Chapter 1

Question 1

a business owned by one person

Answer 1

sole proprietorship

Question 2

a voluntary association of two or more persons for the purpose of conducting a business

Answer 2

partnership

Question 3

receives shares of stock as evidence of their ownership interest in the business

Answer 3

stockholders

Question 4

a section in the statement of cash flows that reports cash flows associated with obtaining cash from owners and creditors, returning cash to owners, and repaying amounts borrowed

Answer 4

financing activities

Question 5

borrowing money from sources such as a bank by signing a note payable or directly from investors by issuing bonds payable

Answer 5

debt financing

Question 6

individuals or financial institutions that lend money to companies

Answer 6

creditors

Question 7

an obligation to repay a creditor the amount initially borrowed

Answer 7

principal

Question 8

involves selling shares of stock to investors

Answer 8

equity financing

Question 9

involve the acquisition and disposition of factories, office furniture, computer and data systems, delivery, vehicles, etc.

Answer 9

investing activities

Question 10

day-to-day activities of producing and selling product or providing a service

Answer 10

operating activities

Question 11

process of preparing publicly available financial statements

Answer 11

financial accounting

Question 12

process of preparing publicly available financial statements

Answer 12

financial accounting

Question 13

the process of generating and analyzing internal user data

Answer 13

managerial accounting

Question 14

deal with the values, rules, and justifications that govern one’s way of life

Answer 14

ethics

Question 15

a professional code of ethics to guide the conduct of its member CPAs

Answer 15

American Institute of Certified Public Accountants (AICPA)

Question 16

written standards of ethical conduct for accountants employed in the private sector

Answer 16

Institute of Management Accountants (IMA)

Question 17

restore investment trust by reducing the likelihood of future accounting scandals, companies, and top management certify in writing the accuracy of its reported financial statement information

Answer 17

Sarbanes-Oxley Act

Question 18

the process of measuring economic activity of an entity in monetary terms and communicating results to users

Answer 18

accounting

Question 19

guides to action that can (and do) change over time

Answer 19

generally accepted accounting principles

Question 20

seven members follow a process that allows for input from interested parties as it considers a new or changed accounting principle

Answer 20

Financial Accounting Standards Board (FASB)

Question 21

to regulate the interstate sale of stocks and bonds

Answer 21

US Securities and Exchange Commission

Question 22

approves generally accepted auditing standards, and monitors the quality of financial statements and audits

Answer 22

Public Company Accounting Oversight Board

Question 23

provides the name of the company, the name of the financial statement, and the date or time period of the statement

Answer 23

heading

Question 24

a listing of a firm’s assets, liabilities, and stockholders’ equity as of a given date, usually at the end of an accounting period

Answer 24

balance sheet

Question 25

states the sum of a business' economic resources must equal the sum of any claims on these resources

Answer 25

accounting equaiton

Question 26

the economic resources of a business that can be expressed in monetary terms

Answer 26

assets

Question 27

the obligations or debts that a business must pay in cash or in goods and services at some future time as a consequence of past transactions or events

Answer 27

liabilities

Question 28

refers to the ownership (stock holder) claims on the assets of the business

Answer 28

stockholders' equity

Question 29

business reports obligation as a liability

Answer 29

notes payable

Question 30

if a business owes money to various suppliers for goods or services already provided

Answer 30

accounts payable

Question 31

if a business owes wages to its employees for work already performed

Answer 31

wages payable

Question 32

a claim on the assets of a business that remain after all liabilities have been satisfied

Answer 32

residual claim

Question 33

the difference between total assets and total liabilities

Answer 33

net assets

Question 34

reports the results of operations for a business for a given time period, usually a quarter or a year

Answer 34

income statement

Question 35

are increases to a company's resources from providing goods or services to customers

Answer 35

sales revenue

Question 36

decreases in a company's resources from generating revenue

Answer 36

expenses

Question 37

when total revenue exceeds total expenses

Answer 37

net income

Question 38

when total expenses exceed total revenue

Answer 38

net loss

Question 39

reports the events causing an increase or decrease in stockholders' equity during a given time period

Answer 39

statement of a stockholders' equity

Question 40

a measure of the capital contributed by the stockholders of a company when they purchase ownership shares in the company

Answer 40

contributed capital

Question 41

a measure of the capital that is earned by the company and reinvested in the business

Answer 41

earned capital

Question 42

increase when operations produce net income and decrease when operatives produce a net loss

Answer 42

retained earning

Question 43

reports a business's cash inflows during a given time period

Answer 43

statement of cash flows

Question 44

information covering a specific period of time: income statement, statement of stockholders' equity, statement of cash flows

Answer 44

period-of-time

Question 45

information present as of a specific date: balance sheet

Answer 45

point-in-line statement

Question 46

all publicly traded companies in the US must file

Answer 46

annual report, Form 10-K

Question 47

quantitive as well as qualitative provide a great deal more information than numbers alone

