Accounting Exam 1 Review

Which is not part of the operating process? A) purchase of a bulldozer by a construction company B) purchase of a computer by an electronics store for resale C) sale of stock by a stock broker D) sale of merchandise

A) purchase of a bulldozer by a construction company

The financial statement designed to show the ending amounts of a company's assets, liabilities, and stockholders' equity.

Balance Sheet

The cash held by a company at the end of the year is found on which of the following two statements?

Balance Sheet and Statement of Cash Flows

The concept that requires an accounting system to reflect only information about the economic events that pertain to a particular entity.

Business Entity Concept

An accountant who has the legal authority to attest to the fair presentation of information in the financial statements of any company is called a/an:

Certified Public Accountant (CPA)

What explains why it is relatively easy for corporations to raise large amounts of money?

Corporations raise capital by seeking relatively small amounts from many people.

Which of the following is the ratio for calculating the current ratio?

Current Assets/Current Liabilities

A liability likely to be paid or otherwise discharged within one year.

Current liability

A measure of company solvency and its ability to meet its long-term obligations. (total liabilities/total assets)

Debt to Assets Ratio

The statements of financial accounting standards, and other authoritative pronouncements that define what constitutes acceptable accounting practice for financial reporting are collectively referred to as:

Generally Accepted Accounting Principles (GAAP)

The body responsible for establishing international accounting standards today is the:

International Accounting Standards Committee (IASC)

Which of the following is has limited liability for all owners and is not subject to double taxation?

Limited Liability Corporation

What business organization has general partner(s) and limited partners that have limited liability?

Limited Partnership

What distinguishes partnerships from sole proprietorships?

Mutual agency

The financial statement designed to show the changes to owners' equity during a specified time period.

Retained Earnings Statement

Net income is found on which of the following two statements?

Retained Earnings and Income Statement

What is true about the relationships between the financial statements?

The ending balances of the retained earnings found in the Retained Earnings Statement are found on the Balance Sheet (stockholders' equity section)

The Debt to Equity Ratio is measure of what?

Total Liabilities / Total Stockholders' Equity

The function of business responsible for providing the information used by other functional areas to perform their jobs is referred to as

accounting and information systems

A system in which income is measured as the difference between the revenues earned and the expenses incurred during the period, regardless of when cash is paid or received.

accrual basis of accounting

The rights to use resources that have expected future economic benefit.

assets

Information is relevant when it

causes users to reach a different decision.

A business entity that is legally separate and distinct from its owners.

corporation

An asset likely to be used or consumed within one year.

current asset

A measure of company liquidity; the relationship between current assets and current liabilities. (current assets/current liabilities)

current ratio

The current liquidity of a company is measured by which of the following?

current ratio

measures the short-term ability to pay maturing obligations and meet unexpected needs for cash (current assets/current liabilities)

current ratio (liquidity ratio)

An amount incurred from using resources or services in an effort to generate revenues.

expense

The business function which is responsible for managing a company's capital resources is referred to as

finance

Activities involving obtaining necessary funds to purchase long-term assets, repay existing obligations, and provide a return for owners are referred to as:

financing activities

Activities that involve obtaining the cash or other resources as means to pay for long-term assets, to repay borrowed funds, and provide a return to owners.

financing activities

A fitness center borrows $10,000 from the bank to purchase an exercise machine. This is an example of a(n):

financing activity

A law firm signs a $700,000 mortgage note with a local bank for the purchase of an office building. This is an example of a(n):

financing activity

The concept that assumes that, absent any information to the contrary, the business entity will continue to into the foreseeable future.

going concern concept

Activities involving the purchase and sale of long-term assets as well as other major items used in a business's operation are referred to as:

investing activities

Activities that involve the purchase and sale of long-term assets and other major items to achieve the business's strategy.

investing activities

A delivery service purchases a new truck for $130,000. This is an example of a(n):

investing activity

An law firm purchases a $100,000 computer system for its accounting department. This is an example of a(n):

investing activity

The obligation to transfer economic resources to suppliers of goods and services at some point in the future.

liability

A situation in which the money invested in a corporation is at risk but investors' personal possessions are not at risk if the business fails.

limited liability

The business entity eliminates the impact of unlimited liability for all the owners, does not limit the number of owners, and does not limit participation in the management of the firm.

limited liability company

A partnership in which the individual partners are liable only for their own actions and the actions of those individuals under their control.

limited liability partnership

A partnership composed of one or more general partners and one or more limited partners; only the general partners' personal possessions are at risk if the business should fail.

limited partnership

The ability of a company to pay obligations that are expected to become due within the next year or operating cycle.

liquidity

The business function designed to determine the wants and needs of consumers is referred to as

marketing

The concept that asserts money is the common measurement unit.

monetary unit concept

A company's total revenues less its total expenses for a period of time. (revenues - expenses)

net income

The profit making activities of an enterprise are referred to as:

operating activities

A sporting-goods store sells a set of golf clubs to a customer for cash. This is an example of a(n):

operating activity

Eastwood Company pays its employees every Friday. This is an example of a(n):

operating activity

The profit-making activities of a business enterprise.

operating process

A business owned by two or more individuals whose personal possessions are at risk if the business fails.

partnership

The concept that requires that the success or failure of the business be determined at regular intervals.

periodicity concept

The primary objective of financial reporting is to

provide information useful for making economic decisions.

An amount earned from rendering services or transferring resources to customers.

revenue

Which of the following is a characteristic of the corporate form of business?

separate legal entity

A business entity owned by one person whose personal possessions are at risk if the business fails.

sole proprietorship

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

solvency

The financial statement designed to show the cash inflows and cash outflows of the company for a period of time.

statement of cash flows

Represents the claims on the business to transfer the residual interest (net assets of the business) to the owners.

stockholders' equity