Chapter 1 & 2

Question 1

Debit is on the ______, while credit is on the ______.

Answer 1

Left; Right

Question 2

What is the NORMAL balance of an asset?

Answer 2

+ Debit

Question 3

What is the NORMAL balance of a liability?

Answer 3

+ Credit

Question 4

What is the NORMAL balance of common stock (equity)?

Answer 4

+ Credit

Question 5

What is the NORMAL balance of dividends (equity)?

Answer 5

+ Debit

Question 6

What is the NORMAL balance of revenues (equity)?

Answer 6

+ Credit

Question 7

What is the NORMAL balance of expenses (equity)?

Answer 7

+ Debit

Question 8

THINK: A L C D R E equals…

Answer 8

D C C D C D

Question 9

What 3 things are considered liabilities (+ credit)?

Answer 9

Payables, accrued liabilities, and unearned revenue

Question 10

What 7 things are considered assets (+ debit)?

Answer 10

Cash, equipment, supplies, land, buildings, receivables, and prepaid accounts

Question 11

What 4 things are considered equity?

Answer 11

Common stock, dividends, revenues, and expenses

Question 12

What is the basic accounting equation? What is the more in-depth equation?

Answer 12

Assets = Liabilities + Equity

Assets = Liabilities + [Com. Stock - Dividends + Revenues - Expenses]

Question 13

What are the 7 external users?

Answer 13

Taxing authorities, shareholders, lendors/creditors, external auditors, regulators, labor unions, non managerial employees

Question 14

What are the 3 internal users?

Answer 14

All MANAGERS, CEOs, and company officers

Question 15

What are the 3 forms of business?

Answer 15

Sole Proprietorship, Partnership, and Corporation

Question 16

What are owners of a sole proprietorship called?

Answer 16

Members

Question 17

What are owners of a partnership called?

Answer 17

Partners

Question 18

What are owners of a corporation called?

Answer 18

Shareholders

Question 19

S.P. and Partnership have the same advantages and disadvantages. List them both:

Answer 19

Adv: simple; tax advantages
Dis: Unlimited liability; difficult to obtain financing

Question 20

What is the only difference between a partnership and sole proprietorship?

Answer 20

S.P. has one owner, while partnership has two

Question 21

What are the advantages (4) and disadvantages (2) of a corporation?

Answer 21

Adv: Separate legal entity; easier to transfer ownership; no personal liability; easier to raise funds
Dis: Higher income taxes; government regulations

Question 22

What is a Limited Liability Company (LLC)?

Answer 22

An election made by S.P. or partnership to create a separate entity and limit personal liability

Question 23

What are the 3 factors of a Fraud Triangle?

Answer 23

Opportunity, Pressure, Rationalization (OPR)

Question 24

What are the standards which all US publicly traded companies must follow when preparing their financial statements?

Answer 24

Generally Accepted Accounting Principles (GAAP)

Question 25

Who issues/frequently advises GAAP, and is given authority by SEC?

Answer 25

Financial Accounting Standards Board (FASB)

Question 26

Who is the US government agency that oversees GAAP by companies that sell stock and debt to public?

Answer 26

Securities and Exchange Commission (SEC) THINK: Exchanging stock/debt

Question 27

Who issues the IFRS?

Answer 27

International Accounting Standards Board (IASB)

Question 28

What are the accounting rules for financial statements of public companies around the world?

Answer 28

International Financial Reporting Standards (IFRS)

Question 29

What are the four principles of accounting?

Answer 29

Measurement (cost), Full Disclosure, Revenue Recognition, and Expense (Matching) Recognition

Question 30

What is the Measurement principle?

Answer 30

Cost measured in cash basis

Question 31

What is the full disclosure principle?

Answer 31

Reports details behind statements that impact users' decisions

Question 32

What is the revenue recognition principle?

Answer 32

Recognizes revenue when goods are provided to customers

Question 33

What is the expense recognition principle?

Answer 33

Expenses are recognized in same period as revenue they help generate

Question 34

What is the income statement equation?

Answer 34

Net income: Revenue - Expenses NOTE: Can be a gain or loss

Question 35

What is the balance sheet and it's equation?

Answer 35

Dated at a point in time; Assets = Liabilities + Equity

Question 36

What is cash flow?

Answer 36

Inflow and outflow from business activities

Question 37

What are the three types of cash flow?

Answer 37

Operating, investing, and financing

Question 38

What are retained earnings?

Answer 38

Changes in retained earnings from net income and any dividends over a period of time

Question 39

What is the retained earnings equation?

Answer 39

Beg. R.E. + Net Income - Dividends = End R.E.

Question 40

What are liabilites?

Answer 40

Claims by creditors against assets

Question 41

What is equity?

Answer 41

Owner's claim on company's assets

Question 42

What are assets?

Answer 42

Resources owned/controlled by a company, expecting future benefit

Question 43

What are dividends?

Answer 43

Payments to stockholders

Question 44

What is debt ratio a measure of?

Answer 44

Solvency

Question 45

What is liquidity and efficiency?

Answer 45

The ability to meet short-term obligation and to efficiently generate revenue (THINK: efficient is quick and SHORT)

Question 46

What is solvency?

Answer 46

Ability to meet long-term obligations and generate future revenue

Question 47

What is profitability?

Answer 47

Ability to provide financial rewards to investors and attract and retain financing

Question 48

What are market prospects?

Answer 48

Ability to generate positive market expectations