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63 Cards in this Set

  • Front
  • Back
Business
All of the activities necessary to provide the members of an economic system with goods and services
A department store is an example of a
retailer
An airline is an example of a
service provider
Business entity
An organization operated to earn a profit
Sole proprietorship
A form of organization with a single owner
Economic entity concept
The assumption that a single, identifiable unit must be accounted for in all situations
Partnership
A business owned by two or more individuals; the organization form often used by accounting firms and law firms
Corporation
A form of entity organized under the laws of a particular state; ownership evidenced by shares of stock
Share of stock
A certificate that acts as evidence of ownership in a corporation
Bond
A certificate that represents a corporation's promise to repay a certain amount of money and interest in the future
Nonbusiness entity
An organization operated for some purpose other than to earn a profit
Liability
An obligation of a business
Capital stock
Indicates the owners' contributions to a corporation
Stockholder
One of the owners of a corporation
(shareholder)
Creditor
Someone to whom a company or person has a debt
(lender)
Asset
A future economic benefit
Revenue
An inflow of assets resulting from the sale of goods and services
Expense
An outflow of assets resulting from the sale of goods and services
Accounting
The process of identifying, measuring, and communicating economic information to various users
Management accounting
The branch of accounting concerned with providing management with information to facilitate the planning and control functions
Financial accounting
The branch of accounting involving communication with outsiders through financial statements
Owners' equity
The owners' claims to the assets of an entity
Stockholders' equity
The owner's equity of a corporation
(shareholders' equity)
Retained earnings
The part of owners' equity that represents the income earned less dividends paid over the life of and entity
Balance sheet
The financial statement that summarizes the assets, liabilities, and owners' equity at a specific point in time
(statement of financial position)
(snapshot of financial position)
(Assets=Liabilities+Stockholders' or Owners' Equity)
Income statement
A statement that summarizes revenues and expenses for a period of time
(statement of income or statement of operations)
(Revenue-Expenses=Net Income)
Net income
The excess of revenues over expenses
(profits or earnings)
Dividends
A distribution of the net income of a business to its stockholders
Statement of retained earnings
The statement that summarizes the income earned and dividends paid over the life of a business
(Beginning retained earnings+Net income over period-Dividends over period= Ending retained earnings)
Statement of cash flows
The financial statement that summarizes a company's cash receipts and cash payments during the period from operating, investing, and financing activities
Cost principle
Assets are recorded and reported at the cost paid to acquire them
(original cost or historical cost)
Going concern
The assumption that an entity is not in the process of liquidation and that it will continue indefinitly
Monetary unit
The yardstick used to measure amounts in financial statements; the dollar in the United States
Time period
A length of time on the calendar used as the basis for preparing financial statements
Generally accepted accounting procedures (GAAP)
The various methods, rules, practices, and other procedures that have evolved over time in response to the need to regulate the preparation of financial statements
Securities and Exchange Commission (SEC)
The federal agency with ultimate authority to determine the rules for preparing statements for companies whose stock is sold to the public
Financial Accounting Standards Board (FASB)
The group in the private sector with the authority to set accounting standards
American Institute of Certified Public Accountants (AICPA)
The professional organization for certified public accountants
Certified Public Accountant (CPA)
The designation for an individual who has passed a uniform exam administered by the AICPA and has met other requirements as determined by individual states
Public Company Accounting Oversight Board (PCAOB)
A five member body created by an act of Congress in 2002 to set auditing standards
International Accounting Standards Board (IASB)
The organization to develop worldwide accounting standards
Auditing
The process of examining the financial statements and the underlying records of a company to render an opinion as to whether the statements are fairly presented
Sarbanes-Oxley Act
An act of Congress in 2002 intended to bring reform to corporate accountability and stewardship in the wake of a number of major corporate scandals
Kellogg's is organized as which of the following business entities?
Corporation
One of the advantages of the corporate form of organization is
The ease of transfer of ownership, the limited liability of the stockholder, and the ability to raise large amounts of capital in a relatively brief period of time
Capital stock as a form of financing differs from borrowing because
Stock does not have a due date
Which of the following is not an asset?
Accounts payable
Cash
Accounts receivable
Building
Accounts payable
The inflow of assets resulting from the sale of products and services is called a(n)
Revenue
Which of the following groups is not an external user of accounting information?
Stockholders
Bankers
Management
Management
The branch of accounting that involves communication with outsiders through financial statements is
Financial accounting
Which of the following financial statements summarizes the financial position of a company at a point in time?
Income statement
Balance sheet
Statement of retained earnings
Statement of cash flows
Balance sheet
On a statement of retained earnings, how are net income and dividends treated?
Net income is added, and dividends are deducted
Revenues are reported on which of the following financial statements?
Balance sheet only
income statement only
both balance sheet and the income statement
neither balance sheet or income statement
Income statement only
You decide to form a partnership with a friend. Which accounting concept requires that you separate your personal affairs from those of the partnership?
Economic entity
How do accountants justify reporting assets on a balance sheet at their historical cost?
Cost is more objective than market value
Which of the following groups currently sets U.S. accounting standards?
American Institute of Certified Public Accountants
Financial Accounting Standards Board
Public Company Accounting Oversight Board
International Accounting Standards Board
Financial Accounting Standards Board
Who ultimately has responsibility for a company's financial statements?
Management
For accounting information to be useful in making informed decisions, it must be
Both relevant and a faithful representation
The first step in the ethical decision-making model presented in this section is to
Recognize an ethical dilemma
Internal and External Users of Accounting Information
Current and potential owners, suppliers, trade associations, bankers, internal users-management, government agencies, creditors, financial analysts
The accounting equation
Assets = Liabilities + Owners' or Stockholders' Equity
(Economic Resources = Creditors' Claim to Assets + Owners' Claim to Assets)
Financial Statement Assumptions
Economic Entity Concept
Going Concern
Time Period Assumption
Cost Principle
Monetary Unit
Ethics in Accounting
Identification of Ethical Dilemma
Analysis of Key Elements
Determine the Alternatives
Resolve by Selecting Ethical Alternative