Accounting Chapter 1 Flashcards

1
Q

What is accounting?

A

an information and measurement system and identifies, records, and communicates and organization’s business activities

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2
Q

Why is accounting called the language of business

A

all organizations
set up an accounting information system to communicate data to help
people make better decisions.

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3
Q

What two groups is accounting divvied into

A

external users and internal users.

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4
Q

identifying

A

Select transaction and events such as sale by Apple of an iPhone

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5
Q

Recording

A

input measure and log such as keeping a chronological log of transactions

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6
Q

Communicating

A

prepare, analyze, and interpret example: prepare reports such as Finical statements

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7
Q

what are examples of external users

A

Lenders, external auditors, shareholders, board of directors, regulators, customers.

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8
Q

what are examples of internal users

A

research and development managers, purchasing mangers, human resource managers, marketing managers, production managers, distribution mangers

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9
Q

what are ethics

A

beliefs that distinguish right from wrong. They are accepted standards of good and bad behavior

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10
Q

what is the goal of accounting

A

to provide useful information for decisions

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11
Q

what are the 3 steps of making ethical decisions

A

1 identify ethical concerns: use ethics to recognize an ethical concern
2 Analyze options: Consider all consequences
3 Make ethical decision: Choose best option after weighing all consequences

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12
Q

what are the three aspects of the fraud triangle

A

opportunity: envision a way to commit fraud with a low perceived risk of getting caught, pressure: must have some pressure to commit fraud, such as unpaid bills , and rationalization: failing to see the criminal nature of the fraud or justifies the action

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13
Q

What is Sarbanes-Oxley (SOX)

A

Congress passed the Sarbanes–Oxley Act to help stop financial
abuses at companies that issue public stock.
* SOX requires documentation and verification of internal controls
and emphasizes effective internal controls.
* Failure to comply can lead to penalties and criminal prosecution of
executives.

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14
Q

what are the two important provisions in the Dodd Frank Wall Street Reform and Consumer Protection Act

A
  1. Clawback provision which mandates
    recovery of excessive pay
    and
  2. Whistleblower provision whereby the SEC
    will pay whistleblowers 10% to 30% of
    sanctions exceeding $1,000,000.
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15
Q

What are the Generally Accepted Accounting Principles

A

making information relevant: relevant information affects decisions of users , reliable: reliable information is trusted by users , and comparable: Comparable information is helpful in contrasting
organizations.

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16
Q

What does the international Financial Reporting Standards (IFRS) do

A

Identifies preferred
accounting practices

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17
Q

what is the conceptual framework of the FASB and IASB.

A

objectives: to provide info useful to investors, creditors, and others
Qualitative characteristics: to require information that is relevant, reliable, and comparable
Elements: to define items that finical statements can contain
recognition and measurement: to set criteria that an item must meet for it to be recognized as an element; and how to measure that element

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18
Q

What are the General principles

A

assumptions, concepts, and
guidelines for preparing financial statements.

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19
Q

What are the Specific principles of accounting

A

detailed rules
used in reporting business
transactions and events.

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20
Q

what are the 4 accounting principles

A

Measurement principle (Cost principal), Revenue recognition principle, Expense recognition Principle, Full Disclosure Principle

21
Q

measurement principle (cost principle)

A

Accounting information is based on actual cost. Actual cost is considered objective.

22
Q

Revenue recognition principle

A
  1. recognize revenue when goods or
    services are provided to customers
    and
  2. at an amount expected to be received from the customer.
23
Q

Expense Recognition principle (matching principle)

A

A company records its expenses incurred to generate the revenue reported.

24
Q

Full Disclosure Principle

A

A company reports the details behind financial statements that would impact users’ decisions in the notes to the financial statements

25
Q

what are the four accounting assumptions

A

Going-concern assumptions, monetary unit assumption, business entity assumption, Time period assumption

26
Q

Going-Concern Assumption

A

The business is presumed to
continue operating instead of being closed or sold.

27
Q

Monetary Unit Assumption

A

Transactions and events are
expressed in monetary, or money, units.

28
Q

Business Entity Assumption

A

A business is accounted for
separately from other business entities, including its owner.

29
Q

Time Period Assumption

A

The life of a company
can be divided into time periods, such as months and years

30
Q

Sole proprietorship

A

One owner, not incorporated

31
Q

partnership

A

more than one owner, not incorporated

32
Q

corporation

A

one or more owners, incorperator (the business is a sperate legal entity)

33
Q

What are the 2 Accounting Constraint

A

Cost benefit: Only information with benefits of
disclosure greater than their cost need to be disclosed.
Materiality: Only information that would
influence the decisions of a
reasonable person need to be disclosed

34
Q

The accounting equation

A

Assets= liabilities + equity
A=L+OE

35
Q

expanded accounting equation

A

Assets= Liabilities + owner, capital-Owner, withdrawals+ Revenues - expenses
(Revenues - expenses is the net income)

36
Q

what are the four financial statements

A

income statement, statement of owners equity, balance sheet, statement of cash flows.

37
Q

Income statement

A

describes a company’s revenues and
expenses and computes net income or loss over a period of time.

38
Q

statement of owners equity

A

explains changes in equity
from owner investments and net income (or loss) and from any withdrawals over a period of time

39
Q

balance sheet

A

describes a company’s financial position
(types and amounts of assets, liabilities, and equity) at a point in time

40
Q

what is the Return on assets (ROA) equation

A

Return on assets= net income/ average total assets

41
Q

How do you find average total assets?

A

Average total assets = (Beginning total assets + Ending total assets) / 2

42
Q

what is risk?

A

the uncertainty about
the return we will earn.
The lower the risk, the lower our expected return

43
Q

what are investing activities

A

the acquiring and disposing of resources (assets) that an organization uses to acquire and sell its products or services

44
Q

types of investing activities

A

 Asset management—determining the amount and type
of assets for operations.
 Assets—invested amounts.
 Liabilities—creditors’ claims.
 Equity—owner’s claim.

45
Q

what are the three major types of business activities

A

investing activities, financing activities, operating activities

46
Q

what are finance activities ?

A

provide the means organizations use to
pay for resources such as land, buildings, and equipment to carry out plans

47
Q

examples of financing activities

A

 Owner financing—resources contributed by the owner
along with any income the owner leaves in the
organization.
 Nonowner financing—resources contributed by creditors
(lenders).

48
Q

operating activities

A

involve using resources to research, develop, purchase, produce, distribute, and market products and services.

49
Q

example of operating activities

A

Strategic management —the process of determining
the right mix of operating activities for the type of
organization, its plans, and its market.