Accounting Chapter 1

Question 1

What is accounting?

Answer 1

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

Question 2

Why is accounting called the language of business

Answer 2

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

Question 3

What two groups is accounting divvied into

Answer 3

external users and internal users.

Question 4

identifying

Answer 4

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

Question 5

Recording

Answer 5

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

Question 6

Communicating

Answer 6

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

Question 7

what are examples of external users

Answer 7

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

Question 8

what are examples of internal users

Answer 8

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

Question 9

what are ethics

Answer 9

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

Question 10

what is the goal of accounting

Answer 10

to provide useful information for decisions

Question 11

what are the 3 steps of making ethical decisions

Answer 11

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

Question 12

what are the three aspects of the fraud triangle

Answer 12

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

Question 13

What is Sarbanes-Oxley (SOX)

Answer 13

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.

Question 14

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

Answer 14

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.

Question 15

What are the Generally Accepted Accounting Principles

Answer 15

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.

Question 16

What does the international Financial Reporting Standards (IFRS) do

Answer 16

Identifies preferred
accounting practices

Question 17

what is the conceptual framework of the FASB and IASB.

Answer 17

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

Question 18

What are the General principles

Answer 18

assumptions, concepts, and
guidelines for preparing financial statements.

Question 19

What are the Specific principles of accounting

Answer 19

detailed rules
used in reporting business
transactions and events.

Question 20

what are the 4 accounting principles

Answer 20

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

Question 21

measurement principle (cost principle)

Answer 21

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

Question 22

Revenue recognition principle

Answer 22

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

Question 23

Expense Recognition principle (matching principle)

Answer 23

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

Question 24

Full Disclosure Principle

Answer 24

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

Question 25

what are the four accounting assumptions

Answer 25

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

Question 26

Going-Concern Assumption

Answer 26

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

Question 27

Monetary Unit Assumption

Answer 27

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

Question 28

Business Entity Assumption

Answer 28

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

Question 29

Time Period Assumption

Answer 29

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

Question 30

Sole proprietorship

Answer 30

One owner, not incorporated

Question 31

partnership

Answer 31

more than one owner, not incorporated

Question 32

corporation

Answer 32

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

Question 33

What are the 2 Accounting Constraint

Answer 33

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

Question 34

The accounting equation

Answer 34

Assets= liabilities + equity
A=L+OE

Question 35

expanded accounting equation

Answer 35

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

Question 36

what are the four financial statements

Answer 36

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

Question 37

Income statement

Answer 37

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

Question 38

statement of owners equity

Answer 38

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

Question 39

balance sheet

Answer 39

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

Question 40

what is the Return on assets (ROA) equation

Answer 40

Return on assets= net income/ average total assets

Question 41

How do you find average total assets?

Answer 41

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

Question 42

what is risk?

Answer 42

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

Question 43

what are investing activities

Answer 43

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

Question 44

types of investing activities

Answer 44

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

Question 45

what are the three major types of business activities

Answer 45

investing activities, financing activities, operating activities

Question 46

what are finance activities ?

Answer 46

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

Question 47

examples of financing activities

Answer 47

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

Question 48

operating activities

Answer 48

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

Question 49

example of operating activities

Answer 49

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