Accounting and Financial Statements
What is an annual report?
A year-end summary of a firm's financial condition and outlook for the future
What are long-term liabilities?
Debts that have payments due in one year or more
What occurs during the analysis step of the accounting process?
Ratios are calculated and evaluated.
The purpose of financial accounting is to record and review a company's financial information and then submit the findings to which of the following groups?
The federal government Decision makers outside an organization
An entry recording a sum received is known as a(n)
credit
A business deal that involves the buying, selling, or exchanging of something, usually goods or services, is called a(n)
transaction
A measure of the accuracy of financial information is known as a(n)
trial balance
What is the definition of a transaction?
A business deal that involves the buying, selling, or exchanging of something
What is a trial balance?
A measure of the accuracy of financial information
What is a journal?
A record book or part of a computer program containing the daily record of a firm's transactions
What is the accounting process?
A six-step process that converts information about individual transactions into financial statements
What is a Ledger?
A specialized record book or computer program that contains summaries of all journal entries
Which activity takes place during the summarization step of the accounting process?
A trial balance is run to check for accuracy.
What are public accountants?
Accountants who provide accounting services to clients on a fee basis
What are not-for-profit accountants?
Accountants who work for governments and nonprofit organizations
Which of the following statements about business accounting are true?
Accounting helps assess whether a given company will be a profitable investment. Accounting helps government agencies assess a company's liabilities and compliance.
What is the definition of a credit?
An entry recording a sum received
Assessing a firm's financial condition is part of which step of the accounting process?
Analysis
Stanley's farming operation owns 40 acres of productive land, barns and other buildings, two tractors, haying equipment, a dump truck, and some office furniture. How would these things be characterized on a balance sheet?
As fixed assets
Which of these is the accounting equation?
Assets = liabilities + owners' equity
What is the difference between assets and liabilities?
Assets are what the company owns, while liabilities are debts the company owes.
What financial statement displays a company's assets, liabilities, and owners' equity?
Balance sheet
How are bookkeeping and accounting related in a business organization?
Bookkeeping is a sub-department of accounting.
Organizing journal entries in categories within a ledger is part of which step of the accounting process?
Classification
Locating and sorting records is part of what step of the accounting process?
Collection
What are the steps of the accounting process in order?
Collection, recording, classification, summarization, reporting, and analysis
According to the Generally Accepted Accounting Principles (GAAP), what are the characteristics of financial statements?
Comparable Reliable Consistent Relevant
What are expenses?
Costs incurred as part of a company's operating activities
What is the difference between current liabilities and long-term liabilities?
Current liabilities are due within one year or less, while long-term liabilities are due in one year or more.
Which group would find managerial accounting information useful?
Employees
Which activities are part of the recording step of the accounting process?
Financial data are entered into a journal or record book. Double-entry bookkeeping is used to check for errors.
When accountants analyze items in a balance sheet, what do they obtain that is helpful for managing a business?
Financial ratios that indicate the company's performance
On a balance sheet, what items are relatively permanent and meant to be used over a long period of time, such as land, buildings, equipment, furniture, and fixtures?
Fixed assets
What is the relationship between fixed assets and liquidity?
Fixed assets are not easily converted into cash; they are relatively permanent and tend to be held for a long time.
What is the difference between fixed assets and intangible assets?
Fixed assets are physical objects, while intangible assets are not.
Accounting relies on standards, known as the abbreviation (BLANK) which ensure that financial statements are relevant, reliable, consistent, and comparable.
GAAP
What does GAAP stand for?
Generally Accepted Accounting Principles
Which key financial statements are generated during the reporting step?
Income statement Balance sheet
What part of a balance sheet would list patents, trademarks, and other valuables that are not physical objects?
Intangible assets
What are private accountants?
Internal accountants working for a single organization
Why is comparability in financial information important?
It allows users to compare data with other companies' data and with prior data from the company.
Why is consistency in financial information important?
It ensures that the information is always based on the same assumptions and procedures.
Why is relevancy in financial information important?
It helps users understand the company's financial status and performance.
Why is reliability in financial information important?
It makes the information accurate, objective, and verifiable.
What are characteristics of a balance sheet? More than one answer may be correct.
It reports a company's financial condition at a specific time. It contains an examination of the overall health of the business.
Which statements are true? More than one answer may be correct.
Long-term liabilities are due after one year or more. Current liabilities are due within one year or less.
Kurt is a production manager who uses sales forecasts to set production levels. What type of accounting information would benefit him most?
Managerial accounting
What is the difference between managerial and financial accounting?
