Chapter 1 Flashcards
(105 cards)
1
Q
Accounting
A
Accounting is the process of recognizing, measuring, recording, and reporting information about a business’s transactions.
2
Q
Business
A
A business is a legal organization which attempts to create value by exchanging products with customers for money.
3
Q
Goods
A
A good is a physical item that can be touched and felt. Goods are tangible
4
Q
Services
A
A service is an activity that exists but cannot be touched and felt. Services are intangible.
5
Q
Customer
A
A person or organization that purchases a product from a business.
6
Q
Sale
A
The exchange between a business and customer where the business provides a customer a product and the business receives money or money substitutes.
7
Q
Value
A
The price someone is willing to pay for an item.
8
Q
Cost
A
The amount of money or money substitutes that a business pays to receive an item used in operating a business.
9
Q
Revenue
A
The amount of money or money substitutes that a business receives from the sale of a product.
10
Q
Profit
A
The revenue from a sale less the cost of the sale.
11
Q
Risk
A
Risk is the uncertainty that could result in an outcome not desired.
12
Q
Loss
A
A loss is a negative profit, which occurs when the cost of a sale is greater than the revenue from the sale.
13
Q
Stakeholder
A
A stakeholder is a person or organization that is affected by a business.
14
Q
Liability
A
A liability is an amount owed to a lender or other creditor.
15
Q
Stockholders’ Equity
A
Money provided to the business by owners either through an initial investment or the retention of profits, also know as owner’s equity
16
Q
Asset
A
An economic resource that a business owns and can use to operate the business
17
Q
Employees
A
People, hired by a business, for a period of time to operate the business
18
Q
Expense
A
Money or other value surrendered due to the sale of goods or services, or the operating of the business.
19
Q
Interest
A
The expense of using borrowed money for a period of time.
20
Q
Net Income
A
Operating profit less interest expense, computed as revenue, less operating expenses, less interest expense.
21
Q
For-Profit Business
A
A business that attempts to create an exchange, or sale, where revenue exceeds expenses, creating a profit.
22
Q
Not-for-Profit Business
A
A business that attempts to create an exchange or sale where revenue equals cost.
23
Q
Service Business
A
A business that sells a service to its customers.
24
Q
Merchandise Business
A
A business that sells physical goods or products to its customers.
25
Manufacturing Business
A business that produces the physical goods that they sell to their customers.
26
Wholesale Business
A business that sells products to other businesses for resale.
27
Retail Business
A business that sells products to the final consumer of the product.
28
Sole Proprietorship
A business entity that has one owner, where for legal and tax purposes, the business and the owner are considered the same.
29
Partnership
A business that has more than one owner, where for legal and tax purposes, the business and the owners are considered the same.
30
Corporation
A legal entity, chartered under state law, that is empowered to conduct business. The corporation and owners are considered as separate for legal and tax purposes.
31
Stockholder
An owner of part of a corporation.
32
Dividend
The payment of past and current profits, less losses, previously retained in the business.
33
S-Corporation
A small corporation that has met the legal requirements to act as a corporation but elected to be taxed at individual rates.
34
Limited Liability Corporation
A hybrid business entity having characteristics of both a corporation and a partnership.
35
Financial Accounting
The process of recognizing, measuring, recording, and reporting information about a business's transactions to stakeholders outside the business, including the stockholders (owners) and lenders.
36
Generally Accepting Accounting Principles (GAAP)
The rules, principles, and concepts established by the accounting profession that govern financial accounting.
37
Financial Accounting Standards Board (FASB)
A seven-person group primarily responsible for the establishment of standards of financial accounting and reporting called GAAP.
38
International Financial Reporting Standards (IFRS)
Accounting standards developed by the International Accounting Standards Board for use throughout the world.
39
Business Entity Principle
The business entity principle dictates that the financial affairs of a business organization must be kept separate from the personal financial affairs of the business owners.
40
Reliability Principle
Information should be verifiable, confirmable by an independent observer; also called objectivity principle.
41
Cost Principle
The cost principle states that when a business acquires assets or services, they should be recorded at their actual cost, also called historical cost.
42
Actual Cost
Actual Cost of assets and services acquired, also referred to as historical cost.
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Cash Accounting
Accounting that only recognizes business transactions when cash is received or disbursed.
44
Accural Accounting
Accounting that recognizes a business transaction when it occurs, whether or not cash is received or disbursed.
45
Fundamental Accounting Equation
The equation that states that total assets equal the sum of total liabilities and total stockholders' equity.
Assets = Liabilities + Stockholders' Equity
46
Common Stock
The stockholders' equity which is the result of the owners of the business investing money (or other assets) into the business.
47
Retained Earnings
The stockholders' equity which is the result of the business having net income, or earnings, that have been retained in the business.
48
Prepaid Expenses
Amounts that are assets of a business because they represent items that have been purchased but will be used later.
49
Accounts Payable
A liability incurred by a business when purchasing goods and services.
50
Note Payable
A liability that is represented by a written promise that requires future payment.
51
On Account
Buying or selling on credit.
52
Accounts Receivable
An asset that represents amounts owed to the business by customers.
