Accounting Test 1 Ch. 1-3

Front 1

Define Accounting

Back 1

An information system that provides useful information to people who make rational investment, credit, and similar decisions to help them reach better decisions

Front 2

Which statements best describe accounting?

Back 2

A. Provides quantitative information about economic entities that is intended to be useful in making economic decisions.

B. Is not an end in itself but a method of communication.

C. An information system that measures, processes, and communicates financial information about an economic entity.

Front 3

The federal agency that has the duty of collecting federal income taxes and otherwise enforcing the income tax laws is called the...

Back 3

Internal Revenue Service (IRS)

Front 4

What term is described by "The area of accounting principally concerned with reporting to external users?"

Back 4

Financial Accounting

Front 5

A type of accounting designed to help managers identify, measure, and control operating costs

Back 5

Cost accounting

Front 6

A type of accounting principally concerned with budgeting, planning, and controlling costs

Back 6

managerial accounting

Front 7

T/F All business activities which are legal are in fact thereby ethical acivities

Back 7

false. Just because it is legal doesn't make it ethical.

Front 8

A sole proprietorship is...

Back 8

owned by one individual

Front 9

A partnership is a...

Back 9

Owned by two or more individuals

Front 10

A corporation is...

Back 10

Owned by one or more entities who own shares of stock in the business

Front 11

What type of entity is legally considered completely separate from its owners?

Back 11

A corporation

Front 12

What types of entity do accountants consider completely separate from its owners?

Back 12

Corporations, sole proprietorship, and partnerships

Front 13

The chief accounting officer of a business is a

Back 13

Controller

Front 14

Generally accepted accounting rules

Back 14

1. Are the broad rules adopted by the accounting profession as guides in measuring, recording, and reporting the financial affairs and activities of a business.

2. Consists of several concepts, principals and procedures.

3. Are not natural laws in the sense of physics and chemistry.

4. Has evolved with the aid of many groups including the American Institute of Certified Public Accountants, the Financial Accounting Standards board, the American Accounting Association, and the Securities and Exchange Commission.

Front 15

The publications of the FASB that establish generally accepted accounting standards are called

Back 15

Statements of Financial Accounting Standards

Front 16

Which organization has the primary responsibility today for developing and issuing rules on accounting practice?

Back 16

The Financial Accounting Standards Board(FASB)

Front 17

A committee that attempts to create harmony among the accounting practices of different countries by identifying preferred practices and encouraging their adoption throughout the world

Back 17

International Accounting Standards Committee (IASC)

Front 18

The accounting principle that requires the financial statements to present information based on costs incurred in a transaction is

Back 18

Historical Cost Principles

Front 19

Requires every business to be accounted for separately and distinctly from its owner or owners

Back 19

Entity Concept Principle

Front 20

Requires Accountants to prepare financial statements under the assumption that the business will continue operating instead of being put up for sale or closed

Back 20

Going-concern principle

Front 21

Requires that uncertainty regarding valuation of assets or magnitude of revenue should be resolved by understatement of the asset of the magnitude of the revenue

Back 21

conservatism principle

Front 22

The part of accounting that records transactions and other events, either manually or with computers

Back 22

Bookkeeping

Front 23

The process of developing formal plans for future business and government activities, which then serve as the basis for evaluating actual accomplishments

Back 23

Budgeting

Front 24

Evaluates the record-keeping processes but also assess whether managers throughout the organization are following established operating procedures.

Back 24

Internal auditing

Front 25

Define Tax accounting

Back 25

The field of accounting that includes preparing tax returns and planning future transactions to minimize the amount of tax that has to be paid.

Front 26

Define management advisory services

Back 26

The activity where accountants provide advice to managers

Front 27

Define Cash Flow

Back 27

Statements that describe where a business's cash came from and where it went

Front 28

Define Financial position

Back 28

Statements that help users understand the financial status of the business.

Front 29

Define Retained Earnings

Back 29

Statements that show the retained earnings balance at the beginning of the accounting period, the increase/decrease that resulted from a net income/net loss that resulted from a net income/net loss, the decrease that resulted from dividends, and the balance at the end of the period.

