ACCOUNTING CHAPTER 1

If total liabilities increased by $20,000 during a period of time and owner's equity increased by $5,000 during the same period, the amount and direction (increase or decrease) of the period's change in total assets is:

$25,000 increase

corporation

A business organized under state or federal statutes as a separate legal entity.

proprietorship

A business owned by one individual.

partnership

A business owned by two or more individuals.

limited liability company

A business that combines attributes of a partnership and a corporation.

account receivable

A claim against the customer.

matching concept

A concept of accounting in which expenses are matched with the revenue generated during a period by those expenses.

business entity concept

A concept of accounting that limits the economic data in the accounting system to data related directly to the activities of the business.

balance sheet

A list of the assets, liabilities, and owner's equity as of a specific date, usually at the close of the last day of a month or a year.

financial accounting

A specialized field of accounting concerned primarily with the recording and reporting of economic data and activities to stakeholders outside the business.

managerial accounting

A specialized field of accounting that uses estimated data to aid management in running day-to-day operations and in planning future operations.

statement of cash flows

A summary of the cash receipts and cash payments for a specific period of time, such as a month or a year.

statement of owner's equity

A summary of the changes in owner's equity that have occurred during a specific period of time, such as a month or a year.

income statement

A summary of the revenue and expenses for a specific period of time, such as a month or a year.

manufacturing

A type of business that changes basic inputs into products that are sold to individual customers.

merchandising

A type of business that purchases products from other businesses and sells them to customers.

public accounting

Accountants and their staff who provide services on a fee basis

private accounting

Accountants employed by a particular business firm or not-for-profit organization, perhaps as chief accountant, controller, or financial vice-president, are said to be engaged in

business transaction

An economic event or condition that directly changes an entity's financial condition or directly affects its results of operations.

accounting

An information system that provides reports to stakeholders about the economic activities and condition of a business.

business

An organization in which basic resources (inputs), such as materials and labor, are assembled and processed to provide goods or services (outputs) to customers.

Another way of writing the accounting equation is:

Assets - Liabilities = Owner's Equity

accounting equation

Assets = Liabilities + Owner's Equity

prepaid expenses

Items such as supplies that will be used in the business in the future.

ethics

Moral principles that guide the conduct of individuals.

net income

Results when revenues exceed expenses.

unit of measure concept

The accounting concept that requires economic data be recorded in dollars.

revenue

The amount a business earns by selling goods or services to its customers.

cost concept

The amounts for recording properties and services purchased by a business are determined using the:

expenses

The amounts used in the process of earning revenue.

Financial Accounting Standards Board (FASB)

The authoritative body that has the primary responsibility for developing accounting principles in the United States.

International Accounting Standards Board (IASB)

The authoritative body that sets accounting principles for many countries outside the United States.

account form

The form of balance sheet that resembles the basic format of the accounting equation, with assets on the left side and the liabilities and owner's equity sections on the right side.

account payable

The liability created by a purchase on account.

ratio of liabilities to owner's equity

The relationship between liabilities and owner's equity that is expressed as a ratio.

assets

The resources owned by a business.

liabilities

The rights of creditors that represent debts of the business.

owner's equity

The rights of the owners.

A business transaction is the occurrence of an event or of a condition that must be recorded.

True

The operating activities section of the statement of cash flows includes cash transactions that enter into the determination of net income.

True

A business paid $6,000 to a creditor in payment of an amount owed. The effect of the transaction on the accounting equation was:

a decrease in an asset and a decrease in a liability

Which of the following is not one of the major sections of the statement of cash flows?

cash flows from marketing activities

The concept that expenses incurred in generating revenue should be matched against the revenue in determining net income or net loss

matching concept

If revenue was $70,000, expenses were $59,000, and the owner's withdrawals were $25,000, the amount of net income or net loss was:

net income of $11,000

What item appears on both the balance sheet and the statement of owner's equity?

owner's capital balance as of the end of the period