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Question 1

Going Concern

Answer 1

principle that prescribes financial statements to reflect the assumption that the business will continue operating (p11)

Question 2

Monetary Unit Assumption

Answer 2

Principle that assumes transactions and events can be expressed in monetary units

Question 3

Time Period Assumption

Answer 3

Assumption that an organization’s activities can be divided into specific timer periods such as months, quarters, or years

Question 4

Objectivity Principle

Answer 4

Principle that prescribes independent, unbiased evidence to support financial statement information.

Question 5

Cost Principle

Answer 5

Accounting principle that prescribes financial statement information to be based on actual costs incurred in business transactions

Question 6

Revenue Recognition

Answer 6

Revenue is recognized when earned

Question 7

Matching (or expense recognition) principle

Answer 7

Prescribes expenses to be reported in the same period as the revenues that were earned as a result of the expenses

Question 8

Full Disclosure Principle

Answer 8

Principle that prescribes financial statements (including notes) to report all relevant information about an entity’s operations and financial condition.

Question 9

Business entity assumption

Answer 9

Principle that requires a business to be accounted for separately from its owner(s) and from any other entity.

Question 10

sole proprietorship

Answer 10

Business owned by one person that is NOT organized as a corporation

Question 11

partnership

Answer 11

UNINCORPORATED association of two ore more persons to pursue a business for profit as co-owners

Question 12

Corporation

Answer 12

Business that is a separate legal entity under state or federal laws with owners called shareholders or stockholders

Question 13

service company

Answer 13

organization that provides services instead of tangible products

Question 14

merchandiser

Answer 14

entity that earns net income by buying and selling merchandise

Question 15

manufacturer

Answer 15

company that uses labor and operating assets to convert raw materials to finished goods

Question 16

asset

Answer 16

resources a business owns or controls that are expected to provide current and future benefits to the business

Question 17

liabilities

Answer 17

CREDITORS’ claims on an organization’s assets; involves a probable future payment of assets, products, or services that a company is obligated to make due to past transactions or events

Question 18

equity

Answer 18

OWNER’s claim on the assets of a business; equals the residual interest in an entity’s assets after deducting liabilities; also called NET ASSETS

Question 19

cost benefit constraint

Answer 19

Notion that only information with benefits of disclosure greater than the costs of disclosure need to be disclosed

Question 20

financial accounting standards board (FASB)

Answer 20

independent group of full time members responsible for setting accounting rules

Question 21

income statment

Answer 21

Financial statement that subtracts expenses from revenues to yield a net income or loss over a specified period of time; also includes any gains or losses

Question 22

internal transactions

Answer 22

activities within an organization that CAN effect the accounting equation

Question 23

international accounting standards board (IASB)

Answer 23

groupl that identifies preferred accounting practices and encourages global acceptance; issues International Financial Reporting Standards (IFRS).

Question 24

managerial accounting

Answer 24

area of accounting aimed mainly at serving the decision-making needs of internal users; also called management accounting

Question 25

materiality constraint

Answer 25

prescribes that accounting for items that significantly impact financial statement and any inferences from them adhere strictly to GAAP

Question 26

Cost (measurement) principle

Answer 26

accounting information is based on cost with potential subsequent adjustments to fair value; see also cost principle

Question 27

Owner, Capital

Answer 27

Account showing the owner's claim on company assets; equals owner investments plus net income (or less net losses) minus owner withdrawals since the company's inception; also referred to as equity

Question 28

Owner, withdrawals

Answer 28

Account used to record asset distributions to the owner (see also withdrawals)

Question 29

Return

Answer 29

Monies received from an investment; often in percent form

Question 30

ROA (return on total assets)

Answer 30

Ratio reflecting operating efficiency; defined as net income divided by average total assets for the period; also called return on assets or return on investment (ROI)

Question 31

Sarbanes-Oxley Act (SOX)

Answer 31

Created the Public Company Accounting Oversight Board, regulates analyst conflicts, imposes corporate governance requirements, enhances accounting and control disclosures, impacts insider transactions and executive loans, establishes new types of criminal conduct, and expands penalties for violations of federal securities laws

Question 32

Statement of cash flows

Answer 32

A financial statement that lists cash inflows (receipts) and cash outflows (payments) during a period; arranged by operating, investing, and financing

Question 33

Statement of owner's equity

Answer 33

Report of changes in equity over a period; adjusted for increases (owner investment and net income) and for decreases (withdrawals and net loss)

Question 34

Withdrawals

Answer 34

Payment of cash or other assets from a proprietorship or partnership to its owner or owners