Business Chapter 14 Questions

5. Describe the accounting process and cycle.

Accounting Cycle: the four step procedure of an accounting system 1. Examine source document: checks, credit card receipts, sales slips, and other related evidence concerning specific transactions. 2. Record Transactions: record transactions into a journal (a time-ordered list of account transactions). 3. Post Transactions: transferring the transactions from a journal to a ledger (a book or computer file with separate sections for each account) this is called posting. Prepare a trial balance (a summary of the balances of all the accounts in the general ledger). If the trial balance does not balance this indicates an error in the ledger, and it does balance move onto step 4. Prepare financial statements: The CPA must attest, certify, that the organization followed generally t=accepted accounting principles in preparing the financial statements. Then the books are "closed". Cycle repeats next accounting year.

3. What is a budget?

An internal financial plan that forecasts expenses and income over a set period of time.

2. Discuss the internal uses of accounting statements.

Managerial Accounting refers to the internal use of accounting statements by managers in planning and directing the organization's activities. Cash Flow; the movement of money through an organization over daily, weekly, monthly, or yearly basis, and Budgeting; an internal financial plan that forecasts expenses and income over a set period of time, are the some of the use for internal accounting statements.

8. What are the five basic ratio classifications? What ratios are found in each category?

Profitability Ratio:

4. Discuss the external uses of financial statements.

They are used for filling income taxes, obtaining credit from lenders, and reporting results to the firm's stakeholders. Annual Report: summary of a firm's financial information, products, and growth plans for owners and potential investors.

1. Why are accountants so important to a corporation? What function do they perform?

They interpret all of their financial transactions and records. They make sure that businesses are using the money the have wisely and plan for the future. They perform the recording, measurement, and interpretation of financial information.

6. The income statements of all corporations are in the same format. True or False?

True