Chapter 1

Question 1

3 basic activities accounting consists of

Answer 1

identities
records
communication

Question 2

who are accounting information important for

Answer 2

positions with direct financial interest

positions with indirect financial interest

Question 3

positions with direct financial interest

Answer 3

investors
creditors
employees

Question 4

positions with indirect financial interest

Answer 4

tax authorities
regulatory agencies
economi planners
labor unions

Question 5

what kind of company needs to report finances each quarter and ones a year

Answer 5

publicly health companies (stocks in hand of public)

Question 6

what is the purpose of a business

Answer 6

provide a good or service to make profit

Question 7

subdivisions of businesses

Answer 7

for-, or non-for-profit

classified by ownership

Question 8

name of ones a year financial statement public companies need to turn to SEC

Answer 8

10K

Question 9

subdivisions of service companies

Answer 9

service company - does something to consumer

finincial service companies - provide services related to money

Question 10

subdivision of sales

Answer 10

merchandise - buy goods and resell it to other businesses or final customers
manufacturing - makes product and sells it to other businesses or final customers

Question 11

3 different forms of organizations/businsses based on ownership

Answer 11

sole proprietorship
partnership
corporation

Question 12

characterstics of a sole proprietorship

Answer 12

1 owner (responsible for entire business)
easy to create but hard to aquire
business´ and individuals tax returns are the same
no responsiblity for financial statments

Question 13

characteristics of a partnership

Answer 13

2 or more owners
company´s income included in owner´s tax return
owners responsible for company´s action
amount of ownership depends on amount of investment
easy to raise capital

Question 14

characteristics of a corporation

Answer 14

multiple owners (stakeholders)
many regulations - controlled ny the SEC
legally and financially seperated from owner
owners don´t have responsibility for company
company´s owners and managers are often not the same

Question 15

units of ownership in a corporation

Answer 15

chares of common stock - given to owner after they put money into a business

Question 16

resources used to start and run a business

Answer 16

capital

Question 17

net income

Answer 17

all revenues - all expenses

= profit

Question 18

advantages of corporations

Answer 18

owners have limited liabilities
investors can diversify their financial risks
transferable ownership rights
ability to aquire capital

Question 19

disadvantages of corporations

Answer 19

corporate income is taxed twice
many regulations
management and ownership have different understanding about company´s actions

Question 20

what are dividends

Answer 20

earnings of a corporation distributed to its owners

Question 21

what is a loan made of

Answer 21

principle - the amount borrowed

interest - coast of borrowing money

Question 22

the 4 basic financial statments of a business

Answer 22

income statement
balance sheet
statement of changes in shareholders´ equity
statement of cash flow

Question 23

what is the set of guidelines in the US called financial statements need to line up with

Answer 23

generally accepted accounting principles (GAAP)

Question 24

responsibilities of the Securities and Exchange Commisison (SEC)

Answer 24

monitor stock market and financial reportings of firms that trade in market
controls FASB and PCAOB

Question 25

responsibilities of financial accounting standarts board (FSAB)

Answer 25

sets accounting standarts get authority from SEC sets together with SEC the GAAP standarts

Question 26

responsibilities of Public Company Accounting Oversight Board (PCAOB)

Answer 26

oversees auditing profession and public company audits | mandated by the Sarbanes-Oxley Act (SOX) 2002

Question 27

international set of accounting standards

Answer 27

International Financial Accounting Standards (IFRS) | more principle based

Question 28

what group sets the IFRS

Answer 28

International Accounting Standard Board (IASB)

Question 29

4 largest accounting firms

Answer 29

Ernst and Young (EY) PriceWaterhouseCoopers (PWC) Deliotte KPMG

Question 30

3 categories of business transactions

Answer 30

operating activities investing activities financing activities

Question 31

operating activities

Answer 31

transactions realted to general operations of firm

Question 32

investing activities

Answer 32

transactions related to buying and selling of items the firm uses for longer than a year

