Chapter 1

Question 1

Business Organization owned by one person. The owner is personally liable for all debts of the business.

Answer 1

Sole Proprietorship

Question 2

Business organization owned by two or more people. Each partner is personally liable for all debts of the business.

Answer 2

Partnership

Question 3

A separate legal entity. Owners of corporations (stockholders) are not personally liable for debts of the corporation.

Answer 3

Corporation

Question 4

True or False: Accounting is a system of analyzing, recording, summarizing, and reporting the results of a business’s activities.

Answer 4

True

Question 5

External users _____ the company.

Answer 5

Evaluate

Question 6

Internal users _______ the company.

Answer 6

Run

Question 7

The financial reports of a business are assumed to include the results of only that business’s activities.

Answer 7

Separate Entity Assumption

Question 8

Resources owned

Answer 8

Assets

Question 9

Resources owed to creditors

Answer 9

Liabilities

Question 10

Resources owed to stockholders

Answer 10

Stockholders Equity

Question 11

Basic Accounting Equation

Answer 11

Assets = Liabilities + Stockholders Equity

Question 12

Economic resources presently controlled by the company that have measurable value and are expected to benefit the company by producing cash inflows or reducing cash outflows in the future.

Answer 12

Assets

Question 13

Measurable amounts that the company owes to creditors.

Answer 13

Liabilities

Question 14

Owners claims to the business resources.

Answer 14

Stockholder’s Equity

Question 15

Equity paid in by stockholders

Answer 15

Common Stock

Question 16

Equity earned by the company

Answer 16

Retained Earnings

Question 17

Net Income Equation

Answer 17

Net Income = Revenue - Expenses

Question 18

Sales of goods or services to customers, measured at the amount the business charges the customer.

Answer 18

Revenues

Question 19

The costs of doing business necessary to earn revenues, including wages to employees, advertising, insurance, utilities, and supplies used in the office.

Answer 19

Expenses

Question 20

Distributions of a company’s earning to its stockholders as a return on their investment.

Answer 20

Dividends

Question 21

True or False: Dividends are not expenses.

Answer 21

True

Question 22

Order in which you prepare financial statements:

Answer 22

(1) Income Statement
(2) Statement of Retained Earnings
(3) Balance Sheet
(4) Statement of Cash Flows

Question 23

The unit of measure assumption states that results of business activities should be reported in an appropriate monetary unit

Answer 23

The Income Statement

Question 24

Reports the way that net income and the distribution of dividends affected the financial position of the company during the period.

Answer 24

The Statement of Retained Earnings

Question 25

What a business owns

Answer 25

Assets

Question 26

What it owes to creditors

Answer 26

Liabilities

Question 27

What is left over for the owners of the company's

Answer 27

Stockholder's Equity

Question 28

Summarizes how a business's operating, investing, and financing activities caused its cash balance to change over a particular period of time.

Answer 28

Statement of Cash Flows

Question 29

Relationships Among the Financial Statements

Answer 29

(1) Net income from the income statement is a component in determining ending Retained Earnings on the Statement of Retained Earnings. (2) Ending Retained Earnings from the Statement of Retained Earnings is then reported on the Balance Sheet. (3) Cash on the Balance Sheet is equal to the ending Cash reported on the Statement of Cash Flows.

Question 30

Creditors

Answer 30

(1) Is the company generating enough cash to pay what it owes? (2) Does the company have enough assets to cover its liabilities?

Question 31

Investors

Answer 31

(1) What is the immediate return on my contributions? | (2) What is the long term return (through stock price increases resulting from the company's profits)?

Question 32

External Financial Reporting Main Goal:

Answer 32

Provide useful information to external users for decision making

Question 33

When faced with an ethical dilemma?

Answer 33

(1) Identify who will be affected by the situation (2) Identify and evaluate the alternative course of action. (3) Choose the alternative that is the most ethical.