exam review module 8

Question 1

accounting

Answer 1

recording, classifying, summarizing, and interpreting of financial events and transactions to provide management and other interested parties the information they need to make good decisions.

Question 2

inputs accounting documents

Answer 2

sales documents, shipping documents, payroll records, bank records, travel records, entertainment records.

Question 3

processing

Answer 3

1) entries are made into journals: recording 2) the effects of these journal entries are transferred or posted in ledgers: classifying 3) all accounts are summarized

Question 4

outputs financial statements

Answer 4

balance sheet, income statement, statement of cash flow, other reports.

Question 5

managerial accounting

Answer 5

accounting used to provide information and analyses to managers inside the organization to assist them in decision making.

Question 6

five key working areas

Answer 6

1) managerial accounting 2) financial accounting, 3) auditing 4) tax accounting, and 5) government and not-for-profit accounting.

Question 7

financial accounting

Answer 7

accounting information and analyses prepared for people outside the organization

Question 8

annual report

Answer 8

a yearly statement of the financial condition, progress, and expectations of an organization.

Question 9

private accountant

Answer 9

an accountant who works for a single firm, government agency, or not-for-profit organization.

Question 10

public accountant

Answer 10

an accountant who provides his or her accounting services to individuals or businesses on a fee basis.

Question 11

international financial reporting standards:

Answer 11

the common set of accounting principles, standards, and procedures that accountants and companies use to compile financial statements.

Question 12

sarbanes-oxley act

Answer 12

The legislation created new government reporting standards for publicly traded companies

Question 13

auditing

Answer 13

the job of reviewing and evaluating the records used to prepare a company’s financial statements

Question 14

independent audit

Answer 14

an evaluation and unbiased opinion about the accuracy of a company’s financial statements

Question 15

forensic accounting

Answer 15

a relatively new area of accounting that focuses its attention on fraudulent activity.

Question 16

tax accountant

Answer 16

an accountant trained in tax law and responsible for preparing tax returns or developing tax strategies.

Question 17

Government and not-for-profit (non-profit) accounting:

Answer 17

accounting system for organizations whose purpose is not generating a profit but rather serving ratepayers, taxpayers, and others accounting to a duly approved budget.

Question 18

Chartered professional accountant (CPA) designation

Answer 18

the internationally recognized Canadian accounting designation.

Question 19

Accounting cycle:

Answer 19

a six-step procedure that results in the preparation and analysis of the major financial statements

Question 20

Bookkeeping:

Answer 20

the recording of business transactions

Question 21

steps in the accounting cycle

Answer 21

• 1) analyze source documents (sales slips, travel records). 2) record transactions in journals. 3) transfer (post) journal entries to ledger. 4) take a trial balance 5) prepare financial statements. 6) analyze financial statements.

Question 22

journal

Answer 22

the record book where accounting data are first entered.

Question 23

double-entry book keeping

Answer 23

the concept of every business transaction affecting at least two accounts.

Question 24

ledger

Answer 24

a specialized accounting book in which information from accounting journals is accumulated into accounts and posted so that managers can find all of the information about specific account in one place

Question 25

trial balance

Answer 25

a summary of all the data in the account ledgers to show whether the figures are correct

Question 26

financial statement

Answer 26

a summary of all the transactions that have occurred over a particular period

Question 27

fundamental accounting equation

Answer 27

assets are equal to liabilities plus owners’ equity; this is the basis for the balance sheet.

Question 28

accounts

Answer 28

different types of assets, liabilities, and owners’ equity.

• Assets = liabilities + owner’s equity

Question 29

balance sheet

Answer 29

the financial statement that reports a firms financial condition at a specific time and is composed of three major types of accounts: assets, liabilities, and owners’ (shareholders or stockholders’) equity.

Question 30

assets

Answer 30

economic resources owned by a firm

Question 31

liquidity

Answer 31

the ease with which an asset can be converted into cash

Question 32

current assets

Answer 32

items that can or will be converted into cash within one year

Question 33

fixed assets

Answer 33

assets that are relatively permanent, such as land, buildings, and equipment.

Question 34

intangible assets

Answer 34

long-term assets (patents, trademarks, and copyrights) that have no physical form but do have value.

Question 35

liabilities

Answer 35

what the business owes to others (debts)

Question 36

accounts payable

Answer 36

current liabilities or bills a company owes for merchandise or services purchases on credit but not yet paid for.

Question 37

notes payable

Answer 37

short-term or long-term liabilities that a business promises to repay by a certain date.

Question 38

bonds payable

Answer 38

long-term liabilities that represent money lent to a firm that must be paid back.

Question 39

owners equity

Answer 39

the amount of the business that belongs to the owners’ minus any liabilities owed by the business.

Question 40

retained earnings

Answer 40

the accumulated earnings from the firm’s profitable operations that remains in the business and are not paid out to shareholders as dividends.

Question 41

income statements

Answer 41

the financial statements that shows a firms’ profit after costs, expenses, and taxes, are paid

Question 42

cost of goods sold

Answer 42

a measure of the cost of merchandise sold or cost of raw materials and supplies used for producing items for resale.

Question 43

gross profit

Answer 43

how much a firm earned by buying (or making) and selling merchandise.

Question 44

operating expenses

Answer 44

costs involved in operating a business, such as rent, utilities and salaries

Question 45

deprecation

Answer 45

the systematic write-off of the cost of a tangible asset over its estimated useful life.

Question 46

cash flow statement

Answer 46

a financial statement that reports cash receipts and cash disbursements related to a firms three major activities: operations, investing, and financing.

Question 47

cash flow

Answer 47

the difference between cash coming in and cash going out of a business.

Question 48

ratio analysis

Answer 48

the assessment a firm’s financial condition using calculations and interpretations of financial ratios developed from the firm’s financial statements

Question 49

current ratio

Answer 49

current assets / current liabilities

Question 50

acid test ratio

Answer 50

cash + receivables + marketable securities.

Question 51

debt to owners equity ratio

Answer 51

total liabilities / owners’ equity

Question 52

basic earnings per share

Answer 52

net income after taxes / number of common stock shares outstanding.

Question 53

return on equity

Answer 53

net income after tax / total owners’ equity

Question 54

basic earnings per share

Answer 54

net income after taxes / number of common stock shares outstanding.

Question 55

return on sales

Answer 55

net income after tax / net sales

Question 56

return on equity

Answer 56

net income after tax / total owners’ equity

Question 57

inventory turnover

Answer 57

cost of goods sold / average inventory