Unit 6: Chapters 18, 19, & 20

Question 1

adjustment

Answer 1

an amount that is added to or subtracted from an account balance to bring that balance up to date

Question 2

beginning inventory

Answer 2

the merchandise a business has on hand at the beginning of the period

Question 3

ending inventory

Answer 3

the merchandise a business has on hand at the end of a period

Question 4

physical inventory

Answer 4

an actual count of all merchandise on hand and available for sale

Question 5

prepaid expense

Answer 5

an expense paid in advance

Question 6

adjusting entries

Answer 6

journal entries that update the general ledger accounts at the end of a period

Question 7

capital stock

Answer 7

stockholder’s equity account

Question 8

stockholder’s equity

Answer 8

value of the stockholder’s claims to the corporation

Question 9

retained earnings

Answer 9

represents the increase in the stockholder’s equity from the portion of net income not distributed to the stockholders

Question 10

comparability

Answer 10

allows accounting information to be compared from one fiscal period to another

Question 11

reliability

Answer 11

refers to the confidence users have that the financial information is reasonably free from bias and error

Question 12

relevance

Answer 12

requirement that all information that would affect decisions of financial statement users be disclosed in the financial reports

Question 13

full disclosure

Answer 13

financial reports include enough information to be complete

Question 14

materiality

Answer 14

relevant information should be included in financial reports

Question 15

net sales

Answer 15

amount of sales for the period less any sales discounts, returns, and allowances

Question 16

net purchases

Answer 16

represents all costs related to merchandise purchased during the period

Question 17

gross profit on sales

Answer 17

the profit made before operating expenses are deducted

Question 18

operating expenses

Answer 18

cost of goods and services used in the process of earning revenue for a business

Question 19

selling expense

Answer 19

incurred to sell or market the merchandise sold

Question 20

administrative expense

Answer 20

related to the management of a business

Question 21

operating income

Answer 21

the excess of gross profit over operating expenses

Question 22

vertical analysis

Answer 22

each $ amount reported on a financial statement is also reported as a % of another amount called a base amount (appears on same statement)

Question 23

statement of retained earnings

Answer 23

reports the changes in the retained earnings account during the period

Question 24

horizontal analysis

Answer 24

the comparison of the same items on a financial statement for two or more accounting periods or dates, and the determination of changes from one period of date to the next

Question 25

base period

Answer 25

a period (usually a year), that is used for comparison

Question 26

cash inflows

Answer 26

receipts of cash

Question 27

cash outflows

Answer 27

payments of cash

Question 28

operating activities

Answer 28

include all transactions that occurred during the accounting period as part of normal business operations

Question 29

investing activities

Answer 29

includes loans the business makes, payments received for those loans, purchase & sale of plant assets (property that will be used in a business for more than one year) and investments

Question 30

financing activities

Answer 30

borrowing activities needed to finance the company operations and the repayment of these debts

Question 31

Closely Held Corporation

Answer 31

a corporation owned by a few persons or by family

Question 32

Proxy

Answer 32

if a board member can not attend the meeting in which voting will take place, they can send someone else know as…

Question 33

Paid-in Capital in Excess of Par

Answer 33

when stock is sold at a price that is above par, the excess amount over par is then credited to a separate stockholder’s equity account called:

Question 34

Publicly Held Corporation

Answer 34

one whose stock is widely own, has a large market, and usually traded on a stock exchange

Question 35

Preferred Stock

Answer 35

-receive dividend s before common stock holder’s
-given preference in distribution of assets (if a corporation goes out of business)

Question 36

Par value

Answer 36

the amount assigned to each share of stock that a corporation sells
-must be printed on the stock certificate

Question 37

Board of Directors

Answer 37

the group of people who manage the corporation and are responsible to govern affairs of the corporation.

Question 38

Dividend

Answer 38

a distribution of cash to stockholder’s

Question 39

Authorized Capital Stock

Answer 39

the maximum number of shares a corporation may issue

Question 40

Common Stock

Answer 40

-elect board of directors
-share earnings by receiving dividends
-entitled to share of assets if corporation goes out of business

Question 41

Statement of Stockholder’s Equity

Answer 41

reports all the changes in ALL stockholder’s equity accounts during the period (not just retained earnings)