ACCT 2331 Chapter One

The three most common forms of business organization are

sole proprietorship Corporation Partnership

The three classifications on the statement of cash flows are cash flows from...

- Operating Activities - Investing Activities - Financing Activities

What items are found on an Income statement?

- Revenue - Expenses --- Rent, supplies, salaries, utilities, interest - Net income

In our society, the two main functions of accounting are to...

- To measure business activities of a company - To communicate those measurements to external parties for decision-making purposes (Investors/Creditors)

What appears on a balance sheet?

- Assets: Cash, marketable securities, prepaid expenses, accounts receivable, inventory, and fixed assets, equipment - Liabilities: Accounts payable, accrued liabilities, customer prepayments, taxes payable, short-term debt, and long-term debt, notes payable - Shareholders' equity: Stock, additional paid-in capital, retained earnings, and treasury stock

Faithful representation requires information to have which of the following three characteristics?

- Complete - Neutral - Free from error

Which of the following are attributes of FASB?

- Full-time board members - Independent - Private sector organization

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

- Notes Disclosure - Management discussion and analysis

Trial Balance

A list of all accounts and their balances at a particular date showing that debits equal credits

The system that maintains records of a company's operations and then communicates that information to decision makers is

Accounting

Which of the following items are found on a balance sheet?

Assets Liabilities Stockholders' equity

The financial statement that displays a firm's financial position on a particular date...

Balance sheet

The four financial statements published to provide information to external users include which of the following?

Balance sheet Income Statement Statement of Cash Flows Statement of Stockholder's Equity

The two components of stockholders' equity

Common stock and retained earnings

Predictive value

Consistently increasing income helps forecast the company's ability to generate future cash

The form of business organization where an entity is legally separate from its owners and issues shares of stock is a

Corporations

The two sources of stockholders' equity are amounts

Earned by the corporation Paid in from shareholders

The private sector organization that is currently responsible for setting accounting standards in the United States is the...

Financial Accounting Standards Board

Companies communicate information about their business activities primarily through

Financial statements

Which financial statement reports revenues and expenses?

Income statement

When a company earns net income, its retained earnings...

Increase

Shareholders' equity arises primarily from amounts...

Invested by shareholders Earned by the corporation

Assets = ______ + Stockholders' Equity.

Liabilities

Identify the three most common forms of business organization.

Partnership Corporation Sole proprietorship

Confirmatory Value

Positive income is consistent with effectiveness of management

Predictive value and confirmatory value are components of which fundamental qualitative characteristic?

Relevance

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 and Faithful Representation.

Which of the following represents the net income earned by a corporation and not yet paid to shareholders?

Retained earnings

The financial statement that provides information about cash receipts and cash disbursements for the period is the...

Statement of cash flows

Which of the following are financial statements?

Statement of stockholders' equity Balance sheet Income statement

Neutrality

The characteristic that a new accounting standard should not favor one group of companies over others or achieve a particular social outcome

Materiality

The impact of financial accounting information on investors' and creditors' decisions

Financial information that is immaterial in amount or nature need not be reported under GAAP

True

Ethics

a term that refers to a code or moral system that provides criteria for evaluating right or wrong

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

annual report

Ending retained earnings is calculated as

beginning retained earnings + net income - dividends

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

income statement

An income statement reports

net income or loss expenses revenues

An advantage of the corporate form of organization is that a corporation

provides limited liability to stockholders.

Financial Statements

represent a company's primary means of communicating information to external users

Income Statement

to report the profit-generating activities of the firm during a period of time.