ACCT 201 Ch 1
Which items are presented on the statement of changes in stockholders' equity?
Dividends, Net income, Beginning common stock, Total stockholders' equity, Ending retained earnings
An economic sacrifice a business incurs to generate revenue is called a(n) _____.
expense
GAAP must be followed when preparing ______.
financial reports issued to the public
The information needs to external and internal users ______.
frequently overlap
Liquidity refers to ______.
how quickly the asset is converted into cash
The difference between the cost of a product or service and the selling price of that product or service is called ______.
income, profit, earnings
Which of the following is not classified as a physical resource?
money
On the balance sheet, assets ______ equal liabilities plus stockholder's equity.
must
The accounting term normally used to describe organizations that are not motivated by earnings is ______.
nonprofit
Activities dealing with purchasing and selling short-term assets are ______ activities.
operating
The Statement of Changes in Stockholder's Equity captures information related to the company's ______.
owners
A transaction is a(n) ______.
particular kind of event that involves transferring something of value between two entities
Asset use transactions include ______.
paying expenses, repaying debt, paying dividends
Reporting entities are ______.
people or businesses
A business that consumes $3,000 of resources to make a product that is sold for $4,000 has earnings or _____ of $1,000.
profit or income
Which of the following dates are correct for the Statement of Changes in Stockholders' Equity?
For the month ended April 30, Year 1, For the year ended December 31, Year 3, For the quarter ended June 30, Year 2
In their most primitive form, _____ resources are natural resources such as oils, minerals, or timber.
physical
The economic benefit a company derives from providing goods and services to its customers is called ______.
revenue
An event that increases total assets and total claims is an asset _____ transaction.
source
Common stock and retained earnings may be viewed as ______.
sources of assets commitments to investors
Asset source transactions include ______.
earning through profitable operations, borrowing money, issuing common stock for cash
Profit is also called ______.
earnings income
Activities dealing with raising money to start a business are ______ activities.
financing
On the statement of cash flows, borrowing money is classified as a(n) _____ activity and paying interest is classified as a(n) _____ activity.
financing, operating
The financial statement that shows all the revenues earned and expenses incurred during the accounting period is the ______.
income statement
The financial statement that reports how the business performed during a specific accounting period is the _____.
income statemtent
As inducements to provide financial resources, _____ receive an ownership interest in a business and share in the profits of a business, while _____ receive a return of the money loaned and the collection of interest.
investors, creditors
What is an example of a financing activity?
Paying a dividend to stockholders
Which of the following is a financing activity?
Paying a dividend to stockholders
Which of the following stakeholders would most likely use managerial accounting information?
Restaurant manager
Which of the following is an operating activity?
Selling services to customers
True or false: Income can be measured using any desired time period.
True: Accordingly, the terminology used on the income statement should clearly indicated the time period covered.
"For the period ended" refers to ______.
a span of time
The relationship between a business's assets and the claims on its assets is frequently expressed in an equality called the _____ equation.
accounting
Accounting information is used by ______.
all businesses and organizations
Stakeholders with an indirect link to conversion agents include ______.
brokers, news reporters, government agencies
The asset that is listed first on a balance sheet is _____.
cash
The acronym CPA stands for _____ accountant.
certified public
When a business grants an investor an ownership interest in a business, the specific commitments made to the investor are described in certificates called _____.
common stock
Asset use transactions ______.
decrease the total amount of assets and the total amount of claims
On the statement of cash flows, purchasing land with cash ______ activities.
decreases cash flow from investing
Financing activities include ______.
paying a dividend to stockholders, repaying the principal on a loan, issuing common stock
The people or businesses accountants provide information on are called _____ entities.
reporting
Liabilities may be viewed as ______.
sources of assets, obligations of the business
A business's commitment to owners is called ______.
stockholders' equity
Revenue is ______.
the economic benefit derived from providing goods and services to customers
Creditors are motivated to provide resources to businesses in return for ______.
the receipt of interest payments
The phrase used to indicate the financial position of a company at the end of the accounting period is ______.
"As of"
A home builder used $80,000 of materials and $70,000 of labor to build a house that was sold for $160,000. Profit equals ______.
$10,000
Under the double-entry accounting system, all transactions affect the accounting equation in at least places.
