question

Describe the types and forms of businesses, how businesses make money, and business stakeholders.

answer

The three types of businesses operated for profit include manufacturing, merchandising, and service businesses. Such businesses may be organized as proprietorships, partnerships, corporations, and limited liability companies. A business may make profits by gaining an advantage over its competitors using a low-cost or a premium-price emphasis. A business's economic success is of interest to its stakeholders. There are four categories of stakeholders: capital market, product or service, government, and internal stakeholders.

question

Describe the three business activities of financing, investing, and operating.

answer

All businesses engage in financing, investing, and operating activities. Financing activities involve obtaining funds to begin and operate a business. Investing activities involve obtaining the necessary resources to start and operate the business. Operating activities involve using the business' resources according to its business emphasis.

question

Define accounting and describe its role in business.

answer

Accounting is an information system that provides reports to stakeholders about the economic activities and condition of a business. Accounting is the "language of business".

question

Describe and illustrate the basic financial statements and how they interrelate.

answer

The principal financial statements of a corporation are the income statement, the retained earnings statement, the balance sheet, and the statement of cash flows. The income statement reports a period's net income or net loss, which also appears on the retained earnings statement. The ending retained earnings reported on the retained earnings statement is also reported on the balance sheet. The ending cash balance is reported on the balance sheet and the statement of cash flows.

question

Describe eight accounting concepts underlying financial reporting.

answer

The eight accounting concepts discussed in this chapter include the business entity, cost, going concern, matching, objectivity, unit of measure, adequate disclosure, and accounting period concepts.

question

Accounting

answer

An information system that provides reports to stakeholders about the economic activities and condition of a business.

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Accounting equation

answer

Assets=Liabilities+Stockholder's Equity

question

Accounting period concept

answer

An accounting concept in which accounting data are recorded and summarized in a period process.

question

Accounts payable

answer

Liabilities for amounts incurred from purchases of products or services in the normal operations of a business.

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Accounts receivable

answer

Receivables created by selling merchandise or services on credit.

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Adequate disclosure concept

answer

An accounting concept that requires financial statements to include all relevant data a reader needs to understand the financial condition and performance of a business.

question

Administrative expenses

answer

Costs not directly related to selling, such as officer salaries.

question

Assets

answer

The resources owned by a business.

question

Balance sheet

answer

A list of the assets, liabilities, and owner's equity as of a specific date, usually at the close of the last day of a month or year.

question

Bonds payable

answer

A type of long-term debt financing with a face amount that is in the future with interest that is usually payed semi-annually.

question

Business

answer

An organization in which basic resources, such as materials and labor, are assembled and processed to provide goods and services to customers.

question

Business entity concept

answer

An accounting concept that limits the economic data in the accounting system of a specific business or entity to data related directly to that business or entity.

question

Business stakeholder

answer

A person or entity that has an interest in the economic performance of a business.

question

Capital stock

answer

Types of stock a corporation may issue.

question

Common stock

answer

The basic type of stock issued to stockholders of a corporation when a corporation has issued only one class of stock.

question

Corporation

answer

A business organized under state or federal statutes as a separate legal entity.

question

Cost concept

answer

An accounting concept that determines the amount initially entered into the accounting records for purchases.

question

Cost of goods sold

answer

The cost of products sold may also be referred to as cost of merchandise sold or cost of sales.

question

Cost of merchandise sold

answer

The cost of products sold may also be referred to as cost of goods sold or cost of sales.

question

Cost of sales

answer

The cost of products sold may also be referred to as cost of goods sold or cost of merchandise sold.

question

Dividends

answer

Distributions of the earnings of a corporation to its stockholders.

question

Expenses

answer

Costs used to earn revenues.

question

Fees earned

answer

Revenues received from providing services.

question

Financial accounting

answer

The branch of accounting which is associated with preparing reports for users external to the business.

question

Financial Accounting Standards Board (FASB)

answer

The authoritative body that has the primary responsibility for developing accounting principles.

question

Financial statements

answer

Financial reports that summarize the effects of events on a business.

question

Financial activities

answer

Business activities that involve obtaining funds to begin and operate a business.

question

Generally accepted accounting principles (GAAP)

answer

Rules for the way financial statements should be prepared.

question

Going concern concept

answer

An accounting concept that assumes a business will continue operating for an indefinite period of time.

question

Income statement

answer

A summary of the revenue and expenses for a specific period of time, such as a month or year.

question

Intangible assets

answer

Long-lived assets that are useful in operations of a business, are not held for sale, and are without physical qualities.

