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| the information system that identifies, records, and communicates the economic events of an organization to interested users |
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| A report prepared by corporate management that presents financial information including financial statements, notes, a management discussion and analysis section, and an independent auditor's report. |
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| resources owned by a business |
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| A report prepared by an independent outside auditor stating the auditor's opinion as to the fairness of the presentation of the financial position and results of operations and their conformance with generally accepted accounting standards. |
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| A financial statement that reports the assets and claims to those assets at a specific point in time. |
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| Basic accounting equation |
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| Assets=Liabilities+Stockholders' Equity |
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| Certified Public Accountant (CPA) |
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| An individual who has met certain criteria and is thus allowed to perform audits of corporations |
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| term used to describe the total amount paid in by stockholders for the shares they purchase |
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| A presentation of the financial statements of a company for more than one year |
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A business organized as a separate legal entity having ownership divided into transferable shares of stock
Advantages:
1) Easier to transfer owndership
2) Easier to raise funds
3) No personal liability
Downfall:
1) No tax advantages |
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| payments of cash from a corporation to its stockholders |
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| the cost of assets consumed or services used in the process of generating revenues |
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| A financial statement that presents the revenues and expenses and resulting net income or net loss of a company for a specific period of time. |
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| the debts and obligations of a business. Liabilities represent the amounts owed to creditors. |
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| management discussion and analysis (MD&A) |
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Definition
a section of the annual report that presents management's views on the company's ability to pay near-term obligations, its ability to fund operations and expansion, and its results of operations.
(liquidity, capital resources, results of operations) |
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| the amount by which revenues exceed expenses |
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| the amount by which expenses exceed revenues |
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| notes to the financial statements |
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| notes that clarify information presented in the financial statements, as well as expand upon it where additional detail is needed |
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a business owned by two or more persons associated as partners
Advantages:
1) simple to establish
2) shared control
3) broader skills and resources
4) tax advantages
Downfall:
1) personally legal liability |
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| the amount of net income retained int he corporation |
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| retained earnings statement |
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| a financial statement that summarizes the amounts and causes of changes in retained earnings for a specific period of time. |
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| the increase in assets that result from the sale of a product or service in the normal course of business. |
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Regulations passed by Congress in 2002 to try to reduce unethical corporate behavior.
includes:
1) top management must now certify the accuracy of financial information
2) penalties for fraudulent financial activity are more severe
3) inceased the independence of the outside auditors who review the accuracy of corporate financial statements
4) increased the oversight role of boards of directors. |
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Definition
a business owned by one person
Advantages:
1) Simple to establish
2) Owner controlled
3) Tax advantages
Downfall:
1) Legally liable
2) financing difficult |
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| A financial statement that provides financial information about the cash receipts ans cash payments of a business for a specific period of time |
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| The stockholders' claim on total assets. |
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| Describe the primary forms of business organization. |
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| A sole proprietorship is a business owned by one person. A pertnership is a business owned by two or more people associated as partners. A corporations is a separate legal entity for which evidence of ownership is provided by shares of stock. |
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| Identify the users and uses of accounting information. |
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Definition
Internal users are managers who need accounting information to plan, organize, and run business operations.
The primary external users are investors and creditors:
-Investors use accounting information to help them decide whether to buy, hold, or sell shares of a company's stock.
-Creditors use accounting information to assess the risk of granting credit of loaning money to a business.
Other groups who have indirect interest in a business are taxing authorities, customers, labor unions, and regulatory agencies. |
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| Explain the three principal types of business activity. |
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Definition
Financing activities involve collecting the necessary funds to support the business.
Investing activities involve acquiring the resources necessary to run the business.
Operating activities involve putting the resources of the business into action to generate a profit. |
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| Descrive the content and purpose of each of the financial statements. |
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Definition
An income statement presents the revenues and expenses of a company for a specific period of time.
A retained earnings statement summarizes the changes in retained earnings that have occured for a specific period of itme.
A balance sheet reporst the assets, liabilities, and stockholders' equity of a business at a specific date
A statement of cash flows summarizes information concerning the cash inflows (receipts) and outflows (payments) for a specific period of time. |
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| Explain the meaning of assets, liabilities, and stockholders' equity, and state the basic accounting equation. |
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Definition
Assets are resources owned by a business.
