BA 215 Ch1 – Flashcards

Unlock all answers in this set

Unlock answers
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.
question
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.
question
Accounts receivable
answer
Receivables created by selling merchandise or services on credit.
question
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.
question
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.
question
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.
question
Net income
answer
The excess of revenues over expenses.
question
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.
Get an explanation on any task
Get unstuck with the help of our AI assistant in seconds
New