Question 33

financing activities

Answer 33

transactions related to how a firm get funding

Question 34

basic accounting equation

Answer 34

assets = liabilities + stockholder´s equity

Question 35

what are assets

Answer 35

recources owned by the business

Question 36

subcategories of assets

Answer 36

``` current assets investments property, pant and equipment intangible assets other assets ```

Question 37

what are current assets

Answer 37

``` cash accounts revailable inventory supplies - used within 1 year prepaid insurance ```

Question 38

what are investments

Answer 38

stock of other companies

Question 39

what is property, plant and equipment

Answer 39

also called fixed assets | land building equipment - useful for longer than a year

Question 40

what are intangible assets

Answer 40

patents trademarks copyrights

Question 41

what are other assets

Answer 41

defferred taxes

Question 42

what are liabilities

Answer 42

obligations of a business to another entity | whatever the company owes to somebody else

Question 43

subsections of liabilities

Answer 43

current liabilities | non-current liabilities

Question 44

examples for current liabilities

Answer 44

obligations within one year accounts payable wages and salaries payable taxes

Question 45

non-current liabilities

Answer 45

obligations that need to be paid after 1 year mortgage payable bonds payable

Question 46

what are accounts payable

Answer 46

materials purchased but not payed for due to the due date of the balance sheet need to be paid within 120 days

Question 47

what is stockholder´s equity

Answer 47

the owners´ claims to the assets of the company

Question 48

subsections of stockholder´s equity

Answer 48

``` contributed capital (common stock) retained earning revenue expenses dividents ```

Question 49

what is common stock

Answer 49

evidence that owner invested into business

Question 50

what is revenue

Answer 50

increase in assets due to service or selling

Question 51

what are expenses

Answer 51

costs of doing business | use of resources to generate revenue

Question 52

what are dividents

Answer 52

earnings of a corporation distributed to the owners for personal use

Question 53

what are retained earnings

Answer 53

net income(loss) - dividents

Question 54

example for expenses

Answer 54

rent expenses advertising expenses utilities expenses salary and wages

Question 55

characteristics of income statements

Answer 55

activity of a company during an accounting period | all revenues - all expenses during a period

Question 56

characteristics of balance sheets

Answer 56

based on assets = liabilities + shareholder´s equity financial situation of a company at specific point in time summary of assets, liabilities and shareholder´s equity

Question 57

what are comparative balance sheets

Answer 57

balance sheet at the beginning as well as at then end of a fiscial year

Question 58

what equation is an income statement based on

Answer 58

revenue - expenses = Net Income / Loss

Question 59

how is a statement of changes in owners´ equity organized

Answer 59

starts with beginning amount of contributed capital and beginning amounts of retained earnings shows additions and deductions total contributed capital and retained earnings get added together to show ending balance

Question 60

characteristics of statement of cash flow

Answer 60

list of all cash that came in or left a business during fiscial period

Question 61

3 subsections of statement of cash flow

Answer 61

cash from operating activities cash from investing activities cash from financing activities

Question 62

what is the technology called to file 10K reports

Answer 62

XBRL (Extensible Business Reporting Language)

Question 63

what are two forms of income statements

Answer 63

single step income statement | multistep income statement

Question 64

single step income statement

Answer 64

group all revenue tother first and then subtract group of all the expenses

Question 65

multistep income statement

Answer 65

first largest revenue - largest expense, related to the revenue = subtotal called gross margin

Question 66

what is essential in a annual financial statement besides the 4 basic statements

Answer 66

notes

Question 67

what is a consolidated financial statement

Answer 67

other firms controlled by the mother company are in the statement included

Question 68

what is a risk

Answer 68

something that exposes the business to potential loss or injury risk comes always with potential rewards

Question 69

what is th expended accounting equation

Answer 69

assets = liabilities + common stock + revenue - expenses - dividents + retained earnings

Question 70

what increases/decreases stockholders´ equity

Answer 70

revenue and common stock - increase | expenses and dividends - decrease