Chapter 14

Match the common liability account with its correct description.

Accounts payable - currently liabilities that the company owes others Notes payable-short- or long-term liabilities that the business promises to pay by a certain date Bonds payable-long-term liabilities; money lent to the firm that must be paid back

Stakeholders who want to look at detailed financial information on whether a company is profitable, is able to pay its bills, and how much debt it owes will look at the firm's __.

Annual report

Reviewing and evaluating records used to prepare a company's financial statements is referred to as:

auditing

The statement of cash flows is a financial statement that shows __.

cash receipts and disbursements

Which of the following has the highest liquidity?

current assets

Which three components make up the fundamental accounting equation?

assets, liabilities, owner's equity

The ease with which an asset can be converted to cash is called __.

liquidity

In operating a business, rent, salaries, supplies, utilities and insurance are all example of __.

operating expenses

What is the term given to a specialized accounting book or computer program in which information is transferred into specific categories, so managers can find all the information about a single account in one place?

ledger

What is another name for debts?

liabilities

The debt a firm owes to others is called a(n) __.

liability

Accounts payable, notes payable, and bonds payable are all common __.

liability accounts

What are retained earnings?

accumulated earnings not paid out to stockholders

Cash receipts and disbursements related to operations, investments, financing are reported on the __.

statement of cash flows

Stakeholders who want to look at detailed financial information on whether a company is profitable, is able to pay its bills, and how much debt it owes will look at the firm's __.

annual report

Which financial statement summarizes revenues, costs, and expenses for specific period?

Income statement

Where is accounting data first entered?

journal

In the accounting equation, what is the term for the difference between assets and liabilities?

owner's equity

The value of what stockholders own in a firm minus any liabilities is called __.

owner's equity

Financial accounting and managerial accounting differ in terms of who uses the information. Financial accounting provides information primarily for __.

people outside the organization

Jayleen works for her firm preparing and analyzing its financial statements. She would be called a(n) ______ accountant.

private

What type of accountant is most likely to develop strategies for a firm in dealing with the Internal Revenue Service?

tax accountant

The job of a bookkeeper is to __, whereas the job of an accountant is to __.

Record business transactions; summarize financial data

Operating expenses include which of the following?

Rent, utilities, and supplies

Accumulated earnings from a firm's profitable operations that are reinvested in the business and not paid to stockholders are referred to as __.

Retained earnings

A (blank) accountant is trained in tax law and is responsible for preparing tax returns or developing tax strategies.

Tax

How do cash flow problems usually start?

The firm uses up its credit.

A balance sheet reports on __.

a firm's financial status on a specific date

The income statement shows __.

a firm's profit after costs, expenses, and taxes

What is an annual report?

a yearly statement of the firm's financial condition, progress, and expectations

A summary of all the financial transactions that have occurred over a particular period is referred to as a __.

financial statement

What is the term for the monetary value of all resources that come into the firm from operating activities?

revenue

The role of an auditor is to __.

review and evaluate a company's financial information

An advantage of the use of computers to maintain and compile accounting information is __.

speed

The first step in the accounting cycle is to __.

Analyze source documents

The financial statement that reports a firm's financial condition at a specific time is the __.

Balance sheet

The recording of business transactions is done by __, whereas __ classify and summarize financial data to help managers in decision-making.

Bookkeepers; accountants

If an individual passes a rigorous examination established by the AICPA and meets a state's educational and experience requirements, they can be recognized as a(n) __.

CPA

The bottom line is another name for __.

net income or loss

What are some benefits of using computers for accounting purposes?

-It frees accountants' time for more important tasks. -Software can help if no strong accounting support is available. -Information can be posted from journals instantaneously.

True or False: the financial accounting standards board defines the generally accepted accounting principles (GAAP).

True Reason: financial accounting standards board determines generally accepted accounting principles.

If financial management is the heartbeat of competitive businesses, what keeps that heartbeat stable?

accounting information

The method a company uses to record and summarize accounting data into reports is a(n) __.

accounting system

The information and analysis that comes from managerial accounting is used to __.

assist managers inside the organization with their decision making

What term describes the cost of merchandise the firm sells?

cost of goods sold

Managerial accounting is used to provide information to __.

inside the firm

Transactions that are entered in the journal are then posted to specific categories in a(n) __.

ledger

A business that does not need a full-time accountant, would most likely use a __ accountant in which services are exchanged for a fee.

public

The formula for the costs of goods sold is __.

purchase price + freight charges + storage costs

Government and nonprofit accounting involves working for organizations whose purpose is to serve __.

ratepayers; taxpayers

In using the accounting equation, if assets = $40,000 and liabilities = $30,000, then owner's equity is equal to __.

$10,000

What are two characteristics of what is known as the "bottom line"?

-it is the last line on the income statement. -it is either net income or net loss after taxes

Which are considered to be the working areas of accounting?

-managerial accounting -financial accounting -auditing -tax accounting -government and not-for-profit accounting

What two requirements are needed to become a CPA?

-pass a series of exams -meets a state's requirements for education and experience

Which are the steps in the accounting cycle? (Select all that apply)

-record transaction in the journal -prepare a trial balance -analyze transactions

List the steps in the accounting cycle from beginning to end. Place the first step on top and list the down to the last step on the bottom.

1. Analyze source documents 2. Record transactions in journals 3. Transfer journal entries to ledger 4. Take a trail balance 5. Prepare financial statements 6. Analyze financial statements

It's possible for a business to increase its sales and profits yet still suffer (blank) problems.

Cash flows

Financial accounting provides information to people inside of an organization, whereas managerial accounting provides information to people outside of an organization.

False

The best way to understand a firm's financial health and stability is to look at its __.

Financial statements

__ is the monetary value of what a company received for goods sold, services rendered, and all other payments to the firm.

Revenue reason: be sure not to confuse the terms revenue and sales; they are not the same thing. True, most revenue a business earns does come from sales, but companies can also have other sources of revenue.

A journal is the place where __.

Transactions are recorded

recording, classifying, summarizing, and interpreting financial events in an organization is referred to as __.

accounting