Liabilities are the debts and obligations of the business. Liabilities represent claims of creditors on the assets of a business.
Stockholders' equity represents the claims of owners on the assets of the business. Stockholders' equity is subdivided into two parts: common stock and retained earnings.
The basic accounting equation is:
Assets=Liabilities+Stockholders' Equity |
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| Describe the components that supplement the financial statements in an annual report. |
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Definition
The management discussion and analysis provides management's interpretation of the company's results and financial position as well as a discussion of plans for the future.
Notesto the financial statements provide additional explanation or detail to make the financial statements more informative.
The auditor's report expresses an opinion as the whether the financial statements present fairly the company's results of operations and financial position. |
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Identify each of the following organizational characteristics with the organizational form or frms whith which it is associated.
1) easier to raise funds
2) simple to extablish
3) No personal legal liability
4) Tax advantages
5) Easier to transfer ownership |
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Definition
1)Corporation
2)Sole prop/partnership
3)corporation
4)sole prop/partnership
5)corporation |
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Definition
1)notes payable
2)accounts payable
3)bonds payable
4)salaries payable
5)interest payable
6)unearned revenue
7)employee benefits payable
8)income taxes payable
9)dividends payable
10)accrued liabilities
11)other liabilities
when recording, record notes payable then accounts payable and then list in order of descending amount |
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Definition
1)cash
2)accounts receivable
3)advertising supplies
4)prepaid insurance
5)office equipment, net
6)investments
7)inventories
8)other assets |
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Definition
| liabilities (bank loans, debt securities), common stock, dividends |
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| investing activities (2): |
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Definition
| assets, purchases and sales of investing securities are another example of an "investing activity" |
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1)cost of goods sold
2)selling expenses
3)marketing expenses
4)administrative expenses
5)interest expense
6)incoe taxes
7)accounts payable
8)interest payable
9)interest payable
10)wages payable
11)sales taxes payable
12)property taxes payable
12)income taxes payable |
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Term
to be reliable information must be (circle all that apply):
a)predictive
b)neutral
c)timely
d) faithfully representative
e)verifiable |
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Definition
b)neutral
d) faithfully representative
e)verifiable |
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Raji Corporation has purchased machinery that will be used to manufacture its products. The purchase of a machine is considered a(n):
a)operating activity
b)financing acivity
c)manufacturing activity
d)investing activity |
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A classmate suggests to you that the primary advantage to a corporate businss structure is that it is a separate legal entity owned by stockholders. What is a disadvantage?
a)limited liability to owners
b)ability to raise funds and capital
c)double taxation of earnings through dividends
d)human capital and shared ideas |
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Definition
| c)double taxation of earnings through dividends |
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current assets are listed in order of
________, and current liabilites are listed in order of _________ (after ____ and _____).
a) magnitude; liquidity; notes payable; accounts receivable
b)liquidity magnitude; notes payable; accounts payable
c)liquidity; liquidity; accounts payable; notes payable
d)magnitude; liquidity; accounts receivable; notes payable |
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Definition
| b)liquidity; magnitude; notes payable; accounts payable |
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| explain the conflict between conservatism and the cost principle as it relates to the valuation of inventory |
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Definition
| Cost principle: stat assets at cost. Conservatism: report financial information as not to overstate assets/revenues. conflict is that the inventory could be valued below cost, meaning you have to write down (conservatism) the value despite the inherent cost principle. |
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Which statement about users of accounting information is incorrect?
(a)Management is considered an internal user.
(b)Taxing authorities are considered external users.
(c)Present creditors are considered external users.
(d)Regulatory authorities are considered internal users. |
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Definition
| (d) Regulatory authorities are considered internal users |
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Which of the following is an example of a financing activity?
(a)Issuing shares of common stock.
(b)Selling goods on account.
(c)Buying delivery equipment.
(d)Buying inventory. |
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| (a) issuing shares of common stock |
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What section of a cash flow statement indicates the cash spent on new equipment during the past accounting period?
(a)The investing section.
(b)The operating section.
(c)The financing section.
(d)The cash flow statement does not give this information. |
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Definition
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which financial statement reports assets, liabilities, and stockholders' equity?
a)income statement
b)retained earnings statement.
c)balance sheet
d)statement of cash flows |
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