question

accounting

answer

information system that identifies, records, and communicates the economic events of an organization

question

annual report

answer

report prepared by corporate management that presents financial information and an independent auditor's report

question

Assets

answer

Resources owned by a business

question

Auditor's report

answer

A report prepared by an independent outside auditor stating the auditor's opinion as to the fairness of the presentation of the financial position and results of operations and their conformance with generally accepted accounting standards.

question

Balance sheet

answer

A financial statement that reports the assets and claims to those assets at a specific point in time.

question

Basic accounting equation

answer

Assets = Liabilities + Stockholders' Equity.

question

Certified Public Accountant (CPA)

answer

An individual who has met certain criteria and is thus allowed to perform audits of corporations.

question

Common stock

answer

total amount paid in by stockholders for the shares they purchase.

question

Comparative statements

answer

A presentation of the financial statements of a company for more than one year.

question

Corporation

answer

A business organized as a separate legal entity having ownership divided into transferable shares of stock.

question

Dividends

answer

Payments of cash from a corporation to its stockholders.

question

Expenses

answer

The cost of assets consumed or services used in the process of generating revenues.

question

Income statement

answer

A financial statement that presents the revenues and expenses and resulting net income or net loss of a company for a specific period of time.

question

Liabilities

answer

The debts and obligations of a business. Liabilities represent the amounts owed to creditors.

question

Management discussion and analysis (MD&A)

answer

A section of the annual report that presents management's views on the company's ability to pay near-term obligations, its ability to fund operations and expansion, and its results of operations.

question

Net income

answer

The amount by which revenues exceed expenses. Net Income = Revenues > Expenses

question

Net loss

answer

The amount by which expenses exceed revenues. Net Loss = Expenses > Revenue

question

Notes to the financial statements

answer

Notes that clarify information presented in the financial statements, as well as expand upon it where additional detail is needed.

question

Partnership

answer

A business owned by two or more persons associated as partners.

question

Retained earnings

answer

The amount of net income retained in the corporation.

question

Retained earnings statement

answer

A financial statement that summarizes the amounts and causes of changes in retained earnings for a specific period of time.

question

Revenue

answer

The increase in assets that result from the sale of a product or service in the normal course of business.

question

Sarbanes-Oxley Act (SOX)

answer

Regulations passed by Congress in 2002 to try to reduce unethical corporate behavior.

question

Sole proprietorship

answer

A business owned by one person.

question

Statement of cash flows

answer

A financial statement that provides financial information about the cash receipts and cash payments of a business for a specific period of time.

question

Stockholders' equity

answer

The owners' claim on total assets.

question

Classified balance sheet

answer

A balance sheet that contains a number of standard classifications and sections.

question

Comparability

answer

Ability to compare the accounting information of different companies because they use the same accounting principles.

question

Conservatism

answer

The approach of choosing an accounting method, when alternatives exist, that will least likely overstate assets and net income.

question

Consistency

answer

Use of the same accounting principles and methods from year to year within a company.

question

Cost principle

answer

An accounting principle that states that companies should record assets at their cost.

question

Current assets

answer

Cash and other resources that companies expects to convert to cash or use up within one year or the operating cycle, whichever is longer.

question

Current liabilities

answer

Obligations that a company reasonably expects to pay within the next year or operating cycle, whichever is longer.

question

Current ratio measures

answer

ability of company to pay short-term debt-paying

question

Debt to total assets ratio measures

answer

Measures the percentage of assets financed by creditors. higher percentage of dept financing , the riskier the business

question

Earnings per share (EPS) measures

answer

the net income earned on each share of common stock.

question

Economic entity assumption

answer

An assumption that every economic entity can be separately identified and accounted for.

question

Financial Accounting Standards Board (FASB)

answer

The primary accounting standard-setting body in the United States

question

Free cash flow measures

answer

provides insight into a company's cash gnerating ability

question

Full disclosure principle

answer

Accounting principle that dictates that companies disclose circumstances and events that make a difference to financial statement users.

question

Generally accepted accounting principles (GAAP)

answer

A set of rules and practices, having substantial authoritative support, that the accounting profession recognizes as a general guide for financial reporting purposes.

