Accounting Chapter 1
LIABILITES + STOCKHOLDERS EQUITY=
Assets
Liabilities + Stockholders' Equity=
Assets (balance Sheet)
Assets, Liabilites, and common stock are found on the
Balance Sheet
Lists assets first, followed by liabilities and stockholders' equity.
Balance Sheet
Reports assets and claims to assets at a specific point in time.
Balance Sheet
Reports the assets, liabilities and stockholder's equity (SHE) as of a specific date. Assets = Liabilities + SHE
Balance Sheet
Required Financial Statements
Balance Sheet, Income Statement, Retained Earnings Statement, Statement of Cash Flows and Required Footnotes for those Financial Statements.
Which statement presents information as of a specific point in time? Retained earnings statement Statement of cash flows Balance sheet Income statement
Balance sheet
Which financial statement reports assets, liabilities, and stockholders' equity? Income statement. Statement of cash flows. Retained earnings statement. Balance sheet.
Balance sheet The balance sheet is a formal presentation of the accounting equation, such that Assets = Liabilities + Stockholders' Equity.
Which of the following is not an external user of accounting data? Economic planners Chief Financial Officer Customers Labor unions
Chief Financial Officer
Which is not one of the three forms of business organization? Partnership Creditorship Sole proprietorship Corporation
Creditorship
Payable debt/short term
Current Liabilities
Which of the following would not appear on the income statement? Net income Service revenue Interest expense Dividends paid
Dividends paid
Summarizes the changes in retained earnings that have occurred as of a specific date. Beg. Retained Earnings +/- Net Income/Deficit - Dividends = Ending Retained Earnings.
Retained Earnings Statement
Retained earnings at beginning+Net Income-Dividends=
Retained earnings at the end
Amounts earned from the sale of products
Revenues
How was cash used during the period?
Statement of Cash Flows
Summarizes information concerning the cash in flows (receipts) and outflows (payments) for a specific period of time and is categorized by operating, investing and financing activities
Statement of Cash Flows
Which of the following is the most appropriate and modern definition of accounting? Electronic collection, organization, and communication of vast amounts of information The interconnected network of subsystems necessary to operate a business The information system that identifies, records, and communicates the economic events of an organization to interested users A means of collecting information
The information system that identifies, records, and communicates the economic events of an organization to interested users
Common Stock basically means
Who owns us
Liabilities are all ________
________ Payable
The primary purpose of the statement of cash flows is to report a company's investing transactions. a company's financing transactions. information about cash receipts and cash payments of a company. the net increase or decrease in cash.
information about cash receipts and cash payments of a company.
accounting information system
keeps track of the 3 business activites
Amounts owed are called
liabilities
Notes payable and bonds payable are different type of
liabilities
Debts and obligations of a business are referred to as assets. expenses. equities. liabilities.
liabilities.
Party to whom amounts are owed are
creditors
The best definition of assets is the collections of resources belonging to the company and the claims on these resources. owners' investment in the business. resources belonging to a company that have future benefit to the company. cash owned by the company.
resources belonging to a company that have future benefit to the company.
Net income will result during a time period when revenues exceed expenses. expenses exceed revenues. assets exceed liabilities. assets exceed revenues.
revenues exceed expenses.
All businesses are involved in three types of activity
financing, investing, operating.
The common characteristic possessed by all assets is tangible nature. future economic benefit. long life. great monetary value.
future economic benefit.
Notes to the financial statements are generally brief and few in number. help clarify information presented in the financial statements. need not be read in detail if an unqualified opinion accompanies the financial statements. are optional.
help clarify information presented in the financial statements.
Two primary sources of outside funds are
-Borrowing money -Issuing shares of stock for cash
The annual report always includes:
-Financial statements. -Notes to the financial statements. -Independent auditor's report. -Management discussion and analysis.
States that every economic entity can be separately identified and accounted for.
Economic Entity
Retained Earnings=
Equity
cost of assets consumed or services used. (cost of goods sold, selling, marketing, administrative, interest, and income taxes expense).
Expenses
borrowing of funds / issuance of stock to support the business
Financing Activities
Clarifies and expands upon in words information shown on the face of the financial statements when additional detail is need for the user.
Footnotes or Notes to the Financial Statements:
(GAAP)
Generally Accepted Accounting Principles
A set of rules and practices, having substantial authoritative support, that the accounting profession recognizes as a general guide for financial reporting
Generally Accepted Accounting Principles (GAAP)
The business will remain in operation for the foreseeable future.
Going Concern
Reports revenues and expenses for a specific period of time.
Income Statement
The liability created by a business when it purchases coffee beans and coffee cups on credit from suppliers is termed a(n) account payable. expense. account receivable. revenue.
account payable.
U.S. companies that are publicly traded must provide shareholders with an
annual report
Resources owned by a business are referred to as stockholders' equity. liabilities. assets. revenues.
assets.
Resources owned by a business are referred to as assets. liabilities. revenues. stockholders' equity.
assets.
Payments to stockholders are called
dividends
Accounting equation 1
ASSETS = LIABILITIES + STOCKHOLDERS EQUITY
MIRRORS THE FORMAT OF THE BALANCE SHEET
Accounting Equation
Right to receive money from a customer,in the future, as the result of a sale.
