accounting chapter 1

is a term that refers to a code or moral system that provides criteria for evaluating right or wrong.

ethics

Which of the following are attributes of FASB?

Full-time board members Private sector organization Independence

distributions to stockholders

dividends

True or false: Financial information that is immaterial in amount or nature need not be reported under GAAP.

true (Information that will not affect external users' decisions need not be reported.)

Related transaction: Change in owners' claims to resources.

statement of stockholders equity

Owners' claims to resources.

stockholders equity

According to the conceptual framework, for accounting information to be relevant, what two qualities must it possess?

Confirmatory value Predictive value

Predictive value

Consistently increasing income helps forecast the company's ability to generate future cash.

The private sector organization that is currently responsible for setting accounting standards in the United States is the

Financial Accounting Standards Board.

Confirmatory value

Positive income is consistent with effectiveness of management.

The heading of an income statement should include which of the following?

The name of the business The accounting period covered by the statement The title of the financial statement

The financial statement that displays a firm's financial position on a particular date is the

balance sheet

related transaction: Resources equal creditors' and owners' claims to those resources.

balance sheet

The two sources of stockholders' equity are amounts ______.

earned by the corporation paid in from shareholders

Information that best explains companies' stock price performance is reported on the

income statement

The characteristic that a new accounting standard should not favor one group of companies over others or achieve a particular social outcome is an example of

neutrality.

Two other types of information in addition to the financial statements that must be reported in the annual reports include

notes disclosures. management discussion and analysis.

The statement of cash flows classifies items as

operating, investing, and financing.

The hierarchy of qualitative characteristics of financial information require that, in order to be useful for decision making, information should possess the fundamental characteristics of

relevance and faithful representation.

amounts owed

liabilities

Rahls issues stock to investors for $20,000, and has $5,000 of net income in its first year of operations. During Year 2, Rahls earns $10,000 in net income and pays a dividend to stockholders of $4,000. What is the balance in stockholders' equity at the end of year 2?

$31,000 $11,000 is the ending balance in retained earnings. For total stockholders' equity, you must add the amount in the common stock account. $20,000 + $5,000 + $10,000 - $4,000 = $31,000.

Gem Corporation is a new company and obtains financing by issuing common stock to investors for $30,000. During the year, Gem earns $8,000 in net income and pays stockholders a dividend of $5,000. What is the total stockholders' equity at the end of the year?

$33,000 Beginning retained earnings + Common stock + Net income - Dividends = Ending retained earnings. 0 + $30,000 + $8,000 - $5,000 = $33,000.

Balance sheet

Assets, liabilities, and stockholders' equity

If the same accounting principles and methods are used for similar events by two different firms, this enhances what accounting qualitative characteristic?

Comparability

Faithful representation requires information to have which of the following three characteristics?

Completeness Free from material error Neutrality

Which of these would be found on a company's balance sheet?

Equipment Notes payable Accounts receivable Utilities payable Common stock

Which of the following appear on the statement of stockholders' equity?

Net income Dividends Beginning balance of retained earnings

Which qualitative characteristic requires that financial information should not influence decision making to achieve a predetermined result?

Neutrality

statement of cash flow

Operating, investing, and financing activities

The accounting equation is: Assets = Liabilities +

Stockholders' Equity

Management discussion and analysis and note disclosures to the financial statements are included in the

annual report

resources of a company

assets

A balance sheet lists the

assets, liabilities and stockholders' equity as of a specific date.

Ending retained earnings is calculated as

beginning retained earnings + net income - dividends

The purpose of a statement of cash flows is to provide information about the

cash receipts and cash disbursements during a period.

Shareholders' equity arises primarily from amounts invested by shareholders and amounts ______.

earned by the corporation

Costs of selling products or services.

expenses

Faithful representation requires that information is complete, neutral, and

free from material error.

The financial statement that is most useful in explaining a company's stock price performance is the

income statement.

The statement used to predict future profitability and a company's future cash-generating ability is the

income statement.

When a company earns net income, its retained earnings:

increase

The accounting equation is: Assets = ______ + Stockholders' Equity.

liabilities

Financial information that may impact investors' and creditors' decisions is referred to as __________ and must be reported under GAAP

material

The impact of financial accounting information on investors' and creditors' decisions is closely related to the concept of:

materiality

In our society, the two main functions of accounting are to

measure business activities. communicate information to investors and creditors.

Sales of products or services.

revenues

The financial statement that provides information about cash receipts and cash disbursements for the period is the

statement of cash flows

Retained earnings represents

the total net income earned over the life of the company that has not been distributed as dividends.

Predictive value and confirmatory value are components of which fundamental qualitative characteristic?

Relevance

An enhancing qualitative characteristic of accounting information that refers to the financial statement users' ability to utilize accounting information to differentiate between companies that are reporting similar events is

comparability.

income statement

revenues and expenses