Set 1

Question 1

Accounting

Answer 1

Information system that reports on the economic activities and financial condition of a business.

Question 2

Accounting provides information

Answer 2

Stakeholders such as resource providers, financial analysts, brokers, attorneys, etc.

Question 3

Financial

Answer 3

External users, measures value, summarizes past, GAAP, FASB, and summarized data for organization.

Question 4

Managerial

Answer 4

Internal users, adds value, emphasis on future decisions, no GAAP, and detalied.

Question 5

FASB

Answer 5

Financial accounting standards board that has primary authority for establishing accounting standards in the US.

Question 6

GAAP

Answer 6

Generally accepted accounting principles that were established by FASB.

Question 7

Market

Answer 7

Group of people or entities organized to exchange items of value. Three groups: consumers, businesses, and resource owners.

Question 8

Investors

Answer 8

Provide financial resources in exchange for ownership interest in businesses. Owners expect businesses to return to them a share of the earned income.

Question 9

Creditors

Answer 9

Lend financial resources to a business. Expect the businesses to repay borrowed resources plus a specified fee called interest.

Question 10

Three elements of equation

Answer 10

Assets, liabilities, and stockholders’ equity. SE subdivided into common stock and retained earnings.

Question 11

Assets

Answer 11

Resources a business uses to earn money. Sources are creditors, investors, or operations. Any account title ending in the word “receivable.” Any account title beginning with the word “prepaid.”

Example(s): land, office supplies, accounts receivable, building, merchandise inventory, notes receivable.

Question 12

Liabilities

Answer 12

Obligations a business has to its creditors. Any account title ending in the word “payable.”

Example(s): bonds payable, accounts payable, sales tax payable.

Question 13

Common stock

Answer 13

Specific commitments made to investors.

Question 14

Stockholders

Answer 14

Investors are referred to as this.

Question 15

Stockholders’ equity

Answer 15

The business’ commitment to the stockholders.

Question 16

Earnings/income

Answer 16

Net increases in assets generated from operations.

Question 17

Losses

Answer 17

Net decreases in assets caused by operations.

Question 18

Dividend

Answer 18

Distribution of assets generated through earnings.

Question 19

Retained earnings

Answer 19

If a business retains assets, it commits to those assets for the benefits of stockholders. The increase in these commitments is RE. Revenue, expenses, and dividends.

Question 20

Revenue

Answer 20

Economic benefit a company derives from providing goods and services to its customers.

Example(s): sales revenue, rent revenue.

Question 21

Expense

Answer 21

Economic sacrifice a business incurs in the process of generating revenue.

Example(s): advertising expense, rent expense, salaries expense.

Question 22

Stockholders’ equity (equation)

Answer 22

Common stock + retained earnings

Question 23

Assets (equation)

Answer 23

Cash + land

Question 24

Liabilities (equation)

Answer 24

Notes payable

Question 25

Retained earnings (equation)

Answer 25

Revenue - expenses - dividends

Question 26

Equity

Answer 26

Example(s): dividends, retained earnings, common stock.

Question 27

Business activity

Answer 27

Financing, investing, operating

Question 28

Financing

Answer 28

Need to obtain sources of cash to start a business.

Inflows: bank(loan), owners, shareholders

Outflows: dividends, payment on loans, distributions

Question 29

Investing

Answer 29

Investing money in the business.

Inflows: sale of assets(building, furniture)

Outflows: building, equipment, furniture

Question 30

Operating

Answer 30

Operations of a business. Income statement items.

Inflows: sales of goods/services(revenue)

Outflows: utilities, rent, salaries(expenses)

Question 31

Asset source

Answer 31

Increase.

Issuing common stock. Borrow from creditors. Through earning activities (revenue).

Question 32

Asset exchange

Answer 32

No change.

Using cash to pay for office supplies, equipment, etc.

Question 33

Asset use

Answer 33

Decrease.

Cash to pay for expenses or dividends.