going-concern Assumption

Answer 11

Presume that the business will run forever.

Question 12

Monetary-Unit Principle

Answer 12

Presume that transactions and events are expressed in terms of money.

Question 13

Time-period Assumption

Answer 13

Presume that the company can be divided into time periods (days, months, years)

Question 14

Business Entity Assumption

Answer 14

Presume that the business is accounted for separately from other business entities and its owners.

Question 15

IASB

Answer 15

International Accounting Standard Board
(Issues IFRS)

Question 16

IFRS

Answer 16

International Financial Reporting Standards

Question 17

Assets

Answer 17

Resources that the company owns.

Question 18

Liabilities

Answer 18

Resources or items that the company owes.

Question 19

Accounting Equation

Answer 19

A = L + E

Assets = Liabilities + Equity

Question 20

Common Stock

Answer 20

A security that represents ownership of equity in a company (usually the is the initial monetary investment).

Question 21

Dividends

Answer 21

Money given to shareholders (takes away from equity)

Question 22

Revenue

Answer 22

Increase equity

Question 23

Expenses

Answer 23

Decreases equity

Question 24

Income Statement

Answer 24

Describes a company’s revenues and expenses and computes net income or loss over a period of time.

Question 25

Statement of Retained Earnings

Answer 25

Explains changes in retained earnings from net income (or lost) over a period of time.

Question 26

Balance Sheet

Answer 26

Describes a company’s financial position (types and amounts of assets, liabilities, and equity) over a period of time

Question 27

Statement of Cash Flow

Answer 27

Identifies cash inflows (receipts) and outflows (pay