Accounting Exam 1

What are examples liabilites?

Accounts payable Salaries payable Interest payable Unearned revenue Notes payable

_________________ is a contra-asset so it increase with a credit and decreases with a debit

Accumulated Depreciation

What is the accounting equation?

Assets = Liabilities + Stockholders' Equity

The financial position of a company is summarized by what equation?

Assets= Liabilites + Stockholders' Equity

What are assets?

Cash Accounts receivable Interest receivable Inventory Prepaid insurance Prepaid rent Equipment Supplies Notes receivable Equipment Land Building

what does double taxation mean?

Companies must pay taxes on their earnings stockholders pay taxes on their dividends.

Expense or revenue: rent

Expense

Financial Accounting and Reporting standards in the United States are primarily established by the...

Financial Accounting Standard Board (FASB)

______________________ is an independent, private sector body, with full-time voting members, and a large support staff

Financial Accounting Standard Board (FASB)

The rules of financial accounting are called

Generally Accepted Accounting Principles (GAAP)

__________________ want to know about the company's resources and their claim to those resources

Investors creditors

What is the Retained Earnings equation?

Retained Earnings= Net Income - Dividends

On an income statement, what are examples of expenses?

Salaries expense Rent expense Supplies expense Advertising expense Utilities expense Interest expense Depreciation expense Service fee expense

_____________________ provides for the regulation of auditors and the types of services they provide to clients to increase accountability of corporate executives, addressing conflicts of interest of security analysts, and provides for stiff criminal penalties for violators

Sarbanes- Oxley Act

________________ are owners' claim to resources

Stockholders' Equity

What is the equation for Stockholders' Equity?

Stockholders' Equity= common stock + retained earnings

Revenues are the amounts recognized when...

a company sells products or provides services to customers

The measurement roll of accounting is to create...

a record of the activities of a company

_______________ is the language of business.

accounting

_______________ is the system of maintaining records of a company's operations and communicating that information to decision makers

accounting

Accountants measure the....

activities of the company and communicate those measurements to others

Management discussion and analysis and note disclosures to the financial statements are included in the...

annual report

_________________ are total resources of the company

assets

To help ensure that company management has appropriately applied the GAAP, the SEC requires independent outside verification of the financial statements of publicly traded companies, examination is done by whom?

auditors

_____________ are not employees of the company, but they are hired by the company as an independent party to determine extent to which financial statements are prepared in compliance with the GAAP

auditors

Any transaction that affects the income statement ultimately affects the....

balance sheet through the balance of retained earnings.

What claim do investors have to company resources?

claim to all remaining resources

What claim do creditors have to company resources?

claims equal to the amount loaned

Each share of ownership is referred to as...

common stock

What are the 2 primary components of Stockholders' Equity?

common stock retained earnings

What are examples of Stockholders' Equity?

common stock retained earnings dividends

If the same accounting principles and methods are used for similar events by two different firms, this enhances what accounting qualitative characteristic?

comparability

_______________ decide market share and profitability

competitors

________________ is a business that is legally separate from owners

corporation

Expenses are recognized as the....

cost of providing products and services and other business activities during the current period

When you borrow money from a bank, the bank becomes a...

creditor

_______________ decide whether to lend money

creditors

Who has claim to the company's resources?

creditors investors

_______________ decide whether to purchase products

customers

Net income is the...

difference between revenues and expenses

cash payments to stockholders are...

dividends

What is a disadvantage of a corporation?

double taxation

Shareholders' equity arises primarily from amounts invested by shareholders and amounts __________.

earned by the corporation

_______________ decide employment opportunities

employees

The 4 financial statements are linked meaning, because

events reported in one financial statement affect amounts reported in another

Dividends are not an ________________ because they are not costs relating to providing products and services to customers

expense

Expense or revenue: Salaries

expense

Common stock is an _____________ source of stockholders equity

external

Information provided to external users is called...

financial accounting

No other single piece of company information better explains companies' stock price performance than the...

financial accounting net income (bottom line of the income statement)

Balance sheet is a financial statement that presents the....

financial position of the company on a particular date

Companies communicate information about their business activities primarily through....

financial statements

The primary way of communicating business activities is through...

financial statements

Where is the time period covered by the income statement found?

heading

Information that best explains companies' stock price performance is reported on the...

income statement

The financial statement that is most useful in explaining a company's stock price performance is the...

income statement

What are the 4 primary financial statements?

income statement statement of stockholders' equity balance sheet statement of cash flows

Retained earnings is an _____________ source of stockholders equity

internal

When you are starting a business and you do not have any money, who do you look for?

investors

_______________ decide whether to invest stock

investors

What are 2 examples of financing activities?

issuing stock borrowing money

_________________ are amounts owed to creditors, claims that must be paid off by a specific date

liabilities

What is a benefit for having a corporation?

limited liability

_________________ prevents stockholders from being held personally responsible for financial obligations of the corporation

limited liability

_______________ decide on environmental issues

local communities

Long-Term" Assets or Liabilities =

longer than one year

Information provided to internal users is called...

managerial accounting

_______________ decide production and expansion

managers

What are the 2 functions of Financial Accounting?

measure business activities of a company communicate those measurements to external parties for decision making purposes

Statement of Cash Flows is a financial statement that....

measures activities involving cash receipts and cash payments over an interval of time

Outflows are shown as..

negative amounts

Pizza Aroma generated $11,000 in revenues and had expenses of $6,000. Pizza Aroma's net income or loss is:

net income $5000

If expenses exceed revenue then it is a....

net loss

Two other types of information in addition to the financial statements that must be reported in the annual reports include:

note disclosures management discussions and analysis

What are the 3 categories that correspond to the 3 fundamental business activities?

operating cash flow investing cash flow financing cash flow

__________________ is a business owned by two or more people

partnership

Who are investors?

people who buy ownership in a company and have the right to share in the company's profits

Inflows are shown as..

positive amounts

_____________________ providing accounting services to the company that employees you

private accounting

Net Income is also known as:

profit earnings

operating activities are transactions that relate to the primary operations of the company, such as...

providing products and services to customers and the associated cost of doing so

_____________________ are professional service firms that traditionally focus on 3 areas: auditing, tax preparation/planning, business consulting

public accounting

What is an example of an investing activity?

purchasing equipment

_______________ decide on social welfare

regulators

The hierarchy of qualitative characteristics of financial information require that, in order to be useful for decision making, information should possess the fundamental characteristics of...

relevance faithful representation

What do income statements do?

report company's revenue and expenses over an interval of time

The 1933 Securities Act and the Securities Exchange Act of 1934 were designed post great depression to...

restore confidence in financial accounting

Expense or revenue: Providing soccer training to a customer

revenue

On an income statement, what are examples of a revenue?

service revenue sales revenue interest revenue

_________________ is a business owned by one person

sole proprietorship

statement of stockholders' equity is a financial statement that...

summarizes the changes in stockholders' equity over an interval of time

_______________ decide the customer's ability to pay for supplies

suppliers

_______________ decide on taxation policy

tax authorities

Accounting is the language company's use to...

tell their financial story

Another name for Total liabilities is what?

total debts

What are investing activities?

transactions that involving the purchase and sale of resources a company needs in order to operate

What are operating activities?

transactions that relate to the primary operations of the company

What are financing activities?

transactions the company has with investors and creditors

What are 2 examples operating activities?

utilities advertising

"Current" Assets or Liabilities =

will be used up/paid/received within one year