Accounting 201 (Ch 1-2) Quiz

Front 1

Accounting

Back 1

the information system that identifies, records, and communicates, the economic events of an organization to intereted users

Front 2

Internal users

Back 2

Managers who plan, organize, and run a business

Front 3

External users

Back 3

Investors: when to buy sell or hold stock

Creditors: evaluate the risk of loaning company money

Taxers: appropriate tax payments

Customers: wether company will survive long enough to provide warranties

Labor unions: determine if they can demand for wage increases

regulator agencies: make sure proper operations are taking place

Front 4

Sarbanes-Oxley ACt

Back 4

manager must certify the accuracy of the financial information

consequences are more severe

increased the independence of outside auditors who review the accuracy of the firms statements

increased the oversight role of the board of directors

Front 5

Three types of Business Activities

Back 5

Financing, Investing, Operations

Front 6

Financing Activities

Back 6

Liabilities

Common stock

Front 7

Investing Activities

Back 7

Purchasing the resources a company needs in order to operate.

- property, capital (equipment), land. (assets)

Front 8

Operating Activities

Back 8

Revenues:

- sales, service, and interest

(supplies day to day)

(inventory, long term)

Expenses:

-"expenses", accounts "payable"

Front 9

liabilities

Back 9

amounts owed to creditors-- in the form of debt or other obligations. (i.e. gift cards)

Front 10

assets

Back 10

resources owned by a business

Front 11

account recievable

Back 11

right to receive money in the future

Front 12

dividends

Back 12

cash payments to stock holders

Front 13

accounts payable

Back 13

Obligation to pay in the future for goods acquired (i.e. at the end of the month)

Front 14

net income

Back 14

when revenues exceed expenses

Front 15

net loss

Back 15

when expenses exceed revenue

Front 16

Financial Statements

Back 16

income, retained earnings, balance sheet, statement of cash flow

Front 17

Income Statement

Back 17

how successfully your business performed during a period of time

revenues and expenses = net income

Front 18

Retained Earnings Statements

Back 18

How much of previous income was distributed to you and the other owners of your business in the form of dividend, and how much was retained in the business to allow for future growth.

Front 19

Balance Sheet

Back 19

presnt a picture at a specific point and time of what your business owns and what it owes

Assets and liabilities and stockholders equity

-

Front 20

Statement of Cash flows

Back 20

to show where your business obtained cash during a period of time and how the cash was used.

operating, investing, financing

Front 21

Examples of Assets

Back 21

Cash, equipment, inventories/supplies, prepaid insurance, accounts receivable

Front 22

Examples of Liabilities

Back 22

notes/accounts payable, unearned service revenue, salaries and wages payable, interest payable,

Front 23

Examples of Stockholders equilty

Back 23

common stock, retained earnings

Front 24

Stockholders equity

Back 24

what the owners claim to assets are

Front 25

Accounting Equation

Back 25

Assets= Liabilities + Stockholders equity

Front 26

Classified Balance Sheet

Back 26

groups together similar assets and liabilities (i.e. current and long term)

Front 27

Current assets

Back 27

assets that a company expects to convert to cash or use up within one year or within one operating cycle.

Front 28

Examples of current assets

Back 28

case, debt investments, accounts receivable, notes recie, inventory, supplies, pre-paid insurance

Front 29

operating cycle

Back 29

average time required to go form cash to cash in producing revenue-- to purchase inventory, sell it on account, and then collect cash from the customers

Front 30

How to list current assets

Back 30

list current assets in the order in which they expect to convert them into cash

Front 31

Long term investments

Back 31

(1) investment sin stocks and bonds

(2) long term assets --land to currently being used for operating activities

(3) long term notes receivable

Front 32

Property, plant, and equipment

Back 32

assets with relatively long useful lives that are currently used in operating the business

Front 33

depreciation

Back 33

is the location of the cost of an asset to a number of years.

Front 34

accumulated depreciation

Back 34

shows the total amount of depreciation that the company has expensed thus far in the investments life

Front 35

Intangible Assets

Back 35

assets that do not have physical substance and yet often are very valuable

ex: exclusive rights

Front 36

Current liabilities

Back 36

the obligations the company is to pay within the next year or operating cycle, which ever is longer.

Front 37

Long-term Liabilities

Back 37

obligations that a company expects to pay after one year

Front 38

Ratio Anaylsis

Back 38

expresses relationships among selected items of financial statement data

Front 39

Ratio

Back 39

expresses the mathematical relationship between one quantity and another

Front 40

Three ways to compare company performance

Back 40

(1) intra company comparisons

(2) industry-average comparisons

(3)inter-company comparisons

Front 41

Intracompany comparisions

Back 41

covering two years for the same company

Front 42

industry average comparisions

Back 42

average rations for particular industries

Front 43

intercompany comparisons

Back 43

comparisons with competitor in the same industry

Front 44

Profitability ratios

Back 44

ex: earnings per share

Front 45

Earnings Per Share

Back 45

measures the net income earned on each share of common stock

Front 46

when to use earning per share comparisions

Back 46

only with inter company, intra is useless due to the wide variations in the numbers of shares of outstanding stocks of different companies

Front 47

Liquidity

Back 47

ability to pay obligations expected to become due within the next year or operating cycle

Front 48

liquidity ratios

Back 48

measure the short term ability of a company to pay its maturing obligations

Front 49

one type of liquid liability is the current ratio

Back 49

current assets/current liabilities

Front 50

weakness of the current ratio

Back 50

doesn't take into account the composition of the current asset

Front 51

solvency

Back 51

ability to pay interest as it comes due and to repay balance of a debt due at its maturity

Front 52

solvency rations

Back 52

measure the ability of a company to survive over a long period of time

Front 53

debt to assets ratio

Back 53

one mere of solvency

- dividing totally liabilities by total assets

Front 54

working capitol

Back 54

measure of liquidity

difference between current assets and current liabilities

Front 55

free cash flow

Back 55

net cash provided by operating activities after adjusting for capital expenditures and dividend paid

Front 56

comparability

Back 56

ability to compare the accounting information of different companies because they use the same accounting principles

Front 57

consistency

Back 57

company tries the same accounting principles and methods from year to year

Front 58

verifiable

Back 58

if independent observers using the same methods achieve the same results

Front 59

timely

Back 59

must be available to decision makers before it loses its capacity to influence decisions

Front 60

understandability

Back 60

easily interpreted due to presentation of information

Front 61

historical cost principle

Back 61

companies record assets at their cost

Front 62

fair value principle

Back 62

assets and liabilities should be reported at fair value, aka, the price received to seek an asset or settle a liability)

Front 63

full disclosure principle

Back 63

requires that companies disclose all circumstances and events that would make a difference to financial investment users

Front 64

cost constraint

Back 64

weighs the cost of a company to find and provide certain information against th benefit users will gain form it.

Front 65

economic entity assumption

Back 65

states that every economic entity can be separately identified and accounted for. do not blur company and personal transactions

Front 66

periodicity assumpion

Back 66

states that the life of a business can be divided into artificial tie periods and that useful report covering those periods can be prepared for the business.

Front 67

monetary unit assumption

Back 67

requires that only those things that can be expressed in money are included in the accounting

Front 68

going concern assumption

Back 68

states that the business will remain in operation for the foreseeable future.

Front 69

relevance

Back 69

it if would make a difference in a business decision

Front 70

materiality

Back 70

is a company specific aspect of relevance, an item is material when its size makes it likely to influence the decision of an investor or creditor.

Front 71

faith representation

Back 71

means that information accurately depicts what really happened