Financial Accounting Exam 1 Test Questions – Flashcards

Unlock all answers in this set

Unlock answers
question
accounts payable
answer
a liability backed by the general reputation and credit standing of the debtor
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
Assets= Liabilities + Owners' Equity
question
asset
answer
an economic resource that is expected to be a benefit in the future
question
balance sheet
answer
list of an entity's assets, liabilities, and owners' equity as of a specific date
question
board of directors
answer
group elected by the stockholders to set a policy for a corporation and to appoint its officers
question
cash
answer
money and any medium of exchange that a bank accepts at face value
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 converted into 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
question
deficit
answer
negative balance in retained earnings caused by net loss over a period of a year
question
dividends
answer
distributions 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 that deal with the way we treat others and restrain our own actions because of the desire, expectations, or rights of others, or with 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 to people outside of the firm
question
financial statements
answer
business documents that report financial 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
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 as 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
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 payable to an individual or an organization outside of the business
question
long-term debt
answer
a liability that falls due beyond one year from the date of the financial statements
question
managerial accounting
answer
the branch of accounting that generates information for the internal decision makers of a business, such as top executives
question
merchandise inventory
answer
the merchandise that a company sells to customers
question
net income
answer
excess of total revenues over total expenses
question
net loss
answer
excess of total expenses over total revenues
question
note payable
answer
a liability evidenced by a written promise to make a future payment
question
operating activities
answer
activities that create revenue or expense in the entity's major line of business; a section of the statement of cash flows
question
owners' equity
answer
the claim of owners of a business to the assets of the business
question
paid-in capital
answer
the amount of stockholders' equity that stockholders have contributed to the corporation
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 and services to customers or clients
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 retained earnings
answer
summary of the changes in retained earnings of a corporation during a specific period
question
stock
answer
shares into which the owners' equity of a corporation is divided
question
stockholders' equity
answer
the stockholders' ownership interest in the assets of a corporation
question
account
answer
the record of the changes that have occurred in a particular asset, liability, or stockholders' equity during a period. the basic summary device of accounting.
question
accrued liability
answer
a liability for an expense that has not yet been paid by the company
question
chart of accounts
answer
list of a company's accounts and their account numbers
question
credit
answer
the right side of an account
question
debit
answer
the left side of an account
question
journal
answer
the chronological accounting record of an entity's transactions
question
ledger
answer
the book of accounts and their balances
question
posting
answer
copying amounts from the journal to the ledger
question
transaction
answer
any event that has a financial impact on the business and can be measured reliably
question
trial balance
answer
a list of all the ledger accounts with their balances
question
account format
answer
a balance sheet format that lists assets on the left and liabilities and stockholders' equity on the right
question
accrual
answer
an expense or revenue that occurs before the business pays or receives cash
question
accrual accounting
answer
accounting that records the impact of a business event as it occurs, regardless of whether the transaction affected cash or not
question
accrued expense
answer
an expense incurred but not yet paid in cash
question
accrued revenue
answer
a revenue that has been earned but not yet received in cash
question
accumulated depreciation
answer
the cumulative sum of all depreciation expense from the date of acquiring a plant asset
question
adjusted trial balance
answer
a list of all the ledger accounts with their adjusted balances
question
book value
answer
the asset's cost minus accumulated depreciation
question
cash-basis accounting
answer
accounting that records only transactions in which cash is received or paid
question
classified balance sheet
answer
a balance sheet that shows current assets separate from long-term assets, and current liabilities separate from long-term liabilities
question
closing the books
answer
the process of preparing the accounts to begin recording the next period's transactions.
question
closing entries
answer
entries that transfer the revenue, expense, and dividends balances from the respective accounts to the retained earnings account
question
contra account
answer
an account that always has a companion account whose normal balance is opposite that of the companion account
question
current ratio
answer
current assets divided by current liabilities. measures a company's ability to pay current liabilities with current assets
question
debt ratio
answer
ratio of total liabilities to total assets. states the proportion of a company's assets that is finalized with debt
question
deferral
answer
an adjustment for which the business paid or received cash in advance.
