Financial Accounting Chapters 1, 2 and 3 Exam 1

The formula for depreciable cost is

(asset cost- salvage value) -----------------------------(divide) useful life

An internal user of accounting information is:

- Human resource manager - a marketing manager - a user who is directl involved in managin and operating an organization.

which of the following statements is correct reagrding the defintion of a liability

- a liability is a claim by creditors against the assets of a business -a liability can be settled by transferring assets or providing products or serives to other -a liability is a debit owed by the business

accural basis accounting records revenues when services and products are delievered and recoreds expenses when incurred (matched with revenues).

- an accounting system that best reflects business performance statmens from period to period. - an accounting system that uses the adjusting process to recoginize revenues when earned and expenses when incurred. - an accounting system which is consistent with generally accepted accounting principals

which are the following is true regarding timeliness and the importance of perodic reporting?

- the value of information is often linked to the timeliness -business report finanical information at regular intervals to ensure timeliness of data -useful information must reach decision makers frequently.

Accounting has 4 areas of opportunity

1. Fiancial 2. Margerial 3. Taxation 4. Accounting

Accounting Assumptions

1. Going-Concern Assumption 2. Monetary Unit Assumption 3. Time Period Assumption 4. Business Entity Assumption

Place the following ethnical decision making steps in the correct order:

1. Identify ethnical concerns 2. Analyze options 3. Make ethnical decision

The process from transactions to financial statements is as follows:

1. Identify transactions and events from source documents 2. analyze transactions and events using the accounting equation 3. record relevant transactions and events in a journal 4. post journal information to lender accounts 5. prepare and analyze trail balance and financial statement.

Four building blocks od analysis ratios

1. Liquidity 2. Solvency 3. Profitability 4. market prospects

Accounting Principals

1. Measurement principal 2. Revenue recognition principal 3. Expense reognition principal (matching principal) 4. Full disclosure principal

The three factors that must exist for a person to commit fraud include:

1. Oppotunity 2. Pressure 3. Rationalization

Prepare a trail balance steps

1. list each account title and its amount from ledger in the trial balance. 2. compute the total od debits balances and the total of credit balances. 3. Verify (prove) total debits balances equal total credit balances.

Three factors that push person to commit a fraud

1. opportunity 2. pressure 3. rationalization

matching (expense recognition) principle

A company records the expenses incurred to generate the revenues reported.

Full Disclosure Principle

A company reports details behind financial statements that would impact users' decisions.

Identify the importance of accounting by selecting the statement that is correct below.

Accounting is a system that identifies, records, and communication to an organizations business activities.

Expanded Accounting Equation

Assets = Liabilities + Common Stock + Revenues - Expenses - Dividends

Accounting equation

Assets = Liabilities + Owner's Equity

Certifications of Accounting Specialists

CPAS(Certified public accountants) CMAS (Certified in Management accouting) CIA (certified in internal auitor) CB (certified Bookkeeper) CPP (certified payroll personal/professional) CFE (certified fraud examiner) CFA (certified forensic accountant)

The constraint that states that information disclosed to the entity must have benefits to the users which are greater than the costs of providing it is called

Cost-Benefit

Business Entity Assumptions

Each Business is accounted for seperate from its owner or owners.

An ___________ user of accounting information does not directly run the organization.

External

Users who do not directly run the organization and limites access to account information as known as _______.

External

The SEC has delegated the task of standard setting to:

FASB

Going Concern Assumption

Financial statements reflect the assumption that the business continues operating.

Select the broad opportunities of accounting

Financial, maragerial, and taxation

Cost Principle

Information is based on actual costs incurred in transactions.

Margagerial accounting is focuses on the needs of _________

Internal Users

Users of accounting information can be divided into two main groups These groups include

Internal and external

A ______________is a business entity legally seperate from its owners who are called LLC.

LCC

A company that loans money to an organization is an ________

Lender

A lendor (creditor)

Loans money or other resources to a business

The ______________________ principal states that accouting is based on actual costs.

Measurement

The principal which states that accounting informationn is based on actual cost is called the

Measurement principal

The accounting assumption related to expressing transations and events in the monetary units us called the:

Monetary Units

accured liabilites are amounts owed that are not______

PAID

Creditors

People who lend money

An employee who has unpaid bills might echibit following fraud factor:

Pressure

The majority of accounting opportunites are in the area of ____________ accounting

Private

Gernally accepted accounting principals (GAAP) wants information to have.

Relevance and faithfil representation

The principal which says that revenue is regonized when goods or serivces are provided to customers at an amount expected to be recieved.

Revenue Regnition Principal

Revenue Recognition Principle

Revenue is recorded only when the earnings process is complete, When products and services are delievered.

