Acct I Ch 1

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The Accounting Equation

Assets=Liabilities+Stockholders' Equity

Corporation

A business organization that issues shares of stock to its investors

Liabilities

Amounts owed to creditors

What items are found on a balance sheet?

Assets, Liabilities, Stockholders' Equity

Balance Sheet

Assets, Liabilities, and Stockholders' Equity

What would be found on a balance sheet?

Assets, Liabilities, and Stockholders' Equity

Which financial statement shows a firm's financial position on a particular date?

Balance sheet

For accounting information to be relevant, what qualities must it posses?

Confirmatory Value and Predictive Value

Who has the responsibility for preparing financial statements in accordance with generally accepted accounting principles?

Corporate Management

The "Big 4" accounting firms

Deloitte, Ernst & Young, PricewaterhouseCoopers, and KPMG

What appears on the statement of stockholders' equity?

Dividends, Net Income, and Beginning Balance of Retained Earnings

What are the four basic assumptions underlying GAAP

Economic Entity, Monetary Unit, Periodicity, and Going Concern

The fundamental activities of a business are selling activities and marketing activities

False

What are the financial statements?

Income Statement, Balance Sheet, and Stockholders' Equity

Which are assets?

Inventory and Supply

Which of the following items are classified as financing activities on the statement of cash flows?

Issue stock and Pay dividend

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

Neutrality, Completeness, Freedom from Material Error

Statement of Cash Flows

Operating, Investing, and Financing Activities

Retained Earnings

Profits earned by a company that have not been paid to stockholders Undistributed profits that have accumulated in the company over time

Financial Accounting Standards Board (FASB)

The private sector organization that is currently responsible for setting accounting standards in the US

Dividend

a distribution of net income to the stockholders of a corporation

Periodicity Assumption

allows the life of a company to be divided into artificial time periods to provide timely information

Going Concern Assumption

anticipates that a business will continue to operate indefinitely

The purpose of a statement of cash flows is to provide information about the

cash receipts and cash disbursements during a period

Managerial Accounting

deals with the concepts and methods used to provide information to an organization's internal users

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

earned by the corporation

A(n)_____ is a cost of doing business that is necessary to earn______.

expense; revenue

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

financing activities, operating activities, and investing activities

The income statement is considered most useful for predicting

future profitability

Investing Activities

involve the buying and selling of land, buildings, and equipment used in the business

Asset

is a resource, such as cash, land or buildings, that is owned by a company

Ethics

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

The two primary function of financial accounting are to

measure business activities and communicate measurements to external parties

Timeliness

refers to information being available to users early enough to allow them to use it in the decision process

Monetary Unit Assumption

states that financial statement elements should be measured in terms of the US dollar

The purpose of an income statement is to

summarize the profit-generating activities that occurred during a particular reporting period

The fundamental model of business is commonly referred to as

the accounting equation

Stockholders' equity is

the owner's claims to resources of the corporation

Income Statement

Revenues and expenses

Net Income

Revenues-Expenses

Consistency

The qualitative characteristic of using the same accounting method each period over time

Example of Economic Entity

The requirement that the economic activities of a business owner should be separated from the activities of the business

Assets

are a company's resources

Generally Accepted Accounting Principles

are also known as GAAP

Liabilities and Stockholders' Equity

are claims to a company's resources

Revenues

are earned by selling goods and services to customers

The financial statement that summarizes revenues and expenses for a period of time is an

income statement


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