question
depreciation
answer
allocation of the cost of a plant asset to expense its useful life
question
liquidity
answer
measure of how quickly an item can be converted to cash
question
matching principle
answer
the basis for recording expenses. directs accountants to identify all expenses incurred during the period, to measure the expenses, and to match them against the revenues earned during the same period
question
multi-step income statement
answer
an income statement that contains subtotals to highlight important relationships between revenues and expenses
question
operating cycle
answer
time span during which cash is paid for goods and services that are sold to customers who pay the business in cash
question
permanent accounts
answer
assets, liabilities, and stockholders' equity accounts that are not closed at the end of the period
question
prepaid expense
answer
a category of miscellaneous assets that typically expire or get used up in the near future
question
revenue principle
answer
the basis of recording revenues; tells accountants when to record revenue and the amount of revenue earned
question
time-period concept
answer
ensures that accounting information is reported at regular intervals
question
unearned revenue
answer
a liability created when a business collects cash from customers in advance to earning the revenue
question
audit
answer
a periodic examination of a company's financial statements and the accounting systems, controls, and records that produce them. audits may be either external or internal.
question
bank collections
answer
collection of money by the bank on behalf of a depositor
question
bank reconciliation
answer
a document explaining the reasons for the difference between a depositor's records and the bank's records about the depositor's cash
question
bank statement
answer
document showing the beginning and ending balances of a particular bank account listing the month's transactions that affected the account
question
budget
answer
a quantitative expression of a plan that helps managers coordinate the entity's activities
question
cash budget
answer
a budget that projects the entity's future cash receipts and cash disbursements
question
cash equivalent
answer
investments such as time deposits, certificated of deposits, or high-grade government securities that are considered so similar that they are combined with cash for financial disclosure purposes on the balance sheet
question
check
answer
document instructing a bank to pay the designated person or business the specified amount of money
question
computer virus
answer
a malicious program that enters a company's computer system via email or other means and destroys program and data files
question
deposits in transit
answer
a deposit recorded by a company, but not yet by its bank
question
electronic fund transfer
answer
system that transfers cash by electronic communication rather than by paper documents
question
encryption
answer
mathematical rearranging of data within an electronic file to prevent unauthorized access to information
question
exception reporting
answer
identifying data that is not within "normal limits" so that managers can follow up and take corrective action.
question
fidelity bond
answer
an insurance policy taken out on employees who handle cash
question
firewall
answer
an electronic barrier, usually provided by passwords, around computerized data files to protect local area networks of computers from unauthorized access
question
fraud
answer
an intentional misrepresentation of facts, made for the purpose of persuading another party to act in a way that causes injury or damage to that party
question
fraud triangle
answer
the three elements that are present in almost all cases of fraud. these elements are motive, opportunity, and rationalization on the part of the perpetrator
question
internal control
answer
organizational plan and related measures adopted by an entity to safeguard assets, encourage adherence to company policies, promote operational efficiency, and ensure accurate and reliable accounting records
question
lapping
answer
a fraudulent scheme to steal cash trough misappropriating certain customer payments and posting payments from other customers to the affected accounts to cover it up.
question
lock-box system
answer
a system of handling cash receipts by mail whereby customers remit payment directly to the bank, rather than through the entity's mail system
question
misappropriation of assets
answer
fraud committed by employees by stealing assets from the company
question
nonsufficient funds check
answer
a check for which the payer's bank account has not enough money to pay the check
question
operating budget
answer
a budget of future net income. projects a company's future revenue and expenses.
question
outstanding checks
answer
a check issued by the company and recorded by its books but not yet paid by its bank
question
password
answer
a special set of characters that must be provided by the user of computerized program or data files to prevent unauthorized access to those files
Get an explanation on any task
Get unstuck with the help of our AI assistant in seconds
New