ACC504 – CH.1 – Flashcards
Unlock all answers in this set
Unlock answersquestion
All of the following statements are true except one. Which statement is false?
a. Bookkeeping is only a part of accounting
b. A proprietorship is a business with several owners
c. Professional accountants are held to a high standard of ethical conduct
d. The organization that formulates generally accepted accounting principles in the United States is the Financial Accounting Standards Board
answer
b. A proprietorship is a business with several owners
question
The valuation of assets on the balance sheet is generally based on
a. current fair market value as established by independent appraisers
b. what it would cost to replace the asset
c. historical cost
d. selling price
answer
c. historical cost
question
The accounting equation can be expressed as
a. Assets + Liabilities = Owners' Equity
b. Assets - Liabilities = Owners' Equity
c. Owners' Equity - Assets = Liabilities
d. Assets = Liabilities - Owners' Equity
answer
b. Assets - Liabilities = Owners' Equity
question
The nature of an asset is best described as
a. something owned by a business that has a ready market value
b. something with physical form that's valued at cost in the accounting records
c. an economic resource representing cash or the right to receive cash in the future
d. an economic resource that's expected to benefit future operations
answer
d. an economic resource that's expected to benefit future operations
question
Which financial statement covers a period of time?
a. Balance sheet
b. Income statement
c. Statement of cash flows
d. Both b and c
answer
d. Both b and c
question
How would net income be most likely to affect the accounting equation?
a. Increase liabilities and decrease stockholders' equity
b. Increase assets and increase liabilities
c. Decrease assets and decrease liabilities
d. Increase assets and increase stockholders' equity
answer
d. Increase assets and increase stockholders' equity
question
During the year, ChemClean, Inc., has $140,000 in revenues, $75,000 in expenses, and $3,000 in dividend payments. Stockholders' equity changed by
a. +$62,000
b. +$68,000
c. -$62,000
d. -$68,000
answer
a. +$62,000
$140,000-75,000-3,000
question
ChemClean, Inc., in question 7 had
a. net income of $62,000
b. net loss of $75,000
c. net income of $140,000
d. net income of $65,000
answer
d. net income of $65,000
$140,000-75,000
question
Valor Corporation holds cash of $5,000 and owes $29,000 on accounts payable.
Valor has accounts receivable of $40,000, inventory of $36,000, and land that cost $50,000. How much are Valor's total assets and liabilities?
Total assets Total Liabilities
a. $126,000 $29,000
b. $29,000 $131,000
c. $131,000 $29,000
d. $131,000 $84,000
answer
Total assets Total Liabilities
c. $131,000 $29,000
Total assets = $5,000+40,000+36,000+50,000
question
Which item(s) is (are) reported on the balance sheet?
a. Accounts payable
b. Retained earnings
c. Inventory
d. All of the above
answer
d. All of the above
question
During the year, Diaz Company's stockholders' equity increased from $46,000 to $62,000. Diaz earned net income of $20,000. How much in dividends did Diaz declare during the year?
a. $16,000
b. $5,000
c. $4,000
d. $-0-
answer
c. $4,000
$46,000+20,000 net income -dividend
question
Hall Company had total assets of $360,000 and total stockholders' equity of $120,000 at the beginning of the year. During the year, assets increased by $60,000 and liabilities increased by $35,000. Stockholders' equity at the end of the year is
a. $95,000
b. $150,000
c. $145,000
d. $155,000
answer
c. $145,000
Assets = Liabilities + Equity
Beginning $360,000 = $240,000 + $120,000
Increase 60,000 = 35,000 + 25,000
Ending 420,000 = 275,000 + 145,000
question
Which of the following is a true statement about International Financial Reporting Standards?
a. They are converging gradually with U.S. standards
b. They are not needed for U.S. businesses since the United States already has the strongest accounting standards in the world
c. They are more exact (contain more rules) than U.S. generally accepted accounting principles
d. They are not being applied anywhere in the world yet, but soon they will be
answer
a. They are converging gradually with U.S. standards
question
Which of the following is the most accurate statement regarding ethics as applied to decision making in accounting?