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Interest payable

answer

A liability to pay interest on a due date.

question

International Accounting Standards Board

answer

An authoritative body that establishes accounting principles and practices for companies outside of the United States.

question

Investing activities

answer

Business activities that involve obtaining the necessary resources to start and operate the business.

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Liabilities

answer

The rights of creditors that represent a legal obligation to repay an amount borrowed according to terms of the borrowing agreement.

question

Limited liability company (LLC)

answer

A form of business that combines attributes of a corporation and a partnership.

question

Low-cost strategy

answer

A strategy in which a company designs and produces products or services at a lower cost than its competitors.

question

Managerial accounting

answer

The branch of accounting that aids management in making financing, investing, and operating decisions for the company.

question

Manufacturing businesses

answer

A type of business that changes basic inputs into products that are sold to individual customers.

question

Matching concept

answer

An accounting concept that requires expenses of a period to be matched with the revenue generated during that period.

question

Merchandising businesses

answer

Businesses that sell products they purchase from other businesses to customers.

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Net income

answer

The excess of revenues over expenses.

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Net loss

answer

The excess of expenses over revenues.

question

Notes payable

answer

A type of short or long-term financing that requires payment of the amount borrowed plus interest.

question

Objectivity concept

answer

An accounting concept that requires accounting records and data reported in financial statements to be based on objective evidence.

question

Operating activities

answer

Business activities that involve using the businesses' resources to implement its business strategy.

question

Owner's equity

answer

The financial rights of the owner.

question

Partnership

answer

A business owned by two or more individuals.

question

Premium-price strategy

answer

A strategy in which a company tries to design and produce products or services that serve unique market needs, allowing it to charge premium prices.

question

Prepaid expenses

answer

Assets resulting from the pre-payment of future expenses such as insurance or rent that are expected to become expenses over time or through the normal operations of the business; often called deferred expenses.

question

Profit

answer

The excess of the amounts received from customers for goods or services and the amounts paid for the inputs used to provide the goods or services.

question

Proprietorship

answer

A business owned by one individual.

question

Retained earnings

answer

Net income retained in a corporation.

question

Retained earnings statement

answer

A summary of changes in the retained earnings of a corporation for a specific period of time, such as a month or year.

question

Revenue

answer

The increase in assets from selling goods or services to customers.

question

Sales

answer

Revenues received from selling products.

question

Securities and Exchange Commission

answer

An agency of the US government that has authority of the accounting and financial disclosures for corporations whose stock is traded and sold to the public.

question

Selling expenses

answer

Costs directly related to the selling of a product or service such as sales, salaries, and advertising expenses.

question

Service businesses

answer

A type of business that provides services rather than products to customers.

question

Statement of cash flows

answer

A summary of the cash receipts and cash payments for a specific period of time, such as a month or year.

question

Statement of financial condition

answer

Reports the financial condition as of a point in time, often referred to as the balance sheet.

question

Stockholder's equity

answer

The stockholders rights to the assets of a business.

question

Tangible assets

answer

Assets such as machinery, buildings, computers, office furnishings, trucks, and automobiles that have physical characteristics.

question

Unit of measure concept

answer

An accounting concept requiring that economic data be recorded in dollars.

question

A profit-making business operating as a seperate legal entity and in which ownership is divided into shares of stock is known as:

answer

A corporation

question

The resources owned by a business are called:

answer

Assets

question

A listing of a business entity's assets, liabilities, and stock holder's equity as of a specific date:

answer

Balance Sheet

question

If total assets are $20,000 and total liabilities are $12,000, the amount of stockholder's equity is:

answer

$8,000

question

If revenue was $45,000, expenses were $37,500, and dividends were $10,000, the amount of net income/loss would be:

answer

$7,500, net income

question

What are the major objectives of financial accounting?

answer

to report the financial condition of a business at a point in time and to report changes in the financial condition of a business over a period of time.

question

What order are financial statements prepared in?

answer

Income Statement, Retained Earnings Statement, Balance Sheet, Statement of Cash Flows

question

The ___ concept limits the economic data recorded in an accounting system to data related to company activities.

answer

the business entity concept.

question

____ was enacted as a result of accounting and business fraud.

answer

Sarbanes-Oxley Act (SOX)

question

What types of financing require interest payments?

answer

Notes payable and bonds.

question

What is the role of accounting?

answer

To provide information about the financing, investing, and operating activities of a company to its stakeholders.

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