Accounts receivable
Transactions are recorded in the periods in which the events occur.
Accrual-Basis
Transactions are recorded in the periods in which the events occur
Accrual-Basis of Accounting
Which of the following is not one of the three primary business activities? Operating Advertising Investing Financing
Advertising
Easy transfer of ownership is a characteristic of which form of business organization? Partnership All of the answer choices are correct Sole proprietorship Corporation
Corporation
An asset that is convertible within 12 months of balance sheet to cash
Current Asset
Reports revenues and expenses of a company for a specific period of time. Simple Step Income Statement: Revenues - Expenses = Net Income; Multiple Step = Net Sales - COGS = Gross Profit - Operating Exp. = Net Income
Income Statement:
In which of the following sequences are the financial statements usually prepared? Balance sheet, retained earnings statement, statement of cash flows, and income statement Balance sheet, statement of cash flows, income statement and retained earnings statement Income statement, balance sheet, retained earnings statement, and statement of cash flows Income statement, retained earnings statement, balance sheet, and statement of cash flows
Income statement, retained earnings statement, balance sheet, and statement of cash flows The financial statements must be prepared in the following order: income statement, retained earnings statement, balance sheet and statement of cash flows. This is because net income (from the income statement) is a required input for the retained earnings statement, ending retained earnings (from the retained earnings statement) is a required input for the balance sheet and the ending cash balance (from the balance sheet) is a required input for the statement of cash flows.
Goodwill, film library, patents are examples of what asset
Intangible
Goods available for sale to customers
Inventory
investing and/or proceeds in fixed assets or resources to run the business.
Investing Activities
examples of long term assets
Land, Buildings
arising from expenses include accounts payable, interest payable, wages payable, sales taxes payable, and income taxes payable.
Liabilities
the debts and obligations of a business; liabilities represent the amounts owed to a creditor or third party who lent you money or resources
Liabilities
On a balance sheet assets are listed in order of
Liquidity
investments convertible after 12 months of balance sheet
Long Term Investments
Debt that will take longer that 12 months to pay off
Long term liabilites
Which of the following would not be considered an external user of accounting data for the Julian Company? Creditors Management Internal Revenue Service agent Customers
Management
Requires that only those things that can be expressed in money are included in the accounting records.
Monetary Unit
Revenues-expenses=
Net Income (income statement)
when revenues exceed expenses.
Net income
Why should the income statement be prepared first? -The statement of cash flows should be prepared first because it determines the sources of cash. That information is then used in preparing the income statement. -The income statement does not have to be prepared first. Financial statements can be prepared in any order. -None of these answer choices are correct. -Net income from the income statement flows into the retained earnings statement. The ending retained earnings balance then flows into the balance sheet.
Net income from the income statement flows into the retained earnings statement. The ending retained earnings balance then flows into the balance sheet.
when expenses exceed revenues.
Net loss
normal revenue & expenses from operations of the business to generate a profit
Operating Activities
States that the life of a business can be divided into artificial time periods.
Periodicity
Which is an advantage of corporations relative to partnerships and sole proprietorships? Reduced legal liability for investors Most common form of organization Increased difficulty of raising funds Harder to transfer ownership
Reduced legal liability for investors
Statement shows amounts and causes of changes in retained earnings during the period.
Retained Earnings Statement
Time period is the same as that covered by the income statement.
Retained Earnings Statement
Users can evaluate dividend payment practices.
Retained Earnings Statement
What was the change in the cash balance during the period?
Statement of Cash Flows
Where cash came from and where it was spent
Statement of Cash Flows
Where did cash come from during the period?
Statement of Cash Flows
Operating Activities, Investing Activities and financing activities all show up on what statement
Statement of cash flows.
Common Stock + Retained Earnings; common stock represents the total amount paid in by stockholders to own shares of the company; retained earnings equals the cumulative net income/loss of the company since its inception.
Stockholders Equity
Which of the following is the most appropriate definition of accounting information? A means of collecting information Electronic collection and organization of vast amounts of financial information The information system that identifies, records, and communicates the economic events of an organization to interested users The interconnected network of subsystems necessary to operate a business
The information system that identifies, records, and communicates the economic events of an organization to interested users
Which of the following is the most appropriate definition of accounting information? A means of collecting information Electronic collection and organization of vast amounts of financial information The information system that identifies, records, and communicates the economic events of an organization to interested users The interconnected network of subsystems necessary to operate a business
The information system that identifies, records, and communicates the economic events of an organization to interested users
Which of the following financial statements is divided into major categories of operating, investing, and financing activities? The balance sheet. The retained earnings statement. The statement of cash flows. The income statement.
The statement of cash flows.
Stockholders' equity is usually equal to cash on hand. includes retained earnings and common stock. is shown on the income statement. is equal to liabilities and retained earnings.
includes retained earnings and common stock.
Retained earnings at the end of the period is equal to -net income. -assets plus liabilities. -retained earnings at the beginning of the period plus net income minus liabilities. -retained earnings at the beginning of the period plus net income minus dividends.
retained earnings at the beginning of the period plus net income minus dividends.