Chapter 14 - Understanding Accounting and Financial Information
It's possible for a business to increase its sales and profits yet still suffer __ __ problems.
cash flow
Rent, salaries, supplies, utilities, and insurance are examples of ______ expenses that are general expenses.
operating expenses
What term describes the cost of merchandise the firm sells?
cost of goods sold
Which type of accountant would be avaliable to businesses or individuals on a fee basis?
public accountant
Accumulated earnings from a firm's profitable operations that are reinvested in the business and not paid to stockholders are __ __.
retained earnings
Managerial accounting is used to provide information __.
inside the firm
Revenue is the monetary value of what a firm received for __.
interest earned
The debt a firm owes to others is called a(n) __.
liability
Users of managerial accounting information include __. 1. Internal Revenue Service 2. potential investors 3. the Chief Financial Officer 4. department managers
3. the Chief Financial Officer 4. department managers
The key working areas of accounting include managerial accounting, financial accounting, tax accounting, government and nonprofit accounting, and __.
auditing
What are three components make up the fundamental accounting equation?
assets, owners' equity, liabilities
A summary of all the financial transactions that have occurred over a particular period is referred to as a __.
financial statement
Because they indicate a firm's financial health and stability, the use of __ are key factors in management decision making.
financial statements
The principles, defined by Financial Accounting Standards Board (FASB), that accountants must follow to assure that a firm's accounting information is accurate are abbreviated as __.
generally accepted accounting principles (GAAP)
Debts, known for accounting purposes as __, are what the business owes to others.
liabilities
The major categories of balance sheet are assets, liabilities, and __.
owners' equity
Sales, purchasing, and shipping documents are all considered examples of __ to an accounting system.
inputs or entries
CPA exams are established by the __ __ of Certified Public Accountants.
American Institute of Certified Public Accountants
What are retained earnings?
accumulated earnings not paid out to stockholders
Cash receipts and disbursements related to operations, investments, and financing are reported on the __.
statement of cash flows
The __ __ provides information about a company's financial status to company managers, owners, government agencies, and the general public.
annual report
The information and analysis that comes from managerial accounting is used to __.
assist managers inside the organization with their decision making
The __ line is another name for net income after taxes.
bottom line
The value of what stockholders own in firm minus any liabilities is called __.
owners' equity
Operating expenses including which of the following? 1. capital improvements 2. supplies 3. utilities 4. rent
2. supplies 3. utilities 4. rent
The income statement shows __.
a firm's profit after costs, expenses, and taxes.
The purpose of the Financial Accounting Standards Board is to be __.
define generally accepted accounting principles
If financial management is the heartbeat of competitive businesses, what keeps that heartbeat stable?
Accounting information
If an individual passes a rigorous examination established by the American Institute of Certified Public Accountants (AICPA) and meets a state's educational and experience requirements, they can be recognized as a(n) __.
Certified Public Accountant or CPA
__ and nonprofit accounting supports organizations whose purpose is not generating profit, but serving ratepayers, taxpayers, and others according to a duly approved budget.
Government
Cash flow analysis is especially important for what kind of business?
Small businesses
List the steps in the accounting cycle from beginning to end.
1. Analyze source documents 2. Record transactions in journals 3. Transfer Journal entries to a ledger 4. Trail balance 5. Prepare financial statements 6. Analyze financial statements
Recording, classifying, summarizing, and interpreting financial events in an organization is referred to as __.
accounting
__ is the term for resources that come into the firm from operating activities.
Revenue
The __ statement summarizes revenues, costs, and expenses over a specific period, which may be a week, a month, or a year.
income
Government and nonprofit accounting involves working for organizations whose purpose is to serve __ and __.
ratepayers and taxpayers
An accounting system is used to __.
record and summarize accounting data into reports
Stockholders, or owners' equity represents __.
the value of the business that belongs to owners
What are steps in the accounting cycle? 1. analyze transactions 2. build a budget 3. prepare a trail balance 4. record transaction in the journal 5. determine investment opportunities
1. analyze transactions 3. prepare a trail balance 4. record transaction in the journal
The method used to record and summarize accounting data into reports is called a(n) __ system.
accounting system
What are the three common liability accounts recorded on a balance sheet?
accounts, notes, and bonds payable.
Reviewing and evaluating records used to prepare a company's financial statements is referred to as __.
auditing
The __ of __ __ measures the cost of merchandise the firm sells or the materials and supplies used to manufacture them for sale.
costs of goods sold
What are three major categories on the balance sheet?
liabilities, assets, and owners' equity
Accounts payable, notes payable, and bonds payable are all common __.
liability accounts
The statement of cash flows reports cash receipts and disbursements related to __, investments, and financing.
operations
What is the difference between assets and liabilities?
owners' equity
Jayleen works for her firm preparing and analyzing its financial statements. She would be called a(n) __ accountant.
private
The role of an auditor is to __.
review and evaluate a company's financial information
The primary users of government and nonprofit accounting information are __, __, and __.
special interest groups, taxpayers, and legislative bodies.
A journal is the place where __.
transactions are first recorded
A tax accountant has specialized and learned tax __ and is responsible for preparing tax returns.
law, legislation, or laws
Information in the journal is transferred to the __, so managers can find all the information about a single account in one place.
ledger
Transactions that are entered in the journal are then posted to specific categories in a(n) __.
ledger
The ease with which an asset can be converted to cash is called __.
liquidity
What are some benefits of using computers for accounting purposes? 1. Software can help if no strong accounting support is available. 2. It frees accountants' time for more important tasks 3. They can make good financial decisions automatically. 4. Information can be posted from journals instantaneously.
1. Software can help if no strong accounting support is available. 2. It frees accountants' time for more important tasks 4. Information can be posted from journals instantaneously.
Which of the following are considered disciplines within the accounting profession? 1. financial accounting 2. managerial accounting 3. investment accounting 4. tax accounting
1. financial accounting 2. managerial accounting 4. tax accounting
The "bottom line" is __. 1. net income or loss after taxes 2. the last line on the statement of cash flows 3. the last line on the income statement 4. the last line on the balance sheet
1. net income or loss after taxes 3. the last line on the income statement
What three activities are part of the function of accounting? 1. prioritizing financial transactions 2. classifying financial transactions 3. planning financial transactions 4. interpreting financial transactions 5. recording financial transactions
2. classifying financial transactions 4. interpreting financial transactions 5. recording financial transactions
Which items are inputs to the accounting system? 1. statement of cash flows 2. sales documents 3. income statement 4. payroll records 5. shipping documents
2. sales documents 4. payroll records 5. shipping documents
A Certified Public Accountant (CPA) must __. 1. pass a test every year 2. be a public accountant or an internal auditor 3. meet a state's requirements for education and experience 4. pass a series of exams
3. meet a state's requirements for education and experience 4. pass a series of exams
__ accounting generates financial information for people outside the firm, while __ accounting generates financial information for people inside the firm.
Financial, Managerial
What type of accountant is most likely to develop strategies for a firm in dealing with the Internal Revenue Service?
Tax accountant
What is considered to be the "language of business"?
accounting