Financial Accounting I

Front 1

One view of accounting is that it is an information system. What does an accounting information system do?

Back 1

It accumulates, records, classifies, summarizes, and reports commercial transactions with the aim of showing the financial condition of the business entity.

Front 2

The end product of the accounting information system are reports that communicate information to decisions makers. What form do these reports take?

Back 2

A set of financial statements: The balance sheet, the income statement, and the statement of cash flows.

Front 3

Is bookkeeping a large part of the accounting information system or a small part of it?

Back 3

It is actually a small part of the system.

Front 4

With what does bookkeeping deal?

Back 4

Repetitive record-keeping transactions.

Front 5

Generally speaking, who are the users of accounting information?

Back 5

individuals and groups who must make decisions concerning the operations of an enterprise.

Front 6

Identify the three major branches of accounting.

Back 6

!. Public Accounting
2. Private Accounting
3. Governmental Accounting

Front 7

Identify the three basic forms of business organizaiton.

Back 7

1. Sole proprietorship
2. Partnership
3. Corporation

Front 8

What are Generally Accepted Accounting Principle (GAAP)?

Back 8

A set of guidelines and procedures that constitute acceptable accounting practice at a given time.

Front 9

Who announces financial accounting requirements?

Back 9

The Financial Accounting Standards Board (FASB)

Front 10

Who is the principal rule-making body of the accounting profession?

Back 10

The Financial Accounting Standards Board (FASB)

Front 11

The Pronouncements of the FASB are issued as FASB ________ and ____________.

Back 11

Statements; Interpretatons

Front 12

What does "Comparability" mean?

Back 12

That the information is presented in such a way that the decision maker can recognize similarities, differences, and trends between different companies or between different time periods.

Front 13

What does "Consistency" require?

Back 13

That a particular accounting procedure, once adopted by a company, remain in use from one accounting period to the next unless the users of the financial statements are informed of a change by means of notes to the financial statements.

Front 14

What does "Disclosure" require?

Back 14

That all relevant information that would influence the assessment of a company's health by outside users must be disclosed in the financial statements.

Front 15

What does "Materiality" mean?

Back 15

It refers to the relative importance of an item or event. If an item or event is material, it is likely to be relevant to the user of the financial statements.

Front 16

What does "Conservatism" mean?

Back 16

That wehn accountants face major uncertainties as to which accounting procedure to use, they generally choose a method that will undestate assets and income.

Front 17

What is the "Timeliness" requirement?

Back 17

That information generated by the accounting system must be received shortly after the end of the entity's accounting period in order to be useful for decision making.

Front 18

What is the "Going Concern" assumption?

Back 18

It assumes that the business will continue to operate indefinitely.

Front 19

What is the "Entity" assumption?

Back 19

That the business or accounting unit is separate from its owner or owners.

Front 20

What is an "Accounting Period"?

Back 20

The time span over which the accounting data is recorded and reported in the financial statements.

Front 21

What is the "stable dollar theory"?

Back 21

It assumes that prices will remain constant over time. This theory requires that all assets be recorded at their historical cost.

Front 22

What does the Accounting Equation state?

Back 22

The accounting equation states that assets must always equal creditors' claims and capital (owners' equity)
Assets = Liabilities + Owners' Equity

Front 23

If a business has assets of $100,000, liabilities of $60.000, and owner's equity of $40,000, what will the accounting equation look like?

Back 23

Assets = Liabilities + Capital
$100,000 = $60,000 + $40,000

Front 24

In general, what are assets?

Back 24

The economic resources of the business. (Things like cash, accounts receivable, equipment, etc.)

Front 25

What are current assets?

Back 25

Assets that the business expects to use within one year or one operating cycle, whichever is longer. (usually this will be one year)

Front 26

List examples of current assets.

Back 26

Cash, accounts receivable, and inventory.

Front 27

What are "long-lived assets"? (Also called non-current assets)

Back 27

Assets having a life that "exceeds" one year.

Front 28

List some examples of long-lived assets.

Back 28

Land, buildings, equipment, buildings.

Front 29

What are "Liabilities"?

Back 29

Debts of the business.

Front 30

What are "current liabilities"?

Back 30

Those payable witin one year or one operating cycle.

Front 31

List some examples of current liabilities.

Back 31

Accounts payable, notes payable (current portion), salaries payable, taxes payable.

Front 32

What are "noncurrent liabilities"?

Back 32

Those payable over a period of more than one year.

Front 33

The word equity has several definitions. In the accounting context of the balance sheet, what does the term "equity" mean?

Back 33

The monetary value of a business of a business over any debts. In terms of the accounting equation it is Assets - Liabilities = Owner's Equity

Front 34

Why is Owner's Equity considered a "residual" amount?

Back 34

Because Owner's Equity is what is left after you subtract total liabilities from total assets.

Front 35

The Owner's interest in the business is known as Capital or _____________ _______________.

Back 35

Owner's Equity

Front 36

How many "capital" accounts are there in the books of a sole proprietorship?

Back 36

In a sole proprietorship there is only one owner so there is only one capital account.

Front 37

How many "capital" accounts are there in the books of a partnership?

Back 37

There is one for each partner?

Front 38

Sole proprietors and partners are entitle to "withdrawals" from the business. What are withdrawals?

Back 38

When a sole proprietor or partner takes money out of the business, it is called a withdrawal. This is how they get cash out of their investment.

Front 39

In a corporation, stockholders' equity consists of two accounts. Identify the two accounts.

Back 39

1. Capital Stock Outstanding
2. Retained Earnings

Front 40

What is "Retained Earnings"?

Back 40

It is the account that holds the accumulated earnings of the business that haven't been distributed to shareholders.

Front 41

Identify the two types of capital stock.

Back 41

1. Common Stock
2. Preferred Stock

Front 42

What are "dividends"?

Back 42

They are earnings from the corporation paid to stockholders.

Front 43

What is the basic difference in common stock and preferred stock.

Back 43

Common stock entitles its owner to voting rights, preferred stock generally does not.