Answer 47

notes to the financial statements

Question 48

describes the activities undertaken by a company's independent auditor and provides that auditor's opinion regarding whether the financial statements present the results of a company's operations and financial health

Answer 48

auditor's reprot

Question 49

inform financial statement users of matters arising from the audit that required especially challenging, subjective, or complex audit judgement, and how the auditor responded to those matters

Answer 49

critical audit matters (CAM)

Question 50

contains management's interpretation of the company's recent performance and financial condition

Answer 50

Management's discussion and analysis

Question 51

reporting a broad set of both quantitative and qualitative measures that may influence a company's business strategy, cash flows, financial position, and financial performance

Answer 51

Environmental, social, and governance (ESG)

Question 52

the process of examining sets of data with the goal of discovering useful information from patterns found in the data

Answer 52

data analytics

Question 53

a distributed digital ledger that provides a secure means to view recorded transcations

Answer 53

blockchain

Question 54

a cohesive set of interrelated objectives and fundamentals for external financial reporting whose purpose is to guide the formulation of specific accounting principles

Answer 54

conceptual framewrok

Question 55

focus on information useful to investors and creditors

Answer 55

financial reporting objectives

Question 56

components of financial statements: assets, liabilities, stockholders' equity, investments by owners, distribution to owners, revenues, gains, losses, and comprehensive income

Answer 56

financial statement elements

Question 57

accounting information must make a difference in a user's decisions

Answer 57

relevance

Question 58

the characteristics of being complete, neutral, free from error, and verifiable

Answer 58

faithful representation

Question 59

specify the conditions that must be satisfied before a particular asset, liability, revenue, or expense can be recorded in the financial records

Answer 59

recognition and measurement criteria

Question 60

an economic unit with identifiable boundaries for which we accumulate and report financial information

Answer 60

accounting entity

Question 61

presumes that an enterprise will continue to operate indefinitely and will not be otherwise liquidated

Answer 61

going concern concept

Question 62

meaning assets and liabilities are initially recorded at the amount paid or obligated to pay

Answer 62

cost principle

Question 63

standard with the intention of improving financial reporting by providing consistent principles for

Answer 63

revenue recognition

Question 64

states that net income is determined buy linking any expenses incurred with the related earned sales revnues

Answer 64

expense recognition principle

Question 65

the revenue recognition principle and expense principle

Answer 65

accrual basis of accounting

Question 66

revenues are recorded when cash is received from operating activities and expenses are recorded when cash payments are made for operating activities

Answer 66

cash basis of accounting

Question 67

requires that a business disclose all significant financial facts and circumstances

Answer 67

full disclosure principle

Question 68

permits a firm to expense the cost of such assets

Answer 68

materiality

Question 69

requires that the benefit derived from the information outweighs the cost of providing it

Answer 69

cost-benefit constraint

Question 70

Advantages of corp

Answer 70

the relative ease of raising capital to grow the business the protection afforded to stockholders against person liability relative ease of selling ownership shares

Question 71

examples of investing activities

Answer 71

purchase factory, acquire land, buy equipment

Question 72

examples of operating activities

Answer 72

sell products, buy supplies, conduct marketing

Question 73

examples of financing activities

Answer 73

issue stock and obtain loans

Question 74

financial accounting serves a variety of users

Answer 74

- potential investors and investment professionals need financial data to compare prospective investments to determine which they should invest in and at what price - creditors must consider the financial strength of a business before lending its funds - stockholders must evaluate whether to remain invested, buy more shares, or sell

Question 75

Managers require various types of information:

Answer 75

- cost of its products - estimates of the income to be earned from a sales campaign - cost comparisons of alternative causes of action - long-range budgets

Question 76

The accounting process consists of two principles

Answer 76

measurement and communication

Question 77

the measurement process must

Answer 77

1. Identify the relevant economic activities of a business 2. Quantify these economic activities 3. Record the resulting measures in a systematic manner

Question 78

The communication process

Answer 78

prepares financial reports to meet the needs of the user | helps interpret the financial results for that user

Question 79

Accounting equation

Answer 79

resources of a company = claims on resources | assets = liabilities + stockholders' equity

Question 80

Accounting Equation for a Business: economic terms

Answer 80

resources = creditors claims on resources + stockholder(owner) claims on resources

Question 81

Accounting Equation for a Business: Accounting Terms

Answer 81

assets = liabilities + stockholders' equity

Question 82

Examples of assets

Answer 82

``` cash inventory supplies land buildings equipment ```

Question 83

Stockholders' equity equation

Answer 83

stockholders' equity = assets - liabilities | net assets = stockholders' equity

Question 84

operating activities

Answer 84

cash received from the sale of goods and services and the cash spent on operating expenses

Question 85

investing activities

Answer 85

cash payments and receipts from buying and selling certain assets that the business uses in its operations

Question 86

financing

Question 87

financing activities

Answer 87

includes the issuance and repurchase of the business's own shares and the amounts borrowed and repaid to creditors