Accounting Chapter 1
Ace Electronics bought equipment for $4,000. Normally the equipment would have cost $4,500, but the supplies gave Ace a special discount. Ace's balance sheet should report equipment of...
$4,000
Who decides whether to lend money?
creditors
Who decides production and expansion?
managers
Expenses report what during the accounting period?
resources used to earn revenue
Who are viewed as owning the resources and as owing the debts of the business?
the corporation, not the owners
What information do assets provide to creditors and stockholders?
whether the company has sufficient resources to operate
The heading on the Statement of Stockholders' Equity includes what?
For the period ended December 31
What asset represents the amount customers owe for goods or services?
accounts receivable
resources owned by a company are called what?
assets
What is the accounting equation?
assets = liabilities + stockholders' equity
What does a balance sheet show?
assets, liabilities, and stockholders' equity at a single point in time
Balance sheets report amounts...
at a specific point in time
What are the four financial statements?
balance sheet, income statement, statement of stockholders' equity, statement of cash flows
What information appears on the statement of stockholders' equity?
beginning balance of retained earnings, net income, dividends, ending balance of retained earnings
The main goal of an accounting system is to...
capture information about a business so that it can be reported to decision makers
Mauricio invested $30,000 in Pizza Aroma in exchange for its stock. Pizza Aroma now has what under shareholders' equity?
common stock
The sum of which two elements equals stockholders' equity?
common stock, retained earnings
Who decides whether to purchase products?
customers
What do most investors hope to get from their investments in a company's stock in addition a higher price for the stock?
dividends
Shareholders' equity arises primarily from amounts invested by shareholders and amounts...
earned and retained by the corporation
The two sources of stockholders' equity are amounts...
earned and retained by the corporation, paid in from shareholders
A(n) what is a cost of doing business that is necessary to earn a what?
expense; revenue
A net loss is reported when...
expenses are greater than revenues
Paying cash dividend to a stockholders is a(n)...
financing activity
What can affect common stock?
financing provided by owners, investments by owners
Which financial statement is a company's primary measure of profit?
income statement
When a company earns net income, its retained earnings...
increase
What involves the buying and selling of land, buildings, and equipment used in the business?
investing activities
Corporations have...
limited liability for its stockholders, continuity of life
Managerial accounting reports are used by the company's...
managers
Who are the internal decision makers that use accounting information to manage the operating, investing, and financing activities of the firm?
managers
Is common stock a liability?
no
Mauricio, the owner of Pizza Aroma, spent $2,500 of his own money to take his family to Disney World. Pizza Aroma's financial statements will report...
nothing about this trip
The balance sheet of a corporation reports...
only the results of the business's activities
What classifications are used to categorize cash inflows and cash outflows on the statement of cash flows?
operating, investing, financing
What does the income statement do?
reports how well the company performed during the accounting period, reports the profitability of the company for the accounting period, reports the revenues minus the expenses for the accounting period
Profits that have accumulated in the company over time are called what?
retained earnings
What are earned by selling goods or services to customers?
revenues
Net income equals...
revenues minus expenses
An income statement includes what items?
revenues, expenses, net income
Who are the external decision makers?
stockholders and creditors
Who decides the best place to purchase products for companies?
supply chain managers
What information do liabilities provide to creditors and stockholders?
whether there are excessive creditors' claims to the company's resources
What information do stockholders' equity provide to creditors and stockholders?
whether there is sufficient investment and cushion should the company close the doors of its business
Z Company bought land 20 years ago for $30,000. Over the last 20 years, the value of the land has doubled. The increase in the land's value....
will not be reported in Z Company's financial statements