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172 Cards in this Set

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What do manufacturing businesses do?
Change basic inputs into products that are sold to individual customers.
Give some examples of a manufacturing business.
General Motors (Automobiles), General Mills (Cereal), Nike (shoes), Sony (Stereos, television, radios)
What do merchandising businesses do?
Sell products to customers; purchase them from other businesses (such as manufacturing businesses). Bring products and customers together.
Give some examples of a merchandising business.
Wal-Mart (general merchandise), Barnes & Nobel (books), Best Buy (Consumer electronics)
What do service businesses do?
Provide services rater than products to customers.
Give an example of a service business.
Disney (entertainment), Google (internet search), Delta Air Lines (transportation)
What is a proprietorship?
Business owned by an individual.
What percentage of businesses are proprietorships?
70%
What form of business is the most popular; proprietorship, partnership, corporation, or LLC
Proprietorship
Why are proprietorships so popular?
Ease and low cost of organizing.
What is the primary disadvantage of proprietorships?
Financial resources availale to business are limited to individual owners resources.
What is a partnership?
Business owned by two or more indviduals.
What percentage of businesses are partnerships?
10%
What is a corporation?
Business that is organized under state or federal statutes as a separate legal entity. Ownership is divided into stock.
What is the primary advantage of a corporation?
Ability to obtain large amounts of resources by issuing shares of stock.
What percentage of businesses are corporations?
20%
What is a Limited Liability Company?
Combines attributes of a partnership and a corporation in that it is organized as a corporation, but it can elect to be taxed as a partnership. Owners (or members) liability is limited to their inbestment in business.
Do sole proprietorships and partnerships have limited or unlimited liability?
Unlimited liability to creditors and for other debts of the company.
Define profit.
The excess of revenues from selling services/products over the cost of providing those services/products.
What is a low-cost emphasis?
Business designs products/services at a lower cost than its competitors.
What is an example of a low-cost emphasis?
Wal-Mart or Southwest airlines.
What is a premium-price emphasis?
Business tries to design and produce products/services that serve unique market needs, allowing it to charge premium prices.
What is an example of a premium-price emphasis?
John Deere, Tommy Hilfiger, BMW
What is a business stakeholder?
Person or entity that has an interest in the economic performance and well-being of a business.
What are examples of business stakeholders in a corporation?
Stockholders, suppliers, customers, and employees.
What are examples of capital market stakeholders?
Provider the major financing for a business in order for it to begin/continue opperation. Banks and other long-term creditors.
What are examples of government stakeholders?
Collect taxes and fees from the business and its employees. Federal, state, and city governments.
What are examples of internal stakeholders?
Individuals employed by the business. Employees and managers.
What are the three business activites?
Financing, investing, and opperating
What are financing activities?
Involve obtaining funds to begin and operate a business.
How do businesses seek financing?
Through the use of capital markets. This financing may take the form of borrowing or issuing shares of ownership (stock).
When a business borrows money, it incures a ________.
Liability.
What is a liability?
A legal obligation to repay the amount borrowed according to the terms of the borrowing agreement.
When a business borrows from a vendor or supplier, the liability is called an/a _________.
Account Payable.
When a business borrows money by issuing bonds, the liability is called an/a ______.
Bond Payable.
Any interest that is due is reported as _________.
Interest Payable.
Give an example of long-term financing.
Bonds.
Give an example of short-term financing.
Venders and suppliers. Accounts Payable.
When a corporation borrows money by issuing an/a ____________.
Note Payable.
What is common stock?
Basic thpe of stock issued by owners.
What is capital stock?
Includes all the types of stock a corporation may use.
Investors who purchase stock are referred to as ________.
Stockholders.
Resources owned by a business or corporation are called its ________.
Assets.
Who has first claim to assets if company goes bankrupt?
Creditors.
What are dividends?
Distributions of earnings to stockholders.
What are investing activities?
Used to obtain the nessary assets to start and operate the business.
Rights to payments from customers are called ________.
Accounts receivable.
What are intangible assets?
Assets such as goodwill, copyrights, or patents.
What are operating activities?
Used to implement its business emphasis once resources have been acquired.
Define revenue.
The increase in assets from selling products or services.
Define expenses.
Costs used to earn revenue.
What is a net income?
Results when revenues exceed expenses.
What is a net loss?
Results when expenses exceed revenues.
Define accounting.
Information system that provides reports to stakeholders about the economic activities and condition of a business.
What is the purpose of accounting?
To summarize the financial performance of the firm for external users, such as banks and government.
Accounting associated with preparing reports for users external to the business is termed _________.
Financial Accounting.
Accounting associated with guiding management in making decisions about the business is termed ________.
