accounting ch. 7

stakeholders

any persons or groups who will be affected by an action

managerial accounting

area of accounting that focuses on reporting information on *internal users*

financial accounting

area of accounting which focuses on reporting information to *external users*

financial ratio

comparison between two components of financial information

An income statement reports information on a specific date indicating the financial condition of a business.

false

Financial ratios on an income statement are calculated by dividing sales and total expenses by net income.

false

Internal users of accounting information include company managers, officers, and creditors.

false

On the balance sheet, the current capital amount is taken from the work sheet.

false

The Full Disclosure accounting concept is applied when a company always prepares financial statements at the end of each monthly fiscal period.

false

The income statement for a service business has five sections: heading, Revenue, Expenses, Net Income or Net Loss, and Capital.

false

The net income on an income statement is verified by checking the balance sheet.

false

statement of owner's equity

financial statement that reports the changes in the capital account for a proprietorship for a period of time

vertical analysis

reporting an amount on a financial statement as a *percentage* of another item on the same financial statement

A balance sheet reports financial information on a specific date and includes the assets, liabilities, and owner's equity.

true

A financial ratio is a comparison between two components of financial information.

true

An amount written in parentheses on a financial statement indicates a negative amount.

true

Double lines are ruled across the balance sheet columns to show that the column totals have been verified as correct.

true

Double lines ruled across both amount columns of an income statement indicate that the amount has been verified.

true

Information needed to prepare an income statement comes from the Account Title column and the income Statement columns of a work sheet.

true

The Matching Expenses with Revenue accounting concept is applied when the revenue earned and the expenses incurred to earn that revenue are reported in the same fiscal period.

true

The income statement's account balances are obtained from the work sheet's Income Statement columns.

true

The position of the total asset line on the balance sheet is determined after the Equities section is prepared.

true

The statement of owner's equity reports changes in the capital account for a period of time.

true

When a business has a net loss, the current capital amount will be less than the capital account balance.

true

When a business has two different sources of revenue, both revenue accounts are listed on the income statement.

true

surplus

positive balance that remains after total expense are *subtracted* from total income

return on sales

ratio of net income to total sales

interim financial statements

Financial statements providing information for a time period shorter than the fiscal year

budget

A financial road map used by individuals and companies as a guide for spending and saving.

deficit

A negative balance that remains after total expenses are subtracted from total income

Information needed to prepare a statement of owner's equity is obtained from the balance sheet.

false

ratio analysis

the calculation and interpretation of a financial ratio