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A2 > Section 1 > Flashcards

Section 1 Flashcards

1
Q

3 kinds of business

A

manufacturing
merchandising
service

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2
Q

2 kinds of merchandising

A

retail

wholesale

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3
Q

3 elements to start a successful business

A

management skill
idea
capital

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4
Q

management skill

A

the ability to effectively employ resources and produce a profit

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5
Q

capital

A

money or resources to bring a product or service to life

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6
Q

a good idea

A

a product or service that can be sold at a profit

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7
Q

2 ways to access capital

A

debt or equity financing

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8
Q

debt financing

A

borrowing from lenders or creditors

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9
Q

equity financing

A

contributions from investors or owners

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10
Q

financing has to do with how

A

capital is obtained for a business

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11
Q

accounting

A

the language of business

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12
Q

3 characteristics of debt financing

A
  1. borrowed resources must be repaid
  2. consequences of failure to repay can be harsh
  3. can be difficult to qualify for
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13
Q

2 characteristics of equity financing

A
  1. investors contribute resources/captial in exchange for ownership interests
  2. investor contributions of resources are not subject to repayment
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14
Q

ownership grants what 3 rights?

A
  1. right to vote or have a say
  2. right to share in profits
  3. right to share in remaining resources if business terminates
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15
Q

key advantage of debt financing

A

no sacrifice of ownership rights

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16
Q

key advantage of equity financing

A

no requirement to repay capital contributions

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17
Q

2 ways an owner gets their investment back

A
  1. distribution upon discontinuance

2. subsequent sale of ownership interests to other investors

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18
Q

3 ways investors make a profit/loss on investment

A
  1. sharing in the business operating profits through dividends
  2. capital gains or losses on the sale of stock
  3. distributions if the business is terminated
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19
Q

the primary purpose of financial accounting

A

provide info that assists investors and creditors in evaluating a company’s

  1. credit worthiness
  2. profit potential
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20
Q

financial accounting provides (4)

A
  • HISTORICAL info
  • to CREDITORS and POTENTIAL INVESTORS
  • outside of management
  • about the company’s FINANCIAL POSITION and RESULTS OF OPERATIONS
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21
Q

managerial accounting provides

A
  • info that assists managers in the effective operation of a business
  • more detailed reports
  • not publicly available
  • used to improve FUTURE performance
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22
Q

3 general purpose financial statements

A
  1. Balance Sheet
  2. Income Statement
  3. Cash flow Statement
23
Q

financial statements are found

A

in a company’s annual report

24
Q

2 critical conditions that must exist for financial statements to be truly useful

A
  1. comparability

2. credibility

25
Q

GAAP

A

generally accepted accounting principles

26
Q

FASB

A

financial accounting standards board

27
Q

what is credibility?

A

providing financial info that is materially accurate and reliable

28
Q

the company’s management is responsible for

A
  • a company’s accounting system

- the prep of its financial statements

29
Q

what does the SEC do?

A

regulates stock and bond transactions

30
Q

AICPA

A

american institute of cpa’s

31
Q

name 2 functions of the AICPA

A
  1. license and certify CPA’s

2. establish rules of how to conduct an audit

32
Q

GAAP was established by

A

the FASB

33
Q

EPS

A

earnings per share

34
Q

How do we know what the profit is?

A

earnings per share

35
Q

GAAP establishes

A

rules of accounting and disclosure

36
Q

T/F IASB has no regulatory authority

A

true

37
Q

IFRS

A

international financial reporting standards

38
Q

An external auditor’s report on financial statements expresses an opinion

A
  1. as to the fairness of the financial statements

2. as to compliance with GAAP

39
Q

A company’s annual report provided to the public will typically include

A
  1. an explanation fr management summarizing the company’s operating results
  2. an external auditor’s report on the financial statements
  3. notes to the finanacial statements providing supplemental info
40
Q

The professional organization for certified public accountants in the US is

A

the American Institute of Certified Public Accountants AICPA

41
Q

T/F Company stock values are influenced most significantly by investors’ changing expectations of a company’s future earnings

A

true

42
Q

T/F the primary purpose of financial accounting is to communicate info to the managers of a business

A

false

43
Q

a disadvantage of the corporate form of business ownership is

A

possible double income taxation on profits distributed to the company owners

44
Q

T/F the Novo Mercado is a Brazilian stock market that has been proposed primarily for the listing of foreign stocks (non-Brazilian in order to make investment in such companies more accessible to Brazilian investors

A

False, it is for the listing of Brazilian companies to attract foreign investors and capital to Brazil

45
Q

T/F the SEC is considering the allowance of international accounting standards for companies wishing to access US capital markets, but such a policy is opposed by the the FASB and many US corporations

A

true

46
Q

T/F the IASB is a London based organization that has been established to require and enforce the use of international accounting standards in countries receiving funds through the IMF

A

False

47
Q

the prep and accuracy of a company’s financial statements and compliance with GAAP is primarily the responsibility of the company’s

A

management

48
Q

T/F stock selling at a low P/E ratio is more characteristic of a growing company than one that has stabilized earnings

A

false

49
Q

What is P/E ratio?

A

it shows the relationship of a company’s stock price relative to its earnings

50
Q

t/f a sporting goods store in the local mall is an example of a merchandising business

A

true

51
Q

when P/E ratio of a company is low relative to its earning

A

there is not a significant expectaton of future earnings growth

52
Q

Why does high growth company stock sell at a higher PE ratio

A

because people are willing to pay higher prices to own the stock of companies for which higher eanings are anticipated or hoped for

53
Q

financial accounting provides

A

information to investors and creditors

54
Q

GAAP applies to what type of accounting

A

financial accounting

A2 (16 decks)

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