2
GAAP currently requires a total of _____ financial statements.
4
True or false: The only stakeholders with a direct link to businesses are resource providers.
False: The link between businesses and stakeholders other than those who provide resources is indirect.
Which of the following statements about assets are true?
Assets are resources used in the process of generating revenue, A business may acquire assets from three sources including creditors, investors, and its operations.
Which of the following dates are correct for the Statement of Cash Flows?
For the month ended April 30, Year 1, For the year ended December 31, Year 3, For the quarter ended June 30, Year 2
Which of the following are investing activities?
Purchasing a building, Selling a building, Purchasing land
True or false: A company cannot pay dividends in excess of the amount of its retained earnings.
True: Dividends are a distribution of earnings. If there are no earnings, there can be no dividends.
True or false: The term articulation is used to describe the interrelationships among the various components of the financial statements.
True: For example, the ending cash balance on the balance sheet is the same as the one reported on the statement of cash flows.
Merchandising businesses include ______.
grocery stores shoe stores
Assets are normally shown on the company's books at ______.
historical cost
The income statement reports ______.
how the business performed during a specific accounting period
On the statement of cash flows, borrowing money ______.
is a financing activity and paying interest is an operating activity
Paying cash dividends will cause the ______.
left side of the accounting equation to decrease, right side of the accounting equation to decrease
The normal duties of a private sector accountant include all of the following except ______.
providing legal advice
Acquiring cash by issuing common stock will have no effect on ______.
retained earnings, liabilities
Borrowing money from creditors will cause the ______.
right side of the accounting equation to increase, left side of the accounting equation to increase
True or false: The amount of time an asset is held determines whether it is classified as an operating or investing activity.
True: Long-term assets (used more than a year) are investing activities and short-term assets (used less than a year) are operating activities.
On the statement of cash flows, the amount of time an asset is held determines whether it is classified as a(n) _____ or _____ activity.
investing, operating
The 10k report is normally ______ comprehensive with respect to content when compared to a standard annual report.
more
A company that has $2,000 in revenue and $1,900 in expenses should report a ______.
net income on the income statement
If expenses exceed revenues, the company reports ______ on the income statement.
net loss
On the statement of cash flows, the activities associated with conducting a business are _____ activities.
operating
Users of accounting information are commonly called
stakeholder
Acquiring cash by issuing common stock will cause the amount of ______.
cash to increase, stockholders' equity to increase
The amount of cash dividends a company can pay are limited by the amount of the company's ______.
cash, retained earnings
Real world financial statements may also report ______ income.
comprehensive
David Harbert recently started a business. During the first few days of operation, Mr. Harbert transferred cash from his personal account into a business account for a company he named Harbert Enterprises. Mr. Harbert's brother, George, invested cash in Harbert Enterprises for which he received a 25% ownership interest in the company. Harbert Enterprises borrowed cash from First Federal Bank. Harbert Enterprises paid cash to purchase a building from City Properties, Inc. How many reporting entities are mentioned in this scenario?
5
Which of the following lists contain items that are presented on the statement of changes in stockholders' equity?
Dividends and net income
An event that causes one asset account to decrease and another asset account to increase is called an asset _____ transaction.
exchange
Accounting information for external users is provided by _____ accounting, while information needed by internal users is provided by _____ accounting.
financial, managerial
The measurement rules established by the Financial Accounting Standards Board are called _____ or GAAP.
generally, accepted accounting principles
Most companies report the ______ first.
income statement
Businesses that make goods and sell them to other entities are called ______ businesses.
manufacturing
A group of people or entities organized to exchange items of value is a ______.
market
Other terms investors include ______.
owners, stockholders
Labor resources include ______ labor.
physical and intellectual
Labor resources include both _____ and _____ labor.
physical, intellectual
The people or businesses accountants provide information on are called _____entities.
reporting
When market value can be clearly established, GAAP ______ its use.
requries
Stockholders' equity may be subdivided into additional elements called ______.
retained earnings, common stock
The economic benefit a company derives from providing goods and services to its customers is called _____.
revenue
Attorneys, accountants and housekeepers are all examples of ______ businesses.
service
A business has a duty to protect and use its assets for the benefits of its owners which is known as a(n) _____ responsibility.
stewardship
The Accounting Equation is composed of three _____ called assets, liabilities and stockholders' equity.
elements
An accounting event is a(n) ______.
economic transaction that changes an enterprise's assets, liabilities or stockholders' equity
The accounting records of Direct Marketing Company (DMC) indicate that the company has $500 of cash; $3,500 of land; $1,000 of liabilities; $600 of common stock; and $2,400 of retained earnings. Based on this information, the percent of assets provided by retained earnings is ______.
