Intro To Financial Accounting Test Questions – Flashcards
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accounting
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the information system that identifies, records, and communicates the economic events of an organization to interested users
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annual report
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a report prepared by corporate management that presents financial information including financial statements, notes, a management discussion and analysis section, and an independent auditor's report
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assets
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resources owed by a business
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auditors report
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a report prepared by an independent outside auditor stating the auditor's opinion as to the fairness of the presentation of the financial position sand results of operations and their conformance with generally accepted accounting standards.
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stockholder's equity
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the stockholder's claim on total assets
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GAAP
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The common set of accounting principles, standards and procedures that companies use to compile their financial statements. GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and reporting accounting information.
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Fair Value
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1. The estimated value of all assets and liabilities of an acquired company used to consolidate the financial statements of both companies.
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sole proprietorship
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a business owned by one person.
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partnership
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a business owned by two or more persons associated as partners
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corporation
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a business organized as a separate legal entity having ownership divided into transferable share of stock
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accounting
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the information system that identifies, records, and communicates the economic events of an organization to interested users.
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Sarbanes Oxley Act (SOX)
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The act passed in 2002 by Congress to try to reduce unethical corporate behavior and consequently decrease the likelihood of future corporate scandals.
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liabilities
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amounts owed to creditors in the form of debt and other obligations
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common stock
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the term used to describe the total amount paid in by stock holders for the shares they purchased.
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dividend
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a payment of income to a stockholder
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assets
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resources owned by a business from which future economic benefits are expected
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revenue
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the increase in assets resulting form the sale of a product or service in the normal course of business
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expenses
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the cost of assets consumed or services used in the process of generating revenues
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net income
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when revenue exceed expenses
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net loss
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when expenses exceed revenues
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income statement
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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
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retained earnings
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the net income that has been retained in the corporation
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retained earnings statement
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the statement that shows the amounts and causes of changes in retained earnings during the period
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balance sheet
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the financial statement that reports assets and claims to those assets at a specific point in time
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stockholder's equity
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claims of owners to the assets of a company
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basic accounting equation
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Assets = Liabilities + Stockholder's Equity
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statement of cash flows
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provides information to uses about the cash payments and receipts of a business about a specific point in time.
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comparative statements
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a presentation of the financial statements of a company for more than one year
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annual report
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a yearly report from management to the share holders on the preceding s of the company
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management discussion and analysis
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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
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notes to the financial statements
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notes that clarify information in the financial statement, as well as expand upon it where additional detail is needed
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Auditors Report
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A report prepared by an independent outside auditor
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Certified Public Account
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an individual who has met certain criteria and is thus allowed to perform audits of corporations
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classified balance sheet
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a balance sheet that contains a number of standard classification or sections
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comparability
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ability to compare the accounting information of different companies because they use the same accounting principles
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conservatism
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the approach of choosing an accounting method, when in doubt, that will least likely overstate assets and net income
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consistency
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use of the same accounting principles and methods from year to year within a company
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cost principle
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an accounting principle that states that companies should record assets at their cost
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current assets
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cash and other resources that companies reasonable expect to convert to cash or use up within one year or the operating cycle, which ever is longer
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current liabilities
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obligations that companies reasonably expect to pay within the next year or operating cycle, whichever is longer
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current-ratio
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a measure used to evaluate a company's liquidity and short-term debt-paying ability; computed as current assets divided by current liabilities
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Debt to total assets ratio
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measures the percentage of total financing provided by creditors; computed as total debt divided by total assets
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earnings per share (EPS)
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a measure of the net income earned on each share of common stock; computed as net income minus preferred stock dividends divided by the average number of common shares outstanding during the year.
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Economic entity assumption
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An assumption that economic events can be identified with a particular unit of accountability
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Financial Accounting Standards Board (FASB)
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The primary accounting standard-setting body in the United States
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free cash flow
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cash provided by operating activities adjusted for capital expenditures and dividends paid.
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Full disclosure principle
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Accounting principle that dictates that companies disclose circumstances and event that make a difference to financial statement users
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Going concern assumption
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the assumption that the enterprise will continue in operation for the foreseeable future.
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Intangible assets
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assets that do not have physical substance
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International Accounting Standards Board (IASB)
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an accounting standard-setting body that issues standards adopted by many countries outside of the United States
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Liquidity
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The ability of a company to pay obligations that are expected to become due within the next year or operating cycle
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Liquidity ratios
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Measures of the short-term ability of the company to pay its maturing obligation and to meet unexpected needs for cash
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long-term investments
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generally, investments in stocks ans bonds of other companies that companies normally hold for many years. Also includes long-term assets, such as land and buildings, not currently being used in the company's operations
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long-term liabilities (long-term debt)
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obligations that companies do not expect to pay withing one year of the operating cycle
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materiality
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the constraint of determining whether an item is large enough to likely influence the decision of an investor or creditor
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monetary unit assumption
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an assumption that requires that only those things that can be expressed in money are included in the the accounting records.
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operating cycle
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the average time required to go from cash to cash in producing revenues
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profitability ratios
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measures of the income or operating success of a company for a given period of time
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property, plant, and equipment
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assets of a relatively permanent nature that companies use in the business and are not intended for sale
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ratio
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an expression of the mathematical relationship between one quantity and another; may be expressed as a percentage, a rate or a proportion.
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ratio analysis
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a technique for evaluating financial statements that expresses the relationship among selected financial statement data
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relevance
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the quality of information that indicates the information makes a difference in a decision
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reliability
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reliability the quality of information that gives assurance that it is free of error and bias
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Securities and Exchange Commission (SEC)
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The agency of the U.S. government that oversees U.S. Financial markets and accounting standards-setting bodies.
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Solvency
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The ability of a company to pay interest as it comes due and to repay the face value of debt at maturity
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Solvency Ratios
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Measures of the ability of the company to survive over a long period of time
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Statement of Stockholder's equity
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A financial statement that presents the factors that caused stockholders equity to change during the period, including those that caused retained earnings to change
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Time period assumption
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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
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Working capital
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the difference between the amounts of current assets and current liabilities
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account
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an individual accounting record of increases and decreases in specific asset, liability or stockholders equity items
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accounting information system
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the system of collecting and processing transaction data and communicating financial information to interested parties
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accounting transactions
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events that require recording in the financial statements because they affect assets, liabilities, or stockholders equity
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chart of accounts
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a list of a company's accounts
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credit
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the right side of an account
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debit
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the left side of an account
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double-entry system
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a system that records the dual effect of each transaction in appropriate accounts
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general journal
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the most basic form of journal
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general ledger
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a ledger contains all asset, liability, and stockholders' equity accounts
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journal
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an accounting record in which transactions are initially record in chronological order
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journalizing
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the procedure of entering transaction data in the journal
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ledger
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the group of accounts maintained by a company
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posting
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the procedure of transferring journal entries to the ledger accounts
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T accounts
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the basic form of an account
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Trial balance
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a list of accounts and their balances at a given time