question

Going concern assumption

answer

The assumption that the company will continue in operation for the foreseeable future.

question

Intangible assets

answer

Assets that do not have physical substance.

question

International Accounting Standards Board (IASB)

answer

An accounting standard-setting body that issues standards adopted by many countries outside of the United States.

question

Liquidity

answer

The ability of a company to pay obligations that are expected to become due within the next year or operating cycle.

question

Liquidity ratios

answer

Measures of the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash.

question

Long-term investments

answer

(1) investments in stocks and bonds of other corporations that companies hold for more than one year, and (2) long-term assets, such as land and buildings, not currently being used in the company's operations.

question

Long-term liabilities (Long-term debt)

answer

Obligations that a company expects to pay after one year

question

Materiality

answer

The constraint of determining whether an item is large enough to likely influence the decision of an investor or creditor.

question

Monetary unit assumption

answer

An assumption that requires that only those things that can be expressed in money are included in the accounting records.

question

Operating cycle

answer

The average time required to go from cash to cash in producing revenues.

question

Profitability ratios

answer

Measures of the operating success of a company for a given period of time.

question

Property, plant, and equipment

answer

Assets with relatively long useful lives that companies use in operating the business and are not intended for resale.

question

Public Company Accounting Oversight Board (PCAOB)

answer

The group charged with determining auditing standards and reviewing the performance of auditing firms.

question

Ratio

answer

An expression of the mathematical relationship between one quantity and another; may be expressed as a percentage, a rate, or a proportion.

question

Ratio analysis

answer

Expresses the relationship among selected items of financial statement data. Expresssed in terms of either percentage, a rate or a simple proportion

question

Relevance

answer

The quality of information that indicates the information makes a difference in a decision.

question

Reliability

answer

The quality of information that gives assurance that it is free of error, is factual, and is neutral.

question

Securities and Exchange Commission (SEC)

answer

The agency of the U.S. government that oversees U.S. financial markets and accounting standard-setting bodies.

question

Solvency

answer

The ability of a company to pay interest as it comes due and to repay the balance of debt at its maturity.

question

Solvency ratios

answer

Measures of the ability of the company to survive over a long period of time.

question

Statement of stockholders' equity

answer

A financial statement that presents the factors that caused stockholders' equity to change during the period, including those that caused retained earnings to change.

question

Time period assumption

answer

An assumption that the life of a business can be divided into artificial time periods and that useful reports covering those periods can be prepared for the business.

question

Working capital measures

answer

short-term ability to pay obligatons positive working capital - indicates likelihood that it will pay liabilities negative working capital - indicates that a company might not be able to pay creditors and may be forced into bankruptcy

question

Account

answer

An individual accounting record of increases and decreases in specific asset, liability, stockholders' equity, revenue or expense items.

question

Accounting information system

answer

The system of collecting and processing transaction data and communicating financial information to interested parties.

question

Accounting transactions

answer

Events that require recording in the financial statements because they affect assets, liabilities, or stockholders' equity.

question

Chart of accounts

answer

A list of a company's accounts.

question

Credit

answer

The right side of an account.

question

Debit

answer

The left side of an account.

question

Double-entry system

answer

A system that records the dual effect of each transaction in appropriate accounts.

question

General journal

answer

The most basic form of journal.

question

General ledger

answer

A ledger that contains all asset, liability, stockholders' equity, revenue, and expense accounts.

question

Journalizing

answer

The procedure of entering transaction data in the journal.

question

Journal

answer

An accounting record in which transactions are initially recorded in chronological order.

question

Ledger

answer

The group of accounts maintained by a company.

question

Posting

answer

The proces of transferring journal entries to the ledger accounts.

question

T account

answer

The basic form of an account.

question

Trial balance

answer

A list of accounts and their balances at a given time.