Which organization has the legal authority to create generally accepted accounting principals

SEC

the ability to meet long term obligation snad generate revenue is called:

Solvency

True of False: Articial intelligence inclused repeative tasks such as recording basic transactions

TRUE

Identify the roles of the international accounting standards board (IASB) and international Financial Reporting Services (IFRS)

The FASB and IASB are working to reduce differences between U.S. GAAP and IFRS

Solvency

The ability of a company to pay interest as it comes due and to repay the balance of debt due at its maturity.

What are generally accepted accouning principals.

The concepts and rules that govern financial practice

(FASB) Financial Accounting Standards Board

The primary accounting standard-setting body in the United States.

Identify which of the following statments is correct as why accounting is important.

We live in an information age where accounting information impacts everyone.

Which of the following is the correct definition or a creditor?

a creditor is an individual or organization tht has a right payment from a business

which of the following is the best definition of a source document in the accounting process?

a document identifies and describes transactions and is the basis for entering an event into the accounting system

which of the following statements is the correct definition of a liability

a is a claim by a creditor against the assets of a business

market prospects

ability to generate positive market expectations

Liquidity

ability to meet short term obligations and generate revenues

profitability

ability to provide financial rewards sufficient to attract and retain financing

selet all examples of accured liabilities

accured liabilities are amounts owned that are not yet paid examples wages payable, taxes payable, interest payable

What is a shareholder?

an owner of shares in a company

reports covering a one year period is known as

annual finanical statements

Liabilities

are creditors claims on assets

Internal Controls

are procedures to protect assets, ensure reliable accounting, promote efficiency, and uphold company policies.

Assets

are resources a company owns or controls ex cash, supplies, land

Which of the following statements is the best definition of an asset

assets are resources owned or controlled by a company and that have expected future benefits

Ethics are defined as,

beiefs that distinguish right from wrong accepted standards of good and bad behavior

The accounting assumption realted to separting business transactions fromt he owners transactions is called the

business enity

Which of the following would be a source document in a accounting system?

checks, purchase order, payroll records, sales receipts

expenses are increased on the left side of their t account because they

decrease equity

Internal Users

directly involved in managing and operating an organization -Purchasing Managers -HRM -Production managers Managers

External Users

do not directly run the organization and have limited access to its accounting information -Lenders -Shareholders -Boards of Director -external-nonmarginal -voters and gov. officals -contributors -suppliers -customers

(GAAP) Gernally accepted accounting principals

financial accounting is governed by concepts and rules relevant and faithful representation.

a perios consisting of 12 consecutive months or 52 weeks is called a __________ year

fiscal

Managerial Accounting

focuses on information for internal decision makers, such as the company's managers and employees

finanacial accounting

focuses on the needs of external users.

The details behind the financial statment are often disclosed in the

footnotes to the statement

Source documents

identify and describe transactions and events entering the accounting process

Depreciation

instead of expensing the cost of a plant asset (equipment, building, cars) in the year it is purchased we allocate or spread out the cost over their expected useful lives.

Ledger

is a collection of all accounts and their balances for an accounting system. a company's size and diversity of operations affect the number of accounts needed.

Data Visualization

is a graphical presentation of data to help people understand their significance.

Data Analysis

is a proess of analyzing data to identify meanful realtions and trends

Accounting

is an information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organization's business activities.

equity

is the owners claim on assets

double-entry accounting

is useful in analyzing transactions. analysis of each transaction follows 4 steps

the ability to meet short-term obligations and generate revenue

liquidity

The area of accounting that serve the decision making needs of internal users is reffered as

managerial accounting

Another name for the expense regonition principal is:

matching principal

Securities and Exchange Commission (SEC)

monitors the stock market and enforces laws regulating the sale of stocks and bonds

revenues cause equity to increase and they are increase

on the right sude if the T account

which of the following would be considered a source document in an accounting system

payroll

Select internal users of accounting information from the choices below(check all that apply)

purchasing and distrbution managers

All the following are part of the FASB conceptual objectives

qualitatives characteristics elements recognition and measurement

The FASB conceptual framework consists of all the following areas except:

quantitative

Cash basis accounting recognizes revenues when cash is _______ and records expenses when cash is ___________.

recieved, paid

Each of the followin are aread of accounting opportunities except

regulators

Artifical intelligence includes

repeative tasks

T account

represents a ledger account and is used to depict the effects of one or more transactions

a owner of a corporation is called a

shareholder

financial statments

the balance sheet, the income statement, statement of retained earnings, and the statement of cash flows.

account balance

the difference between the increases and decreases in an account

Auditors

verify the effectiveness of internal controls