CH 01 Concept Overview

If equity is $30,000 and liabilities are $19,000, then assets must equal:

$49,000

An information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organizations business activities.

Accounting.

Return on assets measures a company's ability to generate an adequate return on its investment in:

Assets.

A business is accounted for separately from other business entities and its owner.

Business entity assumption

Accounting certifications include the:

CPA

Identify which items belong on the statement of cash flows.

Cash flows from investing, operating and financing activities

Identify which items belong on the balance sheet.

Cash, accounts receivable, and common stock Correct

1) Interpreting information from financial reports. 2) Preparing financial statements for creditors.

Communicating.

Identify which items belong on the statement of retained earnings.

Dividends, beginning retained earnings, ending retained earnings

Happenings that affect the accounting equation.

Events

Board of Directors Customers Suppliers Label Union

Examples of External Information Users

Payroll Clerk Marketing Manager

Examples of Internal Information Users

A company records the expenses incurred to generate the revenue reported.

Expense recognition principle

Exchanges of value between two entities.

External transactions

The organization that is primarily responsible for developing GAAP for use by all U.S. companies is the:

FASB

1) Resources contributed by creditors 2) Resources contributed by the owner along with any income the owner leaves in the organization

Financing

A company reports the details behind financial statements that would impact user's decisions.

Full-disclosure principle

Presumes that the business will continue operating in the future.

Going-concern assumption

The organization that is responsible for issuing International Financial Reporting Standards is the:

IASB

Which of is a proper reflection of the sequence of steps when deciding on the preferred course of action in making an ethical decision?

Identify ethical concerns; Analyze options; Make ethical decision.

Entering a list of the sales invoices, including the prices and quantities, for the company's recordkeeper.

Identifying.

The four basic financial statements are:

Income Statement, Statement of retained earnings, Balance sheet, and Statement of cash flows.

Exchanges within an entity.

Internal transactions

1) Acquiring resources (assets) that an organization plans to use to acquire and sell its products or services 2) Disposing of resources (assets) that an organization uses to acquire and sell its products or services

Investing

Accounting information is based on actual cost.

Measurement principle

Transactions and events are expressed in units of money.

Monetary unit assumption

Sales and revenues

Operating

1) Preparing and entering a list of checks issued. 2) Using a cash register to enter sales.

Recording.

The recording of transactions and events only, either manually or electronically.

Recordkeeping.

Revenue is recognized when goods are provided to the customer at the amount expected to be received.

Revenue recognition principle

Identify which items belong on the income statement.

Revenue, expenses and net income

On January 31, Jean Consulting Company receives a bill for that month's utilities in the amount of $500. Jean sets it aside because she does not plan to pay the bill until its due date of February 15. What effect, if any, does this event have on the company's accounting equation as of January 31?

The business must record this event, which would increase liabilities and decrease equity on January 31.

The life of the company can be divided into specific time periods.

Time period assumption

The investment that would most likely have the lowest expected return is an investment in:

U.S. Treasury bonds

Accounting is important because

businesses, regulatory agencies, and the general public use accounting information.

The Sarbanes-Oxley Act requires

documentation and verification of internal controls

If the business pays $2,000 in cash to the landlord for office space rent..

equity reduces by $2,000

Managerial accounting includes opportunities in

general accounting, cost accounting and internal auditing.

Return on assets is computed as

net income divided by average assets.

The majority of accounting opportunities are in

private accounting.