Unit 1 Chapter 1.1

Question 1

What are the three activities of the accounting process?

Answer 1

Identify economic events, record events in order to provide a history of financial activities and communicate information to interested users via accounting reports.

Question 2

What does it mean for data to be reported in the aggregate?

Answer 2

Data should be presented in a summarized or collective form. Usually, to protect privacy or personal information.

Question 3

What actions are required for an analysis?

Answer 3

Involves the use of ratios, percentages, and data visualization (graphs and charts) to highlight significant financial trends and relationships.

Question 4

What is interpretation in accounting?

Answer 4

Explaining the uses, meaning, and limitations of reported data.

Question 5

What does bookkeeping involve?

Answer 5

Only the recording of economic events

Question 6

What are internal users?

Answer 6

Managers who plan, organize, and run a business.

Question 7

What are external users?

Answer 7

Individuals and organizations outside a company who want financial information about the company. The two most common types are investors and creditors.

Question 8

Why was the Sarbanes-Oxley Act passed?

Answer 8

US regulators and lawmakers were concerned that the economy would suffer if investors lost confidence in corporate accounting because of unethical financial reporting.

Question 9

What is GAAP?

Answer 9

Generally accepted accounting principles. Standards that are generally accepted and universally practiced by the accounting profession. Indicate how to report economic events.

Question 10

What is relevance in accounting?

Answer 10

Financial information is capable of making a difference in a decision.

Question 11

What is faithful representation?

Answer 11

Numbers and descriptions match what really existed or happened - they are factual

Question 12

What is the historical cost principle (or cost principle)?

Answer 12

Dictates that companies record assets at their cost.

Question 13

Do companies use the historical cost principle to value assets only at the time the asset is purchased?

Answer 13

No. The assets will be valued at costs over its lifetime.

Question 14

What is the monetary unit assumption?

Answer 14

Requires that companies include only transaction data that can be expressed in money terms in the accounting records. This prevents some relevant information from being entered into accounting records.

Question 15

What is the economic entity assumption?

Answer 15

Requires that the activities of the entity be kept separate and distinct from the activities of tits owner and all other economic entities. i.e. No family favors with company company

Question 16

What are the major 3 types of businesses?

Answer 16

Proprietorship- a business owned by one person. Partnership - a business owned by two or more persons. Corporation- business organized as a separate legal entity under state corporation law and having ownership divided into transferable shares of stock.

Question 17

What is the basic accounting equation?

Answer 17

Assets = Liabilities + Owner’s Equity
s

Question 18

What are assets?

Answer 18

Resources a business owns

Question 19

What are liabilities?

Answer 19

Creditor claims against total assets. Existing debts and obligations

Question 20

Can creditors legally force the liquidation of a business that does not pay its debts?

Answer 20

Yes. If this process happens, the law requires that creditor claims be paid before ownership claims are paid.

Question 21

What is owner’s equity?

Answer 21

Ownership claim on total assets. It is equal to total assets minus total liabilities.

Question 22

How do you find out what amount of assets belongs to owners?

Answer 22

We subtract the creditors’ claims (the liabilites) from assets. The remainder is the owner’s claim on the assets or owner’s equity.

Question 23

What are investments by owner?

Answer 23

The assets the owner puts into the business. Investments increase owner’s equity and are recorded as owner’s capital.

Question 24

Is it true that assets are claimed by either creditors or owners?

Answer 24

Yes

Question 25

Will drawings decrease owner’s equity?

Answer 25

Yes. Drawings are when cash or other assets are used personally. Drawings also decrease owner’s equity.

Question 26

What are expenses?

Answer 26

The cost of assets consumed or services used in the process of generating revenue. They are decreases in owner’s equity that result from operating the business.

Question 27

What is the accounting cycle?

Answer 27

Steps companies follow each accounting period to record transactions and eventually prepare financial statements.

Question 28

How many steps are there in the accounting cycle?

Answer 28

Nine

Question 29

What are the steps of the accounting cylce?

Answer 29

Analyze business transactions, journalize, post, trial balance, adjusting entries, adjusted trial balance, financial statements, closing entries, post-closing trial balance

Question 30

Acronym for accounting cycle?

Answer 30

A - jolly - postal worker - thought - all day - about - finally - closing - (the) post office