Managerial accounting prepares information for people inside the company, whereas financial accounting prepares information for people outside the company.
Irina has determined that as of September 30, her firm had $2,000 in retained earnings and $25,000 in common stock. In what section of the company's balance sheet would that data be listed?
Owners' equity
Managerial
Preparing and monitoring department and company-wide budgets Analyzing the costs of production and marketing
What is the definition of managerial accounting?
Preparing information and analyses for managers and other decision makers
What is the definition of financial accounting?
Preparing information and analyses for people outside an organization
Financial
Preparing information and analyses for people outside the company Preparing and filing documents for government agencies
Farsheed works in the accounting department of an automotive company. What type of accountant is he?
Private
How are public and private accountants different?
Public accountants work with many clients, whereas private accountants work for a single organization.
Logging daily transactions in journals is part of which step of the accounting process?
Recording
What is bookkeeping?
Recording a company's financial transactions
What is a necessary procedure in the double-entry accounting system?
Recording each transaction as both a debit and a credit
What are the four characteristics of financial statements, according to the Generally Accepted Accounting Principles (GAAP)?
Relevant, reliable, consistent, and comparable
Issuing financial statements is part of which step of the accounting process?
Reporting
Which activities are part of the collection step in the six-step accounting process?
Sorting expenses into the categories Locating various business expenses in the organization
Which group benefits more from financial accounting information than managerial accounting information?
Stockholders
What is liquidity?
The ease with which an asset can be converted into cash
What is the best definition of accounting?
The measuring, classifying, analysis, and communication of financial information
What is the definition of double-entry bookkeeping?
The process of recording a transaction in two different accounts
What is the defining characteristic of current assets?
They are liquid.
Which role(s) do accountants play in a business organization?
They record financial information and ensure its accuracy. They prepare budgets and check compliance or deviation.
What is the purpose of the accounting equation?
To calculate what a company is worth
Why is it important to use a double-entry accounting system?
To check for errors
What purposes does financial accounting have?
To inform decision makers outside an organization To perform audits to ensure accuracy of the financial information To prepare and file taxes and other documents for government agencies
What purposes does managerial accounting serve?
To manage and control inventory and production costs To inform decision makers inside an organization To prepare and monitor department and company-wide budgets
What occurs during the classification step of the accounting process?
Transactions are transferred to a ledger.
A debt that a firm owes to an outside individual or organization and is due within one year or less is called ______.
a current liability
The broad field of measuring, classifying, analyzing, and communicating financial information is called
accounting
The process of converting information about individual transactions into financial statements for analysis is called the
accounting process
Anything that a firm owns is known as ____.
an asset
Land, buildings, cash, patents, supplies, and other things of value that a company owns are called
assets
The function of accounting that includes recording a company's financial transactions is called
bookkeeping
In order to ensure that data can be compared with other companies' data and with prior data, financial information must be ______.
comparable
In order to ensure that the same assumptions and procedures are always used, financial information must be ______.
consistent
Items such as inventory and accounts receivable, which can be converted into cash within one year, are called
current assets
Items that a business owns that can be converted into cash within one year are called ______.
current assets
The recording or entry of debt in an account is known as a(n)
debit
Managerial accounting primarily serves ______.
decision makers inside an organization
On a balance sheet, the value of a firm if its assets were sold and its debts paid is called owners'
equity
The area of accounting concerned with preparing information and analyses for people outside an organization is known as
financial accounting
The 12-month period designated for annual financial reporting purposes is known as a(n)
fiscal year
Items that are relatively permanent and meant to be used over a long period of time, such as equipment, land, buildings, furniture, and fixtures, are called
fixed assets
Something that has value but is not a physical object, such as a patent or trademark, is called a(n)
intangible asset
A record book or part of a computer program containing the daily record of a firm's transactions is known as a(n)
journal
Debts that the firm owes to outside individuals and organizations are known as ______.
liabilities
A debt that the firm owes to a person or organization outside the company is called a(n)
liability
The area of accounting concerned with preparing information and analyses for managers and other decision makers inside an organization is known as
managerial accounting
The value of a firm if its assets were sold and its debts paid is called ______.
owners' equity
Internal accountants working for a single organization are known as
private accountants
Accountants who work for governments are called not-for-
profit accountants
Accountants who provide accounting services to clients on a fee basis are called
public accountants
In order to help users understand the company's financial status and performance, financial information must be ______.
relevant
In order to ensure accuracy, objectiveness, and verifiability, financial information must be ______.
reliable
