BUSN Ch.8

Income statement

Financial statement that reports the revenues, expenses, and net income that resulted from a firm's operation over an accounting period.

Revenue

Increases in a firm's assets that result from the sale of goods, provision of services, or other activities intended to earn income

Which of the following statements is true of managerial accounting?

It involves presenting customized information on request.

The goal GAAP is to

The goal GAAP is to Ensure that information generated by financial accounting is relevant, reliable, consistent, and comparable

Out-of-pocket costs (explicit)

a cost that involves the payment of money or other resources

Financial accounting:

addresses the needs of stockholders, creditors, and government regulators

In the context of an independent auditor's report, _____ indicates that the auditor believes the financial statements are seriously flawed and that they may be misleading and unreliable.

an adverse opinion

Frank is a loan officer who approves loans for small businesses. One factor he looks at carefully when making loan decisions is the amount of outstanding debt a firm already has—an information that he can find in the firm's:

balance sheet

In the context of comparative financial statements, comparative balance sheets:

can be used to check if the owners' equity had increased

The Securities and Exchange Commission requires publicly traded corporations to provide _____.

comparative financial statements

direct cost

costs that are incurred directly as the result of some specific cost object

indirect costs

costs that are the result of a firm's general operations and are not directly tied to any specific cost object

fixed costs

costs that remain constant as output changes

variable costs

costs that vary directly with the level of production

In the context of financial statements, _____ are debts that come due within a year of the date on the balance sheet.

current liabilities

The opportunity cost that arises when a firm uses owner-supplied resources is known as a(n) _____.

implicit cost

The _____ of a firm organizes the operating and financial budgets into a unified whole, representing the firm's overall plan of action for a specified time period.

master budget

In the United States, the ultimate legal authority to set and enforce accounting standards lies with the _____.

securities and exchange commission

Statement of Cash Flows

the financial statement that identifies a firm's sources and uses of cash in a given accounting period

If a firm's assets equal $18,000 and its liabilities equal $7,500, then the owners' equity is _____.

$10,500

Balance Sheet

A financial statement that reports assets, liabilities, and owner's equity on a specific date.

In the context of the balance sheet, which of the following serves to be the rationale behind the accounting equation?

A firm must finance the purchase of their assets, and the owners and nonowners should contribute toward it.

horizontal analysis

analysis of financial statements that compares account values reported on these statements over two or more years to identify changes and trends

how do stakeholders obtain useful insights from company's financial statements

auditors check out reports and indicate if statements in were prepared in accordance w/ GAAP

The major responsibilities involved in financial accounting are the preparation of the:

balance sheet, income statement, and statement of cash flows

The top managers of Promedium Inc. are creating a master budget for the company. They require a statement of the budget goals from each of its departments to be able to make an appropriate master budget. Karren, the manager of the sales department, overstates her needs in the budget and presents the statement to the top managers. The outcome of Karren's actions is known as _____.

budgetary slack

In the context of budget preparation, the document created in the final stage of an operating budget is referred to as a _____.

budgeted income statement

operating budgets

budgets that communicate an organization's sales and production goals and the resources needed to achieve these goals

financial budget

budgets that focus on the firm's financial goals and identify the resources needed to achieve these goals

In the United States, the Securities and Exchange Commission (SEC) has delegated the responsibility for developing accounting standards to a private organization called the _____.

financial accounting standards board

In the context of financial statements, the specific accounts listed in the stockholders' equity section of a balance sheet depend on the:

form of business ownership

In the context of interpreting financial statements, using comparative statements to identify changes in key account values over time is called _____.

horizontal analysis

Nusreen, a financial manager in a company, compares the operating budgets from the past three years to identify trends in the cost of materials purchased and to learn whether the company's net expenses have increased or decreased over the time span. Nusreen is using _____ to compare the financial statements.

horizontal analysis

Lecona, a start-up company, failed to acquire any major funding from potential investors. Therefore, the owners of the company set up their office in an unoccupied apartment owned by one of them. In this scenario, the company most likely incurred a(n) _____.

implicit cost

_____ are costs that are the result of a firm's general operations and are not tied to any specific cost object.

indirect costs

_____ work within their organizations to detect problems such as waste, mismanagement, embezzlement, and employee theft.

internal auditors

Stockholders typically want to view a firm's accounting information to:

know if management has generated a strong-enough return on investment

explain how budget process help managers plan, motivate, and evaluate their organization's performance?

mangers can compare perfromance to budgeted figures to determine whether various departments and areas are making adequate progress toward achieving their org's goals

Companies that are not publicly traded

obtain external audits at their own discretion.

