CLCU 540 Ch. 2

Question 1

The classification and determination of the appropriate method of reporting the effects of the bookkeeping records in an organization’s financial statements

Answer 1

Accounting

Question 2

The financial statement that reports the assets, liabilities and owners’ equity of an organization as of a specific date

Answer 2

Balance sheet

Question 3

A balance sheet asset classification that includes cash and other assets that are expected to be converted into cash, sold, or exchanged within the business’s normal operating cycle, usually one year

Answer 3

Current assets

Question 4

An asset classification that includes temporary investments that can be easily converted into cash

Answer 4

Marketable securities

Question 5

An asset classification that consists of the amounts owed to company by customers and other outsiders

Answer 5

Receivables

Question 6

An asset classification that consists of goods available for sale to customers; for manufacturing company, also includes raw materials and finished goods

Answer 6

Inventory

Question 7

An asset classification that represents the amount that has already been paid for services that have not yet been received or used

Answer 7

Prepaid expenses

Question 8

A balance sheet liability classification that includes obligations whose payments are reasonably expected to require the use of cash or creation of other current liabilities within one year

Answer 8

Current liabilities

Question 9

The cumulative net income that an organization has retained, after payments of dividends, for reinvestment in the organization’s operations

Answer 9

Retained Earnings

Question 10

The inflow of assets, usually cash or accounts receivable, resulting from the sale of products or rendering of services to customers

Answer 10

Revenue

Question 11

An income statement value that represents sales or operating revenue minus COGS

Answer 11

Gross profit

Question 12

The percentage of sales remaining after deducting the COGS from sales, calculated by dividing gross profit by sales

Answer 12

Gross margin (gross profit margin)

Question 13

An income statement value that reflects income that results from the normal operations of the business during the period covered by the statement; calculated as the gross profit less selling, general, and administrative expenses

Answer 13

Operating income

Question 14

A measure of income that goes beyond that reported on the income statement by including items such as unrealized gains and losses

Answer 14

Comprehensive income

Question 15

The financial statements that explains any changes that have occurred in the organization’s capital accounts during a specific period

Answer 15

Statement of changes in shareholders’ equity

Question 16

The total amount invested in an organization by the owners

Answer 16

Paid-in capital

Question 17

A corporate stock issued as fully paid to stockholders and subsequently reacquired by the corporation to use for business purposes

Answer 17

Treasury stock

Question 18

The financial statement that summarizes the cash effects of an organization’s operating, investing, financial activities during a specific period

Answer 18

Statement of cash flows

Question 19

An accounting method that spreads out the expense of a purchase over the life expectancy of theitem

Answer 19

Depreciation expense

Question 20

In the context of financial accounting, the provision of sufficient detail regarding the transaction to enable a prudent investor to understand the economic effect of those transactions on the company’s financial statements

Answer 20

Transparancy