Acct I Ch 1
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