a. Ethics has no place in accounting, since accounting deals purely with numbers
b. It is impossible to learn ethical decision making, since it is just something you decide to do or not to do
c. Ethics involves making difficult choices under pressure and should be kept in mind in making every decision, including those involving accounting
d. Ethics is becoming less and less important as a field of study in business
answer
c. Ethics involves making difficult choices under pressure and should be kept in mind in making every decision, including those involving accounting
question
Accounting
answer
The information system that measures business activities, processes that information into reports and financial statements, and communicates the results to decision makers
question
Accounting Equation
answer
The most basic tool of accounting: Assets = Liabilities + Owners' Equity
question
Asset
answer
An economic resource that is expected to be of benefit in the future
question
Balance Sheet
answer
List of an entity's assets, liabilities, and owners' equity as of a specific date. Also called the statement of financial position
question
Board of Directors
answer
Group elected by the stockholders to set policy for a corporation and to appoint its officers
question
Capital
answer
Another name for the owners' equity of a business
question
Common Stock
answer
The most basic form of capital stock
question
Continuity Assumption
answer
See going-concern assumption
question
Corporation
answer
A business owned by stockholders. A corporation is a legal entity, an "artificial person" in the eyes of the law
question
Current Asset
answer
An asset that is expected to be converted to cash, sold, or consumed during the next 12 months, or within the business's normal operating cycle if longer than a year
question
Current Liability
answer
A debt due to be paid within one year or within the entity's operating cycle if the cycle is longer than a year
question
Dificit
answer
Negative balance in retained earnings caused by net losses over a period of years
question
Dividends
answer
Distributions (usually cash) by a corporation to its stockholders
question
Entity
answer
An organization or a section of an organization that, for accounting purposes, stands apart from other organizations and individuals as a separate economic unit
question
Ethics
answer
Standards of right and wrong that transcend economic and legal boundaries. Ethical standards deal with the way we treat others and restrain our own actions because of the desires, expectations, or rights of others, or because of our obligations to them
question
Expenses
answer
Decrease in retained earnings that results from operations; the cost of doing business; opposite of revenues
question
Fair Value
answer
The amount that a business could sell an asset for, or the amount that a business could pay to settle a liability
question
Financial Accounting
answer
The branch of accounting that provides information about a business entity to decision makers
question
Financing Activities
answer
Activities that obtain from investors and creditors the cash needed to launch and sustain the business; a section of the statement of cash flows
question
Generally Accepted Accounting Principles (GAAP)
answer
Accounting guidelines, formulated by the Financial Accounting Standards Board, that govern how accounting is practiced
question
Going-Concern Assumption
answer
Holds that the entity will remain in operation for the foreseeable future
question
Historical Cost Principle
answer
Principle that states that assets and services should be recorded at their actual cost
question
Income Statement
answer
A financial statement listing an entity's revenues, expenses, and net income or net loss for a specific period. Also called the statement of operations
question
International Financial Reporting Standards (IFRS)
answer
Accounting guidelines, formulated by the International Accounting Standards Board (IASB). By 2015, U.S. GAAP is expected to be harmonized with IFRS. At that time, U.S. companies are expected to adopt these principles for their financial statements, so that they can be compared with those of companies from other countries
question
Investing Activities
answer
Activities that increase or decrease the long-term assets available to the business; a section of the statement of cash flows
question
Liability
answer
An economic obligation (a debt) payable to an individual or an organization outside the business
question
Limited Liability Company
answer
A business organization in which the business (not the owner) is liable for the company's debts
question
Long-term Debt
answer
A liability that falls due beyond one year from the date of the financial satements
question
Management Accounting
answer
The branch of accounting that generates information for the internal decision maker of a business, such as top executives
question
Net Earnings
answer
Another name for net income
question
Net Income
answer
Excess of total revenues over total expenses. Also called net earnings or net profit
question
Net Loss
answer
Excess of total expenses over total revenues
question
Net Profit
answer
Another name for net income
question
Operating Activities
answer
Activities that creates revenue or expense in the entity's major line of business; a section of the statement of cash flows. Operating activities affect the income statement
question
Owners' Equity
answer
The claim of the owners of a business to the assets of the business. Also called capital, stockholders' equity, or net assets
question
Paid-in Capital
answer
The amount of stockholders' equity that stockholders have contributed to the corporation. Also called contributed capital
question
Partnership
answer
An association of two or more persons who co-own a business for profit
question
Proprietorship
answer
A business with a single owner
question
Retained Earnings
answer
The amount of stockholders' equity that the corporation has earned through profitable operation and has not given back to stockholders
question
Revenues
answer
Increase in retained earnings from delivering goods or services to customers or clients
question
Shareholder
answer
Another name for stockholder
question
Stable-Monetary-Unit Assumption
answer
The reason for ignoring the effect of inflation in the accounting records, based on the assumption that the dollar's purchasing power is relatively stable
question
Statement of Cash Flows
answer
Reports cash receipts and cash payments classified according to the entity's major activities: operating, investing, and financing
question
Statement of Financial Position
answer
Another name for the balance sheet
question
Statement of Operations
answer
Another name for the income statement
question
Statement of Retained Earnings
answer
Summary of the changes in the retained earnings of a corporation during a specific period
question
Stock
answer
Shares into which the owners' equity of a corporation is dividend
question
Stockholder
answer
A person who owns stock in a corporation. Also called a shareholder
question
Stockholders' Equity
answer
The stockholders' ownership interest in the assets of a corporation
