Accounting: CH 1

Armstrong Company ended the year with assets of $104,000 and liabilities of $77,000. What was the amount of stockholders' equity at the end of the year?

$27,000

During its first month of operations, Labrador Corporation provided $10,000 of services to its customers. Its costs included rent of $1,000 and salaries and wages totaling $3,000. At the end of the month, the board of directors approved a dividend of $500. What is the total amount of expenses incurred by the company during the month?

$4,000

Abbott Company had $13,000 in revenue and net income of $5,000 during its first year of operations. What was the amount of the company's expenses during that year?

$8,000

Prepare a single-step income statement in its proper order starting from the top to the bottom. 1. Sales Revenue of $9,000 2. Advertising Expense of $100 3. Salaries and Wages Expense of $5,000 4. Utilities Expense of $1,400 5. Net Income of $2,500

1, 3, 4, 2, 5

What does Public Company Reporting consist of?

1. Press releases 2. Financial statement reports 3. Securities and Exchange Commission (SEC) filings

In becoming a public company, what are the cons?

1. greater public reporting of significant events affecting the company. 2. increased accounting disclosures. 3. greater risk of litigation for misstatements in and omissions from these reports.

What is the main goal of an accounting system?

Capture information about a business so that it can be reported to decision makers.

Borrowing from a bank is a _______________ activity.

Financing

The underlying rules of accounting in the US are called _________________________________________________________ principles.

Generally accepted accounting

Basic Accounting Equation: Assets = ____________ + Stockholders' Equity

Liabilities

What are Notes to the Financial Statements?

Notes help financial statement users understand how the amounts were derived and what other information may affect their decisions.

What is Stockholders' Equity?

Owners' claims to the business resources. Common Stock (equity paid in by stockholders) Retained Earnings (equity earned by the company)

US GAAP are ______________________________________________________________________________________.

The accounting rules developed by the FASB for use in the US.

Why is an income statement referred to as a single-step income statement?

The format separates total revenues from expense and reports a single measure of income.

As soon as you click "Record Entry", which tabs are immediately updated?

The general ledger and trial balance tabs are both updated.

What is an Income Statement?

The unit of measure assumption states that results of business activities should be reported in an appropriate monetary unit.

True or False: Excel functions are prebuilt formulas within Excel.

True

True or False: The first four tabs will always be the same, Requirements, General Journal, General Ledger and Trial Balance.

True

IFRS are _______________________________________________________________________.

the International Financial Reporting Standards

What are the relationships among the Financial Statements?

1. Net income from the income statement is a component in determining ending Retained Earnings on the Statement of Retained Earnings. 2. Ending Retained Earnings from the Statement of Retained Earnings is then reported on the Balance Sheet. 3. Cash on the Balance Sheet is equal to the ending Cash reported on the Statement of Cash Flows.

A company's fiscal year end is a ___________________________________________.

12 month period ending on a day other than December 31st.

What is the order in which the financial statement is prepared?

1st: Income statement 2nd: Statement of retained earnings 3rd: Balance sheet 4th: Statement of cash flows

How is the percentage of Organizational Forms in the U.S. broken down?

72% Sole Proprietorships 18% Corporations 4% Partnerships 6% Limited Liability Companies

Which of the following is a valid excel formula? a. B17 b. $150,000 c. =B17

=B17

Define Corporation.

A separate legal entity. Owners of corporations (stockholders) are not personally liable for debts of the corporation.

What is used to accumulate and report the effects of each different business activity?

Accounts

"Amount owed to suppliers for purchases made on account."

Accounts Payable

"The right to collect for sales/services provided on account."

Accounts Receivable

Accounting is a system of ___________, ____________, ____________, and _____________. the results of a business's activities.

Analyzing, Recording, Summarizing, and Reporting.

Accounts Receivable is an _____________ and reports the amount of cash to be received in the future for sales made on account.

Asset

The balance sheet balances when _______________________________________________________________________________________.

Assets equal liabilities plus stockholders' equity.

Creditors want to see that a company that owes them money has __________________________________________________________________.

Assets that are greater than its stockholders' equity.

"Reports the financial position of the business at a point in time."

Balance sheet

What financial statement reports assets, liabilities, and retained earnings?

Balance sheet

What information appears on the statement of retained earnings?

Beginning balance of retained earnings, ending balance of retained earnings, dividends, and net income.

"Amount stockholders contributed to the company."

Common Stock

What decreases retained earnings?

Dividends

What are the 2 balance sheet equations?

R - E = NI A = L + SE

A private corporation becomes a public company to ____________________________________________.

Raise capital by selling new issues of stock to investors.

Accounts _______________ is an asset on the balance sheet that reports the amounts owed by customers for sales or services provided on credit.

Receivable

"Accumulated profits kept in the business."

Retained Earnings

Which of the following financial statements reports changes the amount of net income and dividends declared during the period? Balance sheet Balance sheet and income statement Statement of retained earnings Balance sheet and statement of retained earnings

Statement of retained earnings

A ________ certificate is a legal document representing ownership in a corporation.

Stock

What are Assets?

