Chapter 1

Question 1

An organization that stands apart as a separate economic unit follows the

Answer 1

economic entity assumption.

An Economic Entity can be a:
Sole Proprietorship
Partnership
Corporation
Limited-Liability Company (L L C)

Question 2

oversees creation and governance of accounting standards.

Answer 2

Financial Accounting Standards Board (F A S B)

Question 3

oversees the U.S. financial markets.

Answer 3

Securities and Exchange Commission (S E C)

Question 4

Accounting guidelines are called

Answer 4

Generally Accepted Accounting Principles (G A A P).

Question 5

____ states that acquired assets and services should be recorded at their actual cost.

Answer 5

cost principle

Question 6

assumes that the entity will remain in operation for the foreseeable future.

Answer 6

going concern assumption

Question 7

requires that the items on the financial statements be measured in terms of a monetary unit.

Answer 7

monetary unit assumption

Question 8

a set of global accounting guidelines.
Used or required by more than 166 nations/jurisdictions
Published by the International Accounting Standards Board (I A S B)

Answer 8

International Financial Reporting Standards (I F R S)

Question 9

monitors the work of independent accountants who audit public companies.

Answer 9

The Public Company Accounting Oversight Board (P C A O B)

Question 10

the basic tool of accounting, measuring the resources of the business and the claims to those resources.

Answer 10

accounting equation

Question 11

What is the accounting equation?

Answer 11

assets = liabilities + equity

Question 12

an economic resource that is expected to benefit the business in the future.

Answer 12

asset

Examples:
Cash
Merchandise Inventory
Furniture
Land

Question 13

debts that are owed to creditors.

Answer 13

Liabilities

Many liabilities have the word payable in their titles.

Examples:
Accounts Payable
Notes Payable
Salaries Payable

Question 14

to whom the business owes money

Answer 14

Creditors

Question 15

The owners’ claims to the assets of the business are called

Answer 15

equity (also called stockholders’ equity)

Question 16

the amount invested in the corporation by its owners, the stockholders

Answer 16

Contributed capital:
Also called paid-in capital

Question 17

two components of equity

Answer 17

contributed capital and retained earnings

Question 18

represents the basic ownership of every corporation.

Answer 18

Common stock

Question 19

Equity earned from profitable operations that is not distributed to shareholders

Answer 19

Retained earnings

Question 20

amounts earned from delivering goods or services o customers

Answer 20

Revenues

Question 21

Increases in equity result from:

Answer 21

Contributed capital (owner contributions)

Revenues, which are amounts earned from delivering goods or services o customers

Question 22

distributions of earnings to stockholders

Answer 22

Dividends

Question 23

Decreases in equity result from:

Answer 23

dividends
expenses

Question 24

Revenues > Expenses

Answer 24

Net income

Question 25

Revenues < Expenses

Answer 25

Net loss

Question 26

any event that affects the financial position of the business and can be measured with faithful representation.

Answer 26

transaction buying a computer for the office for 2,000 cash NOT hiring a new employee

Question 27

Provides information about profitability for a particular period for the company

Answer 27

Income statement

Question 28

how is income statement prepared?

Answer 28

revenues - expenses = net income or net loss

Question 29

Informs users about how much of the earnings were kept and reinvested in the company

Answer 29

Statement of retained earnings

Question 30

Provides valuable information to financial statement users about economic resources the company has (assets) as well as debts the company owes (liabilities) and allows decision makers to determine their opinion about the financial position of the company

Answer 30

Balance sheet Assets = Liabilities + Stockholders’ Equity

Question 31

Reports on a business’s cash receipts and cash payments for a period of time

Answer 31

Statement of cash flows

Question 32

measures how profitably a company uses it assets.

Answer 32

Return on assets (R O A) R O A is calculated by dividing net income by average total assets.

Question 33

return on assets

Answer 33

net income / average total assets