_____ are budgets that identify projected sales and production goals and the various costs the firm will incur to meet these goals.

operating budgets

In the context of managerial accounting, _____ are usually easy to measure because they involve actual expenditures of money or other resources.

out-of-pocket costs

Generally accepted accounting principles (GAAP) are a set of accounting standards that is used in the:

preparation of financial statements

Mark, an accountant, is given task to lead an external auditing project for a multinational company. In his spare time, Mark also acts as a consultant for Mayfiar Hut Inc., a local company. In this scenario. Mark is

public accountant

Lance signs a contract with Gerove Corp. to perform an external audit for the company. In his audit, he finds certain minor issues in the firm's financial statements but is of the view that the statements are, nevertheless, an accurate representation of the firm's financial status. In this scenario, Lance is most likely to issue a(n) _____ opinion.

qualified

Assets

resources owned by a business

Expenses

resources that are used up as the result of business operations

Increases in a firm's assets that result from the sale of goods, provision of services, or other activities intended to earn income are referred to as _____.

revenue

In the context of budget preparation, the cash budget is a financial budget document that identifies:

short-term fluctuations in cash flow

In the context of statement of cash flows, cash flows from investing activities:

show the amount of cash received from the sale of fixed assets.

As a shareholder of Syder Corporation, Carl wants to know whether the company had earned a profit over the last financial year. He begins by looking into the net income of the company to know if it has sufficient amount of money to pay off the workers and suppliers and also the amount of money remaining with the owners. In this scenario, Carl is looking at Syder Corporation's _____.

statement of cash flows

_____ refers to the claims owners have against their firm's assets.

stockholder's equity

Financial Accounting

the branch of accounting that prepares financial statements for use by owners, creditors, suppliers, and other external stakeholders

Managerial Accounting

the branch of accounting that provides reports and analysis to managers to help them make informed business decisions

Accrual Basis Accounting

the method of accounting that recognizes revenue when it is earned and matches expenses to the revenues they helped produce

implicit cost

the opportunity cost that arises when a firm uses owner-supplied resources

Owner's Equity

the owner's claims to the assets of the business

Financial accounting standards board (FASB)

the private board that establishes the generally accepted accounting principles used in the practice of financial accounting

cost

the value of what is given up in exchange for something

Which of the following statements is true of management accountants?

they assist their superiors in preparing financial statements

In the context of managerial accounting, _____ are costs that change directly with the level of production.

variable costs

Which of the following is a difference between a statement of retained earnings and a stockholders' equity statement?

A statement of retained earnings only shows how net income and dividends affect retained earnings, whereas a stockholders' equity statement also shows changes in stockholders' equity that arise from the issuance of additional shares of stock.

In the context of an independent auditor's report, which of the following is a difference between an unqualified opinion and a qualified opinion?

An unqualified opinion is given if the independent auditor does not find any problems with the way a firm's financial statements were prepared and presented, whereas a qualified opinion is given if the independent auditor identifies minor concerns but believes that on balance the firm's statements are a fair representation of the company's financial position.

Accounting Equation

Assets = Liabilities + Owner's Equity

Which of the following statements is true of the Financial Accounting Standards Board (FASB)?

It is a private organization responsible for developing accounting rules.

In the context of the approaches to budget preparation, which of the following statements is true of participatory budgeting?

It is more resource intensive than the top-down approach.

Which of the following is a difference between managerial accounting and financial accounting?

Managerial accounting is intended to provide information to internal stakeholders, whereas financial accounting is primarily intended to provide information to external stakeholders.

accounting

System recognizing, organizing, analyzing, and reporting info abt financial transactions that affect an organization

Net Income

The amount by which revenues exceed expenses.

In the context of financial statements, which of the following statements is true of long-term liabilities?

They are debts that don't come due until more than a year after the date on the balance sheet.

In the context of external audits of financial statements, which of the following statements is true of CPA firms?

They must be independent of the companies they are auditing.

The _____ is a financial budget and shows how a firm's operations, investing, and financing activities are expected to affect all of the asset, liability, and owners' equity accounts.

a budgeted balance sheet

Budgeting

a management tool that explicitly shows how a firm will acquire and use the resources needed to achieve its goals over a specific time period

master budget

a presentation of an organization's operational and financial budgets that represents the firm's overall plan of action for a specified time period

Generally Accepted Accounting Principles (GAAP)

a set of accounting standards that is used in the preparation of financial statements

Activity-based costing (ABC)

a technique to assign product costs based on links between activities that drive costs and the production of specific products

Liabilities

debts that you owe, Claims that outsiders have against a firm's assets

The accountants at Gamone Phones, a cell phone manufacturing company, discover that the firm has performed poorly over the last two quarters, leading to negative financial implications. Instead of stating the actual figures, the managers decide to wrongly present the firm's debts and overstate its earnings. The aspect of financial accounting that should be emphasized to avoid such incidents of accounting fraud is:

ethics in accounting