Managerial Accounting.
What are the two major objectives of financial accounting?
1. To report the financial condition of a business at a point in time.
2. To report changes in the financial condition of a business over a period of time.
What are the four basic financial statements?
Income statement, Retained earnings statement, Balance sheet, Statement of cash flows.
A summary of the revenue and the expenses for a specific period of time, such as a month or a year is a ___________.
Income statement.
A summary of the changes in the earnings retained in the corporation for a specific period of time, such as a month or year is a _________.
Retained earnings statement.
A list of assets, liabilities, and stockholders' equity as of a specific date usually at the close of the last day of a month or year is a __________.
Balance Sheet.
A summary of the cash reciepts and cash payments for a specific period of time, such as month or a year is a ________.
Statement of cash flows.
What does the income statement do?
Report the change in finacial condition due to the operations of a business.
What does a retained earnings statement do?
Reports the changes in financial condition due to changes in retained earnings during a period.
What does a balance sheet do?
Reports the financial condition as of a point in tie.
What equation represents the financial condition of a business?
Assets = Claims (rights to the assets)
What equation represents the assets and claims on those assets?
Assets = Liabilities + Stockholders' Equity
The rights of stockholders are referred to as ________.
Stockholders equity or Owners equity.
What does the statement of cahs flows do?
Reports the change in financial condition due to the changes in cash during a period.
What are the accounting "rules" called?
Generally Accepted Accounting Principles (GAAP).
GAAP are established in the USA by the ________.
Financial Accounting Standards Board (FASB).
The ________ concept applies accounting to a specific entity for which stakeholders need economic data. Once the entity is identified, the accountant can determine whch economic data/ activities should be analyzed, recorded, and summarized.
Business entity concept.
The _________ concept determines the amount initially entered into the accounting records for purchases.
Cost concept.
A business normally expects to continue operating for an indefinit period of time. This is called the _______ concept.
Going concern concept.
In accounting, revenues for a period are matched with the expenses incurred with generating the revenues. This is __________ concept.
Matching concept.
The ________ concept requires that entries in the accounting records and the data reported on financial statements be based on objective evidence.
Objectivity concept.
In the USA, the _________ concept requires that all economic data be recorded in dollars.
Unit of measurement concept.
The _______ concept states that financial statements, including related footnotes and other dislosures, should contain all relevant data a reader needs to understand the financial condition and performance of business.
Adequate Disclosure concept.
What is horizontal analysis?
Compares each item on the most recent financial statement with the related item on one or more earlier statements.
A profit-making business operating as a separate legal entity and in which ownership is divided into shares of stock is known as a ________.
Corporation.
The resources owned by a business are called _______.
Assets.
A listing of a business entity's assets, liabilities, and stockholders' equity as of a specific date is _________.
A balance sheet.
If total assets are $20,000 and total liabilities are $12,000, the amount of stockholders' equity is _______.
$8,000
If revenue was $45,000, expenses were $37,500, and dividends were $10,000, the amount of net income or net loss would be:
$2,500 net loss.
The reciept of cash for capital stock affects what elements of the accounting equation?
Total assets (cast) increases, and stockholders' equity (capital stock) increases.
Describe the basic elements of a financial accounting system.
1. a set of rules for determining what, when, and the amount that should be recorded for economic events.
2. A framework for preparing financial statements.
3. One or more controls to determine whether errors may have arisen in the recording process.
What is a transaction?
An economic event that under generally accepted accounting principles affects an element of the financial statements and, therefore, must be recorded.
What is an integrated financial statement approach used for?
Analyzing, recording, and summerizing transactions by expanding the accounting equation by including columns forthe statement of cash flows, balance sheet, and income sheet.
What is a vertical analysis?
Each asset item is stated as a percent of the total assets.
The purchase of land for $50,000 was incorrectly recorded as an increase in land and an increase in notes payable. Which of the following statements is correct?
A. The accounting equation will not balance because cash is overstated by $50,000.
B. The accounting equation will not balance because notes payable are overstated by $50,000.
C. The accounting equation will not balance because assets will exceed liabilities by $50,000.
D. Eventhough a recording error has been made, the accounting equation will balance.
D.
The receipt of $8,000 of cash for fees earned was recorded by Langley Consulting as an increase in cash of $8,000 and a decrease in retained earnings of $8,000. What is the effect of this error on the accounting equation?
Total assets will exceed total liabilities and stockholders' equity by $16,000. This is because stockholders' equity was decreased instead of increased by $8,000. Thus stockholders equity was understated by $16,000.
If total assets increased $20,000 during a period and total liabilities increase $12,000 during the same period, the amount and direction (increase or decrease) of the change in stockholders' equtity for that periodis _________.
