Accounting Exam 1
What are examples liabilites?
Accounts payable Salaries payable Interest payable Unearned revenue Notes payable
_________________ is a contra-asset so it increase with a credit and decreases with a debit
Accumulated Depreciation
What is the accounting equation?
Assets = Liabilities + Stockholders' Equity
The financial position of a company is summarized by what equation?
Assets= Liabilites + Stockholders' Equity
What are assets?
Cash Accounts receivable Interest receivable Inventory Prepaid insurance Prepaid rent Equipment Supplies Notes receivable Equipment Land Building
what does double taxation mean?
Companies must pay taxes on their earnings stockholders pay taxes on their dividends.
Expense or revenue: rent
Expense
Financial Accounting and Reporting standards in the United States are primarily established by the...
Financial Accounting Standard Board (FASB)
______________________ is an independent, private sector body, with full-time voting members, and a large support staff
Financial Accounting Standard Board (FASB)
The rules of financial accounting are called
Generally Accepted Accounting Principles (GAAP)
__________________ want to know about the company's resources and their claim to those resources
Investors creditors
What is the Retained Earnings equation?
Retained Earnings= Net Income - Dividends
On an income statement, what are examples of expenses?
Salaries expense Rent expense Supplies expense Advertising expense Utilities expense Interest expense Depreciation expense Service fee expense
_____________________ provides for the regulation of auditors and the types of services they provide to clients to increase accountability of corporate executives, addressing conflicts of interest of security analysts, and provides for stiff criminal penalties for violators
Sarbanes- Oxley Act
________________ are owners' claim to resources
Stockholders' Equity
What is the equation for Stockholders' Equity?
Stockholders' Equity= common stock + retained earnings
Revenues are the amounts recognized when...
a company sells products or provides services to customers
The measurement roll of accounting is to create...
a record of the activities of a company
_______________ is the language of business.
accounting
_______________ is the system of maintaining records of a company's operations and communicating that information to decision makers
accounting
Accountants measure the....
activities of the company and communicate those measurements to others
Management discussion and analysis and note disclosures to the financial statements are included in the...
annual report
_________________ are total resources of the company
assets
To help ensure that company management has appropriately applied the GAAP, the SEC requires independent outside verification of the financial statements of publicly traded companies, examination is done by whom?
auditors
_____________ are not employees of the company, but they are hired by the company as an independent party to determine extent to which financial statements are prepared in compliance with the GAAP
auditors
Any transaction that affects the income statement ultimately affects the....
balance sheet through the balance of retained earnings.
What claim do investors have to company resources?
claim to all remaining resources
What claim do creditors have to company resources?
claims equal to the amount loaned
Each share of ownership is referred to as...
common stock
What are the 2 primary components of Stockholders' Equity?
common stock retained earnings
What are examples of Stockholders' Equity?
common stock retained earnings dividends
If the same accounting principles and methods are used for similar events by two different firms, this enhances what accounting qualitative characteristic?
comparability
_______________ decide market share and profitability
competitors
________________ is a business that is legally separate from owners
corporation
Expenses are recognized as the....
cost of providing products and services and other business activities during the current period
When you borrow money from a bank, the bank becomes a...
creditor
_______________ decide whether to lend money
creditors
Who has claim to the company's resources?
creditors investors
_______________ decide whether to purchase products
customers
Net income is the...
difference between revenues and expenses
cash payments to stockholders are...
dividends
What is a disadvantage of a corporation?
double taxation
Shareholders' equity arises primarily from amounts invested by shareholders and amounts __________.
earned by the corporation
_______________ decide employment opportunities
employees
The 4 financial statements are linked meaning, because
events reported in one financial statement affect amounts reported in another
Dividends are not an ________________ because they are not costs relating to providing products and services to customers
expense
Expense or revenue: Salaries
expense
Common stock is an _____________ source of stockholders equity
external
Information provided to external users is called...
financial accounting
No other single piece of company information better explains companies' stock price performance than the...
financial accounting net income (bottom line of the income statement)
Balance sheet is a financial statement that presents the....
financial position of the company on a particular date
Companies communicate information about their business activities primarily through....
financial statements
The primary way of communicating business activities is through...
financial statements
Where is the time period covered by the income statement found?
heading
Information that best explains companies' stock price performance is reported on the...
income statement
The financial statement that is most useful in explaining a company's stock price performance is the...
income statement
What are the 4 primary financial statements?
income statement statement of stockholders' equity balance sheet statement of cash flows
Retained earnings is an _____________ source of stockholders equity
internal
When you are starting a business and you do not have any money, who do you look for?
investors
_______________ decide whether to invest stock
investors
What are 2 examples of financing activities?
issuing stock borrowing money
_________________ are amounts owed to creditors, claims that must be paid off by a specific date
liabilities
What is a benefit for having a corporation?
limited liability
_________________ prevents stockholders from being held personally responsible for financial obligations of the corporation
limited liability
_______________ decide on environmental issues
local communities
Long-Term" Assets or Liabilities =
longer than one year
Information provided to internal users is called...
managerial accounting
_______________ decide production and expansion
managers
What are the 2 functions of Financial Accounting?
measure business activities of a company communicate those measurements to external parties for decision making purposes
Statement of Cash Flows is a financial statement that....
measures activities involving cash receipts and cash payments over an interval of time
Outflows are shown as..
negative amounts
Pizza Aroma generated $11,000 in revenues and had expenses of $6,000. Pizza Aroma's net income or loss is:
net income $5000
If expenses exceed revenue then it is a....
net loss
Two other types of information in addition to the financial statements that must be reported in the annual reports include:
note disclosures management discussions and analysis
What are the 3 categories that correspond to the 3 fundamental business activities?
operating cash flow investing cash flow financing cash flow
__________________ is a business owned by two or more people
partnership
Who are investors?
people who buy ownership in a company and have the right to share in the company's profits
Inflows are shown as..
positive amounts
_____________________ providing accounting services to the company that employees you
private accounting
Net Income is also known as:
profit earnings
operating activities are transactions that relate to the primary operations of the company, such as...
providing products and services to customers and the associated cost of doing so
_____________________ are professional service firms that traditionally focus on 3 areas: auditing, tax preparation/planning, business consulting
public accounting
What is an example of an investing activity?
purchasing equipment
_______________ decide on social welfare
regulators
The hierarchy of qualitative characteristics of financial information require that, in order to be useful for decision making, information should possess the fundamental characteristics of...
relevance faithful representation
What do income statements do?
report company's revenue and expenses over an interval of time
The 1933 Securities Act and the Securities Exchange Act of 1934 were designed post great depression to...
restore confidence in financial accounting
Expense or revenue: Providing soccer training to a customer
revenue
On an income statement, what are examples of a revenue?
service revenue sales revenue interest revenue
_________________ is a business owned by one person
sole proprietorship
statement of stockholders' equity is a financial statement that...
summarizes the changes in stockholders' equity over an interval of time
_______________ decide the customer's ability to pay for supplies
suppliers
_______________ decide on taxation policy
tax authorities
Accounting is the language company's use to...
tell their financial story
Another name for Total liabilities is what?
total debts
What are investing activities?
transactions that involving the purchase and sale of resources a company needs in order to operate
What are operating activities?
transactions that relate to the primary operations of the company
What are financing activities?
transactions the company has with investors and creditors
What are 2 examples operating activities?
utilities advertising
"Current" Assets or Liabilities =
will be used up/paid/received within one year