Financial Accounting Quiz 1

Front 1

Accounting

Back 1

a system that collects and processes (analyzes, measures, and records) financial information about an organization and reports that information to decision makers.

Front 2

Balance Sheet

Back 2

(Statement of Financial Position) reports the amount of assets, liabilities, and stockholders' equity of an accounting entity at a point in time.

Front 3

Accounting Entity

Back 3

the organization for which financial data are to be collected

Front 4

Basic Accounting Equation

Back 4

(balance sheet equation)
Assets = Liabilities + Stockholders' Equity

Front 5

Income Statement

Back 5

(Statement of Earnings/Operations)
reports the revenues less the expenses of the accounting period to get the Net Income.

Front 6

Accounting Period

Back 6

the time period covered by the financial statements

Front 7

Statement of Retained Earnings

Back 7

reports the way that net income and the distribution of dividends affected the financial position of the company during the accounting period

Front 8

Statement of Cash Flows

Back 8

(Cash flow statement)
reports inflows and outflows of cash during the accounting period in the categories of operating, investing, and financing

Front 9

Notes

Back 9

(footnotes) provide supplemental information about the financial condition of a company without which the financial statements cannot be fully understood

Front 10

Generally Accepted Accounting Principles

Back 10

(GAAP) are the measurement rules used to develop the information in financial statements

Front 11

Securities and Exchange Commission

Back 11

(SEC) is the U.S. government agency that determines the financial statements that public companies must provide to stockholders and the measurement rules that they must use in producing those statements.

Front 12

Financial Accounting Standards Board

Back 12

(FASB) is the private sector body given the primary responsibility to work out the detailed rules that become generally accepted accounting principles.

Front 13

Audit

Back 13

an examination of the financial reports to ensure that they represent what they claim and conform with GAAP

Front 14

Primary Objective of External Financial Reporting

Back 14

to provide useful economic information about a business to help external parties make sound financial decisions.

Front 15

Separate-Entity Assumption

Back 15

(An acctg assumption) states that business transactions are accounted for separately from the transactions of owners

Front 16

Unit-of-Measure Assumption

Back 16

(An acctg assumption) states that accounting information should be measured and reported in the national monetary unit

Front 17

Continuity Assumption

Back 17

(or going-concern assumption) states that businesses are assumed to continue to operate into the foreseeable future

Front 18

Assets

Back 18

economic resources with probable future benefits owned by the entity as a result of past transactions

Front 19

Historical Cost Principle

Back 19

requires assets to be recored at historical cost that, on the date of the transaction, is cash paid plus the current dollar value of all noncash considerations also given in the exchange.

Front 20

Current Assets

Back 20

assets that will be used or turned into cash within one year. Inventory is ALWAYS considered a current asset regardless of the time needed to produce and sell it.

Front 21

Liabilities

Back 21

probably debts or obligations of the entity that result from past transactions, which will be paid with assets or services

Front 22

Current Liabilities

Back 22

obligations that will be settled by providing cash, goods, or services within the coming year

Front 23

Stockholders' Equity (owners' equity)

Back 23

the financing provided by the owners and business operations

Front 24

Contributed Capital

Back 24

results from owners providing cash (and sometimes other assets) to the business.

Front 25

Retained Earnings

Back 25

the cumulative earnings of a company that are not distributed to the owners and are reinvested in the business

Front 26

Transaction

Back 26

1) an exchange of assets or services for assets, services, or promises to pay between a business and one or more external parties to a business
2) a measurable internal event such as the use of assets in operations

Front 27

Account

Back 27

a standardized format that organizations use to accumulate the dollar effect of transactions on each financial statement item.

Front 28

Transaction Analysis

Back 28

the process of studying a transaction to determine its economic effect on the business in terms of the accounting equation. A = L + SE

Front 29

Debit

Back 29

(dr) is always on the left side of an account

Front 30

Credit

Back 30

(cr) is on the right side of an account

Front 31

Journal Entry

Back 31

an accounting method for expressing the effects of a transaction on accounts in a debits-equal-credits format

Front 32

T-Account

Back 32

a tool for summarizing transaction effects for each account, determining balances, and drawing inferences about a company's activities

Front 33

Financial Leverage Ratio

Back 33

FLR = Average Total Assets/Average Stockholders' Equity

"Average" is (Beg. Balance + Ending Bal) / 2

Front 34

Operating (Cash to Cash) Cycle

Back 34

the time it takes for a company to pay cash to suppliers, sell goods and services to customers, and collect cash from customers.

Front 35

Time Period Assumption

Back 35

indicates that the long life of a company can be reported in shorter time periods

Front 36

Revenues

Back 36

are increases in assets or settlements of liabilities from ongoing operations

Front 37

Gains

Back 37

increases in assets or decreases in liabilities from peripheral transactions

Front 38

Losses

Back 38

are decreases in assets or increases in liabilities from peripheral transactions

Front 39

Expenses

Back 39

decreases in assets or increases in liabilities from ongoing operations incurred to generate revenues during the period

Front 40

Cash Basis Accounting

Back 40

records revenues when cash is received and expenses when cash is paid

Front 41

Accrual Basis Accounting

Back 41

records revenues when earned and expenses when incurred, regardless of the timing of cash receipts or payments

Front 42

Revenue Principle

Back 42

revenues are recognized when
1) goods or services are delivered
2) there is persuasive evidence of an arrangement for customer payment
3) the price is fixed or determinable
4) collection is reasonably assured

Front 43

Matching Principle

Back 43

requires that expenses be recorded when incurred in earning revenue