Chapter 14 - Understanding Accounting and Financial Information

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

cash flow

Rent, salaries, supplies, utilities, and insurance are examples of ______ expenses that are general expenses.

operating expenses

What term describes the cost of merchandise the firm sells?

cost of goods sold

Which type of accountant would be avaliable to businesses or individuals on a fee basis?

public accountant

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

retained earnings

Managerial accounting is used to provide information __.

inside the firm

Revenue is the monetary value of what a firm received for __.

interest earned

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

liability

Users of managerial accounting information include __. 1. Internal Revenue Service 2. potential investors 3. the Chief Financial Officer 4. department managers

3. the Chief Financial Officer 4. department managers

The key working areas of accounting include managerial accounting, financial accounting, tax accounting, government and nonprofit accounting, and __.

auditing

What are three components make up the fundamental accounting equation?

assets, owners' equity, liabilities

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

financial statement

Because they indicate a firm's financial health and stability, the use of __ are key factors in management decision making.

financial statements

The principles, defined by Financial Accounting Standards Board (FASB), that accountants must follow to assure that a firm's accounting information is accurate are abbreviated as __.

generally accepted accounting principles (GAAP)

Debts, known for accounting purposes as __, are what the business owes to others.

liabilities

The major categories of balance sheet are assets, liabilities, and __.

owners' equity

Sales, purchasing, and shipping documents are all considered examples of __ to an accounting system.

inputs or entries

CPA exams are established by the __ __ of Certified Public Accountants.

American Institute of Certified Public Accountants

What are retained earnings?

accumulated earnings not paid out to stockholders

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

statement of cash flows

The __ __ provides information about a company's financial status to company managers, owners, government agencies, and the general public.

annual report

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

assist managers inside the organization with their decision making

The __ line is another name for net income after taxes.

bottom line

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

owners' equity

Operating expenses including which of the following? 1. capital improvements 2. supplies 3. utilities 4. rent

2. supplies 3. utilities 4. rent

The income statement shows __.

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

The purpose of the Financial Accounting Standards Board is to be __.

define generally accepted accounting principles

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

Accounting information

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

Certified Public Accountant or CPA

__ and nonprofit accounting supports organizations whose purpose is not generating profit, but serving ratepayers, taxpayers, and others according to a duly approved budget.

Government

Cash flow analysis is especially important for what kind of business?

Small businesses

List the steps in the accounting cycle from beginning to end.

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

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

accounting

__ is the term for resources that come into the firm from operating activities.

Revenue

The __ statement summarizes revenues, costs, and expenses over a specific period, which may be a week, a month, or a year.

income

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

ratepayers and taxpayers

An accounting system is used to __.

record and summarize accounting data into reports

Stockholders, or owners' equity represents __.

the value of the business that belongs to owners

What are steps in the accounting cycle? 1. analyze transactions 2. build a budget 3. prepare a trail balance 4. record transaction in the journal 5. determine investment opportunities

1. analyze transactions 3. prepare a trail balance 4. record transaction in the journal

The method used to record and summarize accounting data into reports is called a(n) __ system.

accounting system

What are the three common liability accounts recorded on a balance sheet?

accounts, notes, and bonds payable.

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

auditing

The __ of __ __ measures the cost of merchandise the firm sells or the materials and supplies used to manufacture them for sale.

costs of goods sold

What are three major categories on the balance sheet?

liabilities, assets, and owners' equity

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

liability accounts

The statement of cash flows reports cash receipts and disbursements related to __, investments, and financing.

operations

What is the difference between assets and liabilities?

owners' equity

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

private

The role of an auditor is to __.

review and evaluate a company's financial information

The primary users of government and nonprofit accounting information are __, __, and __.

special interest groups, taxpayers, and legislative bodies.

A journal is the place where __.

transactions are first recorded

A tax accountant has specialized and learned tax __ and is responsible for preparing tax returns.

law, legislation, or laws

Information in the journal is transferred to the __, so managers can find all the information about a single account in one place.

ledger

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

ledger

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

liquidity

What are some benefits of using computers for accounting purposes? 1. Software can help if no strong accounting support is available. 2. It frees accountants' time for more important tasks 3. They can make good financial decisions automatically. 4. Information can be posted from journals instantaneously.

1. Software can help if no strong accounting support is available. 2. It frees accountants' time for more important tasks 4. Information can be posted from journals instantaneously.

Which of the following are considered disciplines within the accounting profession? 1. financial accounting 2. managerial accounting 3. investment accounting 4. tax accounting

1. financial accounting 2. managerial accounting 4. tax accounting

The "bottom line" is __. 1. net income or loss after taxes 2. the last line on the statement of cash flows 3. the last line on the income statement 4. the last line on the balance sheet

1. net income or loss after taxes 3. the last line on the income statement

What three activities are part of the function of accounting? 1. prioritizing financial transactions 2. classifying financial transactions 3. planning financial transactions 4. interpreting financial transactions 5. recording financial transactions

2. classifying financial transactions 4. interpreting financial transactions 5. recording financial transactions

Which items are inputs to the accounting system? 1. statement of cash flows 2. sales documents 3. income statement 4. payroll records 5. shipping documents

2. sales documents 4. payroll records 5. shipping documents

A Certified Public Accountant (CPA) must __. 1. pass a test every year 2. be a public accountant or an internal auditor 3. meet a state's requirements for education and experience 4. pass a series of exams

3. meet a state's requirements for education and experience 4. pass a series of exams

__ accounting generates financial information for people outside the firm, while __ accounting generates financial information for people inside the firm.

Financial, Managerial

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

Tax accountant

What is considered to be the "language of business"?

accounting