An $8,000 increase.
If revenue was $45,000, expenses were $37,500, and dividends were $10,000, the amount of net income or net loss would be.
$2,500 net loss.
Which of the follosing transactions changes only the mix of assets and does not affect liabilities or stockholder's equity?
A. Borrowed $40,000 from bank
B. Purchased land for cash.
C Received $3,000 for fees earned.
D. Paid $4,000 for office salaries.
B.
Will paying cash for rent expense increase or decrease stockholder's equity?
Decrease.
Will paying cash dividends increase or decrease stockholder's equity?
Derease.
Campbell soup co had the following assets and liabilities (in millions) as of August3:
Assets- $6,205
Liabilities- $5,818
Determine the stockholders equity as of August 3.
Assets= liability + stockholders equity
... $207
What is the accounting equation?
Assets= liabilities + stockholders equity
Accrual accounting concepts are designed to reflect a company's financial performacne during a peroid and avoid...
misleading results that could arise from the timing of cash receipts and payments.
Under the accrual concepts of accounting, transactions are recorded as they occur and thus affect the accounting equation. Since the receipt or payment of cash affects assets (cash), all cash receipts and payments are recorded eventhough cash is not received or paid until ________.
A later point.
In creating an integrated financial statement framework and recording increases and decreases for each financial element (accrual). These separate elements are referred to as _______.
Accounts
What is an unearned revenue?
Revenue which has been payed in cash, but is not yet recieved.
Assets that prepaid operating expenses are referred to as what?
Prepaid expenses or deferred expenses.
What are accounts payable?
Liabilities which are incurred in normal operations of buisiness with a promise to pay in the near future.
What are accounts receivable?
Amounts that are to be collected in the future and that arise from the normal operations of a business. They promise to pay you in the near future.
Accural concepts of accounting require the accounting records to be updated prior to preparing financial statements. This updating process, called _______ i necessary to properly match revenues and expenses.
Adjustment process.
_______ are created by recording a transaction in a way that delays or defers the recognition of a n expense or a revenue.
Deferrals.
What are common examples of deferrals?
Prepaid expenses.
Unearned revenues or deferred revenues.
What are prepaid expenses?
Prepaid expenses (or deffered expenses) are items that initially have been recorded as assets but are expected to become expenses over time or through the noermal operations of the business.
What is an example of prepaid expenses?
Supplies, prepaid advertising, prepaid interest.
What are unearned revenues?
Unearned revenues (deferred revenues) are items that initially have been recorded as liabilities but are expected to become revenues over time or through the normal operations of the business.
What are some examples of unearned revenues?
Tuition received in acbance by a school, an annual retainer fee received by an attorney, premiums received in advance by an insurance compayny, and magazine subscriptions recieved in advance by a publisher.
________ are created when a revenue or expense has been earned or incurred, but has not been recorded at the end of the acounting period.
Accruals.
What are accrued expenses.
Accrued expenses (accured liabilities) are expenses that have been incurred but have not been recorded in the accounts.
What is an example of accured expenses?
Accrued interest on notes payble at the end of a period, accrued utility expenses and taxes.
What are accrued revenues?
Accured revenues (accrued assets) are revenues that have been earned but have not been recorded in the accoutns.
What is an example of accrued revenues?
fees fro services that an attorney has provided but has not billed the client at the end of the period. other examples included accrued interest on nots recivable and accrued rent on property rented to others.
Recognizes that fixed assets such as office equipment lose their ability to provide sercive over time. This reduction in the ability of a fixed asset to provide service is called _________.
Depreciation
An offestting or contra asset account, called _______, is included in the accounting equation.
Accumulated depreciation.
On the balance sheet, the accumulated depreciation will be ________ .
Subracted from the original cost of the fixed asset.
What is a classified balance sheet?
A classified balance sheet is prepared with various sections, subsections, and captions that aid in its interpretation and analysis.
Physical assets of a long-term nature are referred to as ______.
Fixed assets.
Rights that are long term in nature are called ________.
Intangible assets.
Casj and other assets that are expected to be converted to cahs or sold or used up within one year or less, through the normal operation of business, are called _______.
current assets.
Assets are normall divided into classes in preparing a classified balance sheet. three of these classes are:
1. current assets
2. fixed assets
3. intangible assets
_________ are written claims against debtors who promis to pay the amount of the note and interest at an agreed-upon rate.
Notes recievable.
_________ are amounts owed to outsiders (creditors).
Libilities.
Liabilities are often identified on the balance sheet by titles htat include the word _______.
payable.
Liabilities that will be due within a short time (usually 1 year or less) are called _______.
current liabilities
what are the most common forms of current liabilities?
notes payable and accounts payable.