60%, Total assets = $4,000 ($500 cash + $3,500 Land). Retained earnings = 60% ($2,400 ÷ $4,000) of total assets.
Which of the following is not a business asset?
An obligation to repay debt
True or false: Only investors and creditors rely heavily on accounting information to evaluate which businesses are worthy of receiving resources.
False: Workers also rely on this information.
The privately funded organization with the primary authority for establishing accounting standards in the United States is the
Financial Accounting Standards Board
Earning cash revenue by providing services to customers will cause the amount of cash ______.
and the amount of retained earnings to increase
Organizations normally provide information, including financial statements, to stakeholders yearly in a document called a(n) _____ _____.
annual report
The current set of financial statements ______.
are required by GAAP, are designed to satisfy the most pressing needs of today's stakeholders
When a company pays cash to purchase land, total assets ______.
are unchanged
The interrelationships among the various elements of the financial statements is known as ______.
articulation
When a business borrows cash from a creditor, ______ increase.
assets and liabailities
The date that appears on a Statement of Changes in Stockholders' Equity matches the date found on the ______.
balance sheet
The asset account that increases when a business earns cash revenue is ______.
cash
Cash inflows and outflows are reported on the ______.
statement of cash flows
Green Company has $10,000 of assets. Fifty percent of the assets were acquired from the issue of common stock and thirty percent were acquired from earnings. Based on this information, the dollar value of liabilities must be ______.
$2,000
Which of the following statements are true?
The increase in a business's commitments to stockholders is called retained earnings. Businesses may retain assets generated through operations.
The phrase "As of December 31, Year 1" would be used on which financial statement(s)?
Balance sheet only
Which of the following are operating activities?
Cash receipts from customers Paying expenses Paying employees
earning through profitable operations borrowing money issuing common stock for cash
Decreases retained earnings, Decreases stockholder's equity
What items are normally included in a company's annual report?
Management Discussion and Analysis (MD&A), Auditor's report, Notes to the financial statements, Financial statements
Companies typically report about events occurring over a span of time called a(n)_____.
accounting period
Detailed information about the accounting equation is maintained in records commonly called _____.
accounts
Paying a cash dividend will cause the amount of cash ______,
and the amount of retained earnings to decrease
Recognizing cash expenses will cause the amount of cash ______.
and the amount of retained earnings to decrease
The resources a business uses to conduct its operations are called _____.
assets
The statement that draws its name from the accounting equation is the _____.
balance sheet
Compared to financial accounting information, managerial accounting information ______.
contains more nonfinancial measures, provides more detail about the everyday operations of a business
The market for business resources involves ______.
conversion agents resource owners consumers
In regards to nonprofit organizations, accounting systems measure the ______.
cost of goods and services provided, ability to provide goods and services, efficiency and effectiveness of operations
The Financial Accounting Standards Board ______.
does not have a rule regarding statement order
The typical accounting period for a complete set of financial statements and disclosures is one ______.
year
Monster Media's (MM) accounting records indicate that the company has $500 of cash; $2,500 of land; $1,600 of common stock; and $1,400 of retained earnings. Based on this information, the maximum cash dividend the company can pay is ______.
$500
Which of the following are a representation of the accounting equation?
Assets = Liabilities + Common Stock + Retained Earnings Assets = Claims Assets = Liabilities + Stockholders' Equity
How does declaring and paying a cash dividend affect the accounting equation?
Decreases stockholder's equity, Decreases retained earnings
The organization with primary authority for establishing accounting standards in the United States is the ______.
FASB
Investors are motivated to provide resources to businesses because they receive ______.
an ownership interest in the business a share of the company's earnings
Some real-world companies add or subtract certain items to or from net income to report information related to _____ income.
comprehensive
Distribution of assets generated through earnings are called ______.
dividends
The financial statement that explains what caused cash to change during an accounting period is the ______.
statement of cash flow