Front 30

Define stable-monetary-unit assumption

Back 30

The accounting assumption that a monetary unit does not change over time

Front 31

Define full disclosure principle

Back 31

The accounting principle that requires financial statements to contain all relevant information about the operations and financial position of the entity

Front 32

Define matching principle

Back 32

Requires that expenses incurred be matched with the revenue earned within the accounting period

Front 33

Define materiality

Back 33

The idea that the requirements of an accounting principle may be ignored if the effect on the financial statements is unimportant to their users

Front 34

Define Principal of note

Back 34

The amount the signer of a promissory note agrees to pay back when it matures, not including the interest

Front 35

Define creditors

Back 35

Individuals or organizations that a company owes money to

Front 36

Define debtors

Back 36

Individuals or companies that owes money to a company

Front 37

Define stockholders

Back 37

Owners of the company; also called shareholders

Front 38

Define amounts receivable

Back 38

Amounts owed to a business by its customers for goods or services sold to them on credit

Front 39

Define Assets

Back 39

The properties or economic resources owned by the business

Front 40

Accounts payable

Back 40

Liabilities resulting from the purchase of goods or services on credit

Front 41

Expenses

Back 41

The using up of assets or increases in liabilities as a result of the major or central operations of a profit-oriented business

Front 42

Contributed capital or Paid-in capital

Back 42

A category of stockholders equity that represents the amount of investments in the corporation by its stockholders

Front 43

Common stock or Capital Stock

Back 43

The name given to a corporation's stock when it issues only one kind of class or stock

Front 44

The difference between a company's assets and liabilities; the residual interest in the assets of an entity that remain after deducting the liabilities

Back 44

Shareholder's equity or Net assets or Stockholder's equity

Front 45

What is the accounting equation

Back 45

Assets = Liabilities + Capital/Owner's equity

Front 46

The income statement

Back 46

Is a financial statement showing revenue earned by a business, the expenses incurred in earnings the revenues, and the resulting net income or net loss for a period

Front 47

The heading of the financial statement should include

Back 47

1. The name of the entity

2. The title of the statement

3. The date of, or period covered by, the statement

Front 48

An account is

Back 48

1. A record traditionally used to record individual transactions

2. A record used to summarize all increases and decreases in a particular asset, liability, owner's equity, revenue, or expense

3. The basic storage unit for accounting data

Front 49

Accounts receivable is what kind of account

Back 49

Assets account

Front 50

Notes payable and unearned revenue are what kind of account?

Back 50

Liability accounts

Front 51

Legal fees earned is what kind of account

Back 51

Revenue account

Front 52

Cash, accounts receivable, and equipment are all considered what?

Back 52

Assets

Front 53

Accounts payable is considered what?

Back 53

A liability

Front 54

A prepaid expense account is considered to be a...

Back 54

Asset

Front 55

The major revenue account for a merchandising firm is a

Back 55

Sales revenue account

Front 56

Define revenue

Back 56

1. Revenue is the amount charged to customers for goods or services sold to them

2. Revenue accounts are increased by crediting them

3. Revenue is recorded when a sale is made on credit

Front 57

Long term assets held for use in production or sale of other assets or services

Back 57

Plant and equipment

Front 58

Current assets

Back 58

Cash or other assets that are reasonably expected to be realized in cash or to be sold or consumed within one year or one operating cycle of the business

Front 59

Intangible assets

Back 59

Economic benefits or resources without physical substance, the value of which stems from the privileges or rights that accrue to their owner

Front 60

Accrued expenses

Back 60

Expenses incurred during an accounting period but that, prior to end-of-period adjustments, remain unrecorded becuase payment is not due

Front 61

How is fixtures and equipment normally classified?

Back 61

Long-term asset

Front 62

How is mortgage payable normally classified?

Back 62

long-term liability

Front 63

What is a patent normally classified as?

Back 63

Intangible

Front 64

Net income is defined as?

Back 64

The net increase in owner's equity resulting from the operations of the company

Front 65

An expense is

Back 65

An outflow of assets or an incurrance of liabilities from delivering or producing goods, giving services, or carrying out other activities that are an entity's ongoing or central operation

Front 66

Revenue is

Back 66

An inflow of assets or a settlement of liabilities from delivering or producing goods, giving services, or carrying out other activities that are an entity's ongoing or central operations

Front 67

The correct way to date an income statement is

Back 67

For the time period

Front 68

What is the difference between income statements and the balance sheet?

Back 68

An income statement is prepared for a period of time and balance sheets are for a specific point in time

Front 69

Because some totals carry over ti another financial statement, it is important to prepare them in the following order

Back 69

Income statement, statement of retained earning, balance sheet, statement of cash flows