question

order to complete financial statements

answer

1. Income Statement 2. Retained Earnings Statement 3. Balance Sheet 4. Statement of Cash Flows

question

primary forms of business organization

answer

• Sole proprietorship • Partnership • corporation

question

Advantages of Sole proprietorship

answer

•simple to establish •owner controlled •tax advantages that are more favorable than a corporation

question

Disadvantages of Sole proprietorship

answer

•owner personally liable for all business debts •financing may be difficult •transfer of ownership may be difficult

question

Advantages of partnership

answer

•simple to establish •shared control •broader skills and resources •tax advantages that are more favorable than a corporation

question

Disadvantages of partnership

answer

•owners personally liable for all business debts • transfer of ownership may be difficult

question

Advantages of corporation

answer

•easier to transfer ownership •easier to raise funds •lower legal liability - no personal liability for stockholders

question

Disadvantages of corporation

answer

•unfavorable tax treatment resulting in higher taxes paid by stockholders

question

purpose of financial statements

answer

provide inputs for decision making

question

two types of users of financial statements are

answer

internal users external users

question

all businesses are involved in the following types of activity

answer

Operating Investing Financing

question

Financing activities

answer

Cash is often obtained from outside sources to start or expand a business.

question

Investing activities

answer

Purchase of resources a company needs to operate the business

question

Operating activities

answer

begin once business has assets it needs from the other two activities.

question

primary sources of financing activities

answer

1. Borrowing money 2. Issuing shares of stock

question

Accounting Information is communicated through which documents

answer

Income Statement Retained Earnings Statement Balance Sheet Statement of Cash Flows

question

Components of Annual Report

answer

• Financial statements • Management discussion and analysis • Notes to financial statements • Auditor's report

question

internal users of financial statements

answer

are within the organization ... marking, management, human resources

question

external users of financial statements

answer

outside organization... investors, creditors, IRS, SEC, customers, labor unions

question

Earnings per share (EPS) computed as

answer

net income minus preferred stock dividends divided by the average number of common shares outstanding during the year. expressed in dolar value

question

Working Capital computed as

answer

Current Assets minus Current Liabilities expressed in Proportion 1.44:1

question

Current ratio computed as

answer

current assets divided by current liabilities. expressed in Proportion 1.44:1

question

Debt to total assets ratio computed as

answer

total liabilities divided by total assets expressed as a percentage

question

Free cash flow computed as

answer

Cash provided by operations minus capital expenditures minus cash dividends expressed in dolar value

question

for financial information to be useful, it should possess:

answer

• relevance • reliability • comparability • consistency

question

Assumptions in Financial Accounting are

answer

• Monetary unit assumption • Economic entity assumption • Time period assumption • Going concern assumption • Cost principle • Full disclosure principle

question

constraints in financial reporting

answer

• Materiality • Conservatism

question

Balance Sheet Classifications

answer

• Current Assets • Long-term investments • Property, plant and equipment • Intangible assets • Current liabilities • Long-term liabilities • Stockholder's equity

question

Statement of cash flows

answer

presents information about cash inflows and outflows from 1. Operating activities 2. Investing activities 3. Financing activities

question

Asset entry effects

answer

debit- increase credit - decrease normal balance - debit

question

liabilities entry effects

answer

debit - decrease credit - increase normal balance - credit

question

normal balance

answer

on the side where the increase in account is recorded

question

common stock entry effects

answer

debit - decrease credit - increase normal balance - credit

question

retained earnings entry effects

answer

debit - decrease credit - increase normal balance - credit

question

dividends entry effects

answer

debit- increase credit - decrease normal balance - debit

question

Revenue entry effects

answer

debit - decrease credit - increase normal balance - credit

question

Expense entry effects

answer

debit- increase credit - decrease normal balance - debit

question

journal contributes to the recording process by

answer

1. disclosing in one place the complete effect of a transaction 2. provides a chronological record of transactions 3. helps prevent or locate errors because debit and credit amounts can be readily compared

question

basic steps in the accounting process

answer

1. analyze each transaction in terms of it's effect on accounts 2. enter the transaction into the journal 3. transfer the journal information to accounts in the ledger

question

accounts types with debit normal balance

answer

asset dividends expense

question

accounts types with credit normal balance

answer

liabilities common stock retained earnings Revenue

Financial Accounting Ch. 1-3 – Flashcards

Unlock all answers in this set

Haven't found what you were looking for?

Search for samples, answers to your questions and flashcards