Week 1 Nature of Accounting

Question 1

business structure with: one single owner; easy to form/start; limited life (owner is
alive); pass-through taxation (as personal income); not a legal entity; unlimited liability

Answer 1

sole proprietorship

Question 2

business structure with: two or more owners; easy to form/start; limited life (all owners are living); pass-through taxation (as personal income); not a legal entity; unlimited liability

Answer 2

partnership

Question 3

business structure with: one or more owners; can be public or private; more difficult to form; unlimited life (stock can transfer); separate legal entity; limited liability; double taxation

Answer 3

corporation

Question 4

the usual business activity of a company (ex. sell products, provide services, conduct marketing, etc.)

Answer 4

operating activities

Question 5

business activities having to do with the purchasing and/or sale of resources

Answer 5

investing activities

Question 6

business activities having to do with debt or equity financing

Answer 6

financing activities

Question 7

a language of business employed to communicate financial information based upon analyzing, recording, classification, summarization, reporting, and interpretation of financial statements

Answer 7

accounting

Question 8

the recording of financial information in a
prescribed manner

Answer 8

bookkeeping

Question 9

the process of measuring economic activity in monetary terms and communicating results to users for the purposes of comparison and making business decisions

Answer 9

the accounting process

Question 10

the subset of accounting that produces publicly available financial statements for external use by potential investors, shareholders, creditors, financial analysts, labor unions, trade associations, etc.

Answer 10

financial accounting

Question 11

the subset of accounting that includes preparation of records/reports for tax filing, keeping track of annual legislative changes and taxing techniques/regulations
which may influence business decisions

Answer 11

tax accounting

Question 12

the subset of accounting which includes generating internal reports and
analyzing data used for decisions
regarding operations by the marketing department, management team, finance department, etc.

Answer 12

managerial accounting

Question 13

a network of conventions, rules, guidelines, and procedures for recording transactions and preparing financial statements. which forms the basis for comparison among financial statements of different corporations

Answer 13

Generally Accepted Accounting Principles (GAAP)

Question 14

FASB

Answer 14

Financial Accounting Standards Board

Question 15

SEC

Answer 15

U.S. Securities and Exchange Commission

Question 16

IASB

Answer 16

International Accounting Standards Board

Question 17

IFRS

Answer 17

International Financial Reporting Standards

Question 18

property of monetary value owned by a business (probable future economic benefit)

Answer 18

assets

Question 19

any debts that a business owes (probable future sacrifices of economic benefits)

Answer 19

liabilities

Question 20

the residual claims of the owners (stockholders) on the assets of the company (what’s left of assets after all liabilities are satisfied)

Answer 20

owner’s (stockholders) equity

Question 21

an inflow of cash/net-assets as a result of
selling a product or providing a service

Answer 21

revenues (income)

Question 22

a decrease in cash/net-assets (other than
withdrawals by the owners) as a result of efforts to produce revenues

Answer 22

expenses

Question 23

an inflow of cash/net-assets as a result of a peripheral transaction related to secondary operations of the business

Answer 23

gains

Question 24

outflows of cash/net-assets as a result of a peripheral transaction related to secondary operations of a business

Answer 24

losses

Question 25

an economic unit with defined boundaries for which we accumulate and report financial information

Answer 25

economic entity/accounting entity

Question 26

the economic life used for the preparation of financial statements most commonly in a one year interval

Answer 26

accounting period

Question 27

A twelve month period beginning January 1st and concluding on December 31st

Answer 27

calendar year

Question 28

A twelve month period that does not begin on January 1st

Answer 28

fiscal year

Question 29

the principle that accounting information must be measured in a common denominator for it to be useful

Answer 29

monetary unit concept

Question 30

all expenses incurred to generate revenues should be recognized during the same period as those revenues

Answer 30

matching principle

Question 31

potential measurement errors are better when profit is underestimated rather than overestimated

Answer 31

conservatism