Economic resources presently controlled by the company that have measurable value and are expected to benefit the company by producing cash inflows or reducing cash outflows in the future. Examples: Cash, Supplies, Furniture, Equipment.

A __________ is a cost of doing business that is necessary to earn ___________.

Expense, Revenue

"Reports the operating, investing and financing activities effect on cash."

Statement of cash flows

"Reports the accumulation of profits kept by the business during the current accounting period with that of prior periods."

Statement of retained earnings

What is the Statement of Cash Flows?

Summarizes how a business's operating, investing, and financing activities caused its cash balance to change over a particular period of time.

In becoming a public company, what are the pros?

The company: 1. keeps the money it raises when issuing shares. 2. can more easily raise money in the future by issuing additional shares. 3. can pay employees using company shares not just cash. 4. gives founders and other stockholders a way to sell their shares. 5. can buy other companies by paying with shares rather than cash.

Define Expenses.

The costs of doing business necessary to earn revenues, including wages to employees, advertising, insurance, utilities, and supplies used in the office.

What is the Separate Entity Assumption?

The financial reports of a business are assumed to include the results of only that business's activities.

What are the Accounting Standards for the US and for the World?

US: Who? FASB. What? GAAP. World: Who? IASB. What? IFRS.

______________ is referred to as the language of business because it is such a key part of business, and its terms are typically used in discussing business.

Accounting

Define Sole Proprietorship.

Business organization owned by one person. The owner is personally liable for all debts of the business.

Define Partnership.

Business organization owned by two or more people. Each. partner is personally liable for all debts of the business.

Which of the following would be classified as an asset account? Accounts Payable Cash Common Stock Dividends Retained Earnings

Cash

Place the balance sheet line items in the proper order from top to bottom.

Cash Supplies Equipment Accounts Payable Common Stock Retained Earnings

In reviewing the general ledger tab, you notice that the ending cash balance is listed in parentheses. What does this indicate?

Cash has an abnormal ending balance. Chances are you have an incorrect journal entry.

A _____________ is a separate legal entity whereby the owners are not personally liable for the debts of the business.

Corporation

Which of the following are external users of accounting information? Creditors Future Investors The government Managers of the company

Creditors Future investors The government

What are Dividends?

Distributions of a company's earnings to its stockholders as a return on their investment. Dividends are not an expense.

True or False: On the general journal tab, the dropdown menu, if available, lists the accounts in alphabetical order.

False. The accounts are listed in financial statement order: assets, liabilities, equity, revenues, and expenses.

True or False: When preparing a journal entry, the credits must be listed before the debits.

False. The debits must be listed before the credits.

______________ accounting reports are prepared periodically to provide information to external users.

Financial

Which body determines the rules that are used in the US for reporting accounting information and producing financial statements?

Financial Accounting Standards Board

Where do creditors and investors obtain information to make decision concerning a company?

Financial statements

What are Financial Statements?

Financial statements are typically prepared in this order: Income Statement Statement of Retained Earnings Balance Sheet Statement of Cash Flows

When faced with an ethical dilemma, what should you do?

Identify who will be affected by the situation. Identify and evaluate the alternative courses of action. Choose the alternative that is the most ethical.

"Reports the financial performance of the business during the current accounting period."

Income Statement

____________ are measurable amounts that the company owes to creditors.

Liabilities

Accounts Payable is a ________________ and reports the amount of cash to be paid in the future for purchases made on account.

Liability

What does LLC stand for?

Limited Liability Company

The primary goal of most companies is to ________________.

Make a profit

______________ accounting reports include detailed financial reports about the company's operating performance that are continually updated and used by internal users (employees).

Managerial

What are Liabilities?

Measurable amounts that the company owes to creditors. Examples: Notes Payable, Accounts Payable.

Revenues - Expenses = _____________.

Net Income

"Amount of loan owed to the bank."

Notes Payable

Which business organizations must have at least two owners?

Partnership, both a sole proprietorship and a corporation can have one owner.

Which of the following activities is not a category reported on the Statement of Cash Flows? Investing activities Financing activities Profit activities Operating activities

Profit activities

What is the Balance Sheet?

Reports at a point in time: 1. What a business owns (assets) 2. What it owes to creditors (liabilities) 3. What is leftover for the owners of the company's stock (stockholders' equity)

What is the Statement of Retained Earnings?

Reports the way that net income and the distribution of dividends affected the financial position of the company during the period.

What is the basic accounting equation?

Resources owned (by the company) = Resources owed (to creditors or to stockholders) Assets = Liabilities + Stockholders' Equity

The equation for the income statement is ______________ - _______________ = _________________.

Revenue - Expenses = Net Income

_____________ are earned by selling goods or services to customers and is the first line item reported on the income statement.

Revenues

Net income equals total _____________ minus total ______________.

Revenues, Expenses

Define Revenues.

Sales of goods or services to customers, measured at the amount the business charges the customer.

The _________________________ is a set of laws established to strengthen corporate reporting.

Sarbanes-Oxley Act (SOX)

What are the 3 organizational forms?

Sole Proprietorship, Partnership and Corporation.

Which organization is the most popular form of business organization in the US?

Sole proprietorship

What is the main goal of External Financial Reporting?

To provide useful financial information to external users for decision making.