Chp 1

Question 0

2 types of accounting data users, and who they include

Answer 0

internal: finance, marketing, HR, managers. Managerial accounting is internal reports for these users.
external: creditors, investors

IRS, regulatory agencies (such as SEC), customers, unions

Financial accounting is for these users.

Question 1

3 activities that make up accounting

Answer 1

identify, record, and communicate the economic events of an org to interested users

Question 2

Definition of ethics

Answer 2

Standards of conduct by which one’s actions are judged as right or wrong, honest or dishonest, fair or not fair.

Question 3

What do GAAP control?

Answer 3

How to report economic events.

Question 4

Primary US and non-US accounting standard-setting bodies.

Answer 4

FASB - Financial Accounting Standards Board

IASB - International Accounting Standards Board

Question 5

What are the 2 GAAP measuring principles?

Answer 5

Cost principle = you must record assets at their cost.

Fair value principle= must report assets and liabilities at fair value.

Question 6

2 main GAAP assumptions and their definitions

Answer 6

Monetary unit assumption = you only must record transactional data that can be expressed in money terms.

Economic entity assumption = entity’s activities must be kept separate from those of the owner and all other economic entities.

Question 7

What are assets?

Answer 7

Resources a company owns.

Question 8

Common characteristic of all assets.

Answer 8

Capacity to provide future services or benefits (eventually result in cash flows [receipts]

Question 9

What are liabilities and stockholders’ equity?

Answer 9

L = Claims of creditors (paybles)

SE = Claims of owners (ownership claim on total assets) also = residual equity

Question 10

What are revenues?

Answer 10

The gross increase in stockholders’ equity resulting from business activities entered into for the purpose of earning income.

Usually results in an increase in an asset (otherwise, decreases a liabilitiy)

Question 11

What are expenses?

Answer 11

The cost of assets consumed or services used in the process of earning revenue.

Also: Decreases in stockholder’s equity that result from operating the business.

Question 12

The 3 items that determine retained earnings section of balance sheet

Answer 12

revenues

expenses (net income or loss)

dividends (possible when there is net income)

Question 13

What increases and decreases stockholders’ equity?

Answer 13

Increases: investments by stockholders and revenues

Decreases: expenses and dividends

Question 14

Definition of dividend

Answer 14

Distributions of cash or other assets to stockholders.

Question 15

Criterion for determining whether an event is a transaction.

Answer 15

Is the financial position of the company changed?

Financial position change = chain in assets, liabilities, or SE

Question 16

The 4 financial statements and the result of each that’s needed to prepare the next statement.

Answer 16

Income statement (net income or loss)

Retained earnings statement (retained earnings)

Balance sheet (cash)

Statement of cash flows

Question 17

What the income statement shows

Answer 17

Profitability - net income or net loss

Question 18

What retained earnings statement shows

Answer 18

Why the retained earnings increased or decreased

Question 19

5 elements of the statement of cash flows

Answer 19

1. cash effects of operating activities (revenues and expenses)
2. cash effects of investing transactions
3. cash effects of financing transactions
4. net increase or decrease in cash during that period
5. cash amount (total) at end of period