Chapter 1

Question 1

assets

Answer 1

the total resources of a company or items that could probably provide benefit to the company in the future

Question 2

liabilities

Answer 2

amounts owed to creditors or other obligations of the business

Question 3

stockholder’s equity

Answer 3

the owner’s claim to resources; 2 comonents

Question 4

revenues

Answer 4

amounts earned when a company sells a product or service

Question 5

expense

Answer 5

cost of providing products or services during the current period or
cost or amounts used when generating revenue or
expired assets

Question 6

dividends

Answer 6

a portion of the net income distributed to the stockholders or owners of the company

Question 7

income statement

Answer 7

compares revenues and expenses to asses the profit of a company

Question 8

statement of stockholder’s equity

Answer 8

reports info related to changes in common stock and retained earnings

Question 9

revenues - expense = net income

Answer 9

income statement

Question 10

retained earnings = net income - dividends

Answer 10

statement of stockholders equity

Question 11

balance sheet

Answer 11

demonstrates the company’s resources (assets), creditor’s claims (liabilities), and owner’s claims (stockholder’s equity)

Question 12

assets = liabilities + stockholder’s equity

Answer 12

balance sheet

Question 13

retained earnings

Answer 13

net income kept in the business

Question 14

revenues

Answer 14

amounts earned by providing a product or service to a customer

Question 15

common stock

Answer 15

amounts invested by stockholders or the owners of the company

Question 16

revenue recognition principle

Answer 16

revenues are recorded in the accounting period which services and products are provided to customers, NOT necessarily in the period in which cash is received from customers

Question 17

matching principle

Answer 17

expenses are recorded in the same accounting period as the revenues they help generate

Question 18

accrued expenses

Answer 18

when a company has a cost that is used to help produce revenue but the cost has not been paid yet

Question 19

accrued revenue

Answer 19

when a company provides products or services to customers but the company has not yet received the cash

Question 20

functions of accounting

Answer 20

1) measure business activities of a company

2) communicate those measurements to external parties for decision making purposes

Question 21

primary objective of financial accounting

Answer 21

provide useful and correct info for investment and credit decisions

Question 22

three ways of organizing business structure

Answer 22

corporation, sole proprietorship, and partnership

Question 23

corporation

Answer 23

an entity that is legally separate from its owners and pays its own income taxes

Question 24

advantages of a corporation

Answer 24

1) limited liability - can’t lose more money than they earn

2) ability to raise capital and transfer ownership

Question 25

partnership

Answer 25

business owned by 2 or more people

Question 26

sole proprietorship

Answer 26

a business owned by one person