53
Financial Statements
Historical, objective reports, prepared according to GAAP, that communicate financial information about a business.
54
Income Statement
A financial statement that reports the revenue and expenses of a business during a given period of time.
55
Statement of Retained Earnings
A financial statement that reports the amount of accumulated net profits that a business has retained and not paid in dividends since inception. The statement reports the beginning balance of retained earnings, plus net income or minus net loss in the given period, less the dividends during the given period, equalling ending retained earnings.
56
Balance Sheet
or
Statement of Financial Position
A financial statement that reports the assets, liabilities, and stockholders' equity of a business at a specific point in time.
57
Statement of Cash Flows
A financial statement that reports the sources and uses of cash for a given period of time.
58
Operating Activities
Activities that create revenue and/or expense in the entity's major line of business.
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Investing Activities
Decisions made by management to buy and sell long-term assets.
60
Financing Activities
Actions that generate the receipt or payment of cash to pay long-term liabilities or to raise capital.
61
Which type of business organization is owned by its stockholders?
Corporation
62
Liabilities
debt owed to outsiders
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Assets
Economic resources of the business
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Corporation
Organization form that can have an indefinite life
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Dividends
Payment of cash to the owners of a corporation
66
Sole Proprietorship
Organization form with a single owner
67
Partnership
Organization form with two or more owners
68
Transaction
Any event that affects a firm's financial position
69
Which accounting principle specifically states that we should record transactions at amounts that can be verified?
Reliability Principle
70
Cost Principle
Acquired assets and services should be recorded at their actual cost.
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Business Entity Principle
An organization that stands as a separate economic unit must not have its financial affairs confused with that of other entities.
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Generally Accepted Accounting Principles
Standards developed by FASB
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Reliability Principle
Data must be verifiable
74
Jill Riggins owns and operates Jill's Java Coffee Shop. She proposes to account for the shop's assets at their current market value in order to have current amounts on the balance sheet. Which accounting concept or principle does Jill violate?
Cost Principle
75
Assume that Wave Rider sold skateboards to a department store for $28,000 cash. How would this transaction affect Wave Rider's accounting equation?
Increase both assets and stockholders' equity by $28,000.
76
Assume that Wave Rider sold skateboards to another department store for $18,000 on account. Which parts of the accounting equation does a sale on account affect?
Accounts receivable and retained earnings.
77
Assume that Wave Rider paid expenses totaling $32,000. How does this transaction affect Wave Rider's accounting equation?
Decreases both assets and stockholders' equity.
78
Pool Rider sold skateboards to one department store for $25,000 cash, sold skateboards to another department store for $15,000 on account, and paid expenses totaling $34,000. What is Pool Rider's net income or net loss?
Net income of $6,000.
| 25,000+15,000-34,000=6,000
79
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Utilities Expense
Supplies Expense
Salaries Expense
Property Tax Expense
Rent Expense
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Expenses
80
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Accounts Receivable
Office Furniture
Office Supplies
Cash
Equipment
Land
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Assets
81
Common Stock
Stockholders' Equity
82
Accounts Payable
Note Payable
Salaries Payable
Liabilities
83
Service Revenue
Revenues
84
Increase an asset and increase stockholders' equity.
sold stock to stockholders.
85
Increase an asset and increase a liability
Received cash from the bank in exchange for a note payable
86
Increase one asset and decrease another asset
Paid cash to purchase land for building site.
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Decrease an asset and decrease stockholders' equity
Paid cash to the stockholders as a distribution of earnings
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Decrease an asset and decrease a liability
Paid cash on an account payable
89
PWC Motorsports, Inc., sold additional stock to stockholders.
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Effect on total assets: Increased total assets.
Asset account(s) affected: cash
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90
Paid cash to purchase land as a building site.
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Effect on total assets: No effect on total assets
Asset account(s) affected: The increase in land offset the decrease in cash.
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91
Paid cash on accounts payable.
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Effect on total assets:Decreased total assets
Asset account(s) affected: cash
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92
Purchased machinery and equipment; signed a promissory note in payment.
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Effect on total assets: Increased total assets
Asset account(s) affected: machinery and equipment
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93
Performed service for a customer on account.
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Effect on total assets:increased total assets
Asset account(s) affected: Accounts receivable
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94
Paid cash to the stockholders as a distribution of earnings.
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Effect on total assets: decreased total assets
Asset account(s) affected: cash
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95
Received cash from a customer on account.
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Effect on total assets: no effect on total assets
Asset account(s) affected: The increase in cash offset the decrease in accounts receivable
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96
Sold land for a price equal to the cost of the land; received cash.
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Effect on total assets: no effect on total assets
Asset account(s) affected: the increase in cash offset the decrease in land
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97
Borrowed money from the bank
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Effect on total assets: increased total assets
Asset account(s) affected: cash
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98
The balance sheet reports
financial position on a specific date
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The income statement reports
results of operations for a specific period.
100
Accounts receivable
Balance Sheet
101
Notes payable
Balance Sheet
102
Advertising Expense
Income Statement
103
Service Revenue
Income Statement
104
Retained Earnings
Balance Sheet and Statement of Retained Earnings
105
Office Supplies
Balance Sheet