Liabilites that will not be due for a long time (usually more than one year) are called _________.
Long term liabilites
________ is the stockholders rights to the assets of the business.
Stockholders equity.
Under the ___________. a business records only transactions involving increases or decreses of its cash.
cash basis of accounting.
Individuals and business often use the _______ basis of accounting.
Cash basis of accounting.
_________ are amounts owed to outsiders (creditors).
Libilities.
Large businesses often use the ________ basis of accounting and is required of publically held corporations.
Accrual basis of accounting.
Liabilities are often identified on the balance sheet by titles htat include the word _______.
payable.
Under the _________, revenue is recorded as it is earned, regardless of when cash is recieved.
accrual basis of accounting
The process that begins with analyzing transactions and ends with preparing the accounting records for the next accounting period is called the _______.
accounting cycle.
Liabilities that will be due within a short time (usually 1 year or less) are called _______.
current liabilities
what are the most common forms of current liabilities?
notes payable and accounts payable.
The basic steps in the accounting cycle are:
1. identifying, analyzing, and recording the effects of transactions on the accounting equation
2. identifying, analyzing, and recording adjustment data
3. preparing financial statements
4. preparing the accounting records for the next accounting period.
Liabilites that will not be due for a long time (usually more than one year) are called _________.
Long term liabilites
In ________, all items are expresses in percentages.
Common-sized financial statements.
________ is the stockholders rights to the assets of the business.
Stockholders equity.
_________ statements are useful in comparing the current period with prior periods, individual businesses, or one business with industry percentages.
Common-sized financial statements
Under the ___________. a business records only transactions involving increases or decreses of its cash.
cash basis of accounting.
Describe basic accrual accounting concepts, including the matching concept.
Under accurual concepts of accounting, revenue is recognized when it is earned. When revenues are earned and recorded, all expenses incurred in generating the revenues are recorded so that revenues and expenses are properly matched in determining the net income or loss for the period. Liabilities are recorded at the same time a business incures the obligation to pay for the services or good purchased.
Individuals and business often use the _______ basis of accounting.
Cash basis of accounting.
Large businesses often use the ________ basis of accounting and is required of publically held corporations.
Accrual basis of accounting.
Under the _________, revenue is recorded as it is earned, regardless of when cash is recieved.
accrual basis of accounting
The process that begins with analyzing transactions and ends with preparing the accounting records for the next accounting period is called the _______.
accounting cycle.
The basic steps in the accounting cycle are:
1. identifying, analyzing, and recording the effects of transactions on the accounting equation
2. identifying, analyzing, and recording adjustment data
3. preparing financial statements
4. preparing the accounting records for the next accounting period.
In ________, all items are expresses in percentages.
Common-sized financial statements.
_________ statements are useful in comparing the current period with prior periods, individual businesses, or one business with industry percentages.
Common-sized financial statements
Describe basic accrual accounting concepts, including the matching concept.
Under accurual concepts of accounting, revenue is recognized when it is earned. When revenues are earned and recorded, all expenses incurred in generating the revenues are recorded so that revenues and expenses are properly matched in determining the net income or loss for the period. Liabilities are recorded at the same time a business incures the obligation to pay for the services or good purchased.
A __________ collects and processes data and distributes the information to stakeholders.
A business information system.
A business information system operates how..
Data sources= data collection= data processing= data management= information= stakeholders/users
An ____________ processes financial and operational data into reports useful to internal and external stakeholders.
An accounting information system.
The _______ provides internal information to assist managers in making decisions.
The management reporting system. (accounting information system)
The _________ records and summarizes the effects of financial transactions on the business.
The transaction processing system. (accounting information system)
The __________ produces financial statements and other reports for external stakeholders.
The financial reporting system. (accounting information system)
The area of accounting that focuses on developing management reporting systems is called ____________.
Managerial accounting.
Accounting infromation systems normally consist of three subsystems:
1. management reporting system
2. transaction processing system
3. financial reporting system
The financial reporting system is closely interrelated to the ________ processing system in that the financial statements summarize the effects of transactions on the financial condition and changes in financial condition of the business.
transaction processing system.
The elements of transaction processing systems include:
accounts and rules for recording transactions in account, journals, and ledgers. In addition the system should include controls to provent and detect errors in te recording and sumarization process.
An _____, in its simplest form has three parts. The title, space for recording increases in the amount of item, and a space for recording decreass in the amount of item.
An account.
The left side of the account is called the ________ side.
Debit side.
The right side of the account is called the _______ side.
Credit side. (has an r in it)
Amount entered on the left side of an account, regarless of the account title, are called _______ to the account.
debits
When debits are entered in an account, the account is said to be ______.
debited (charged)