Chapter 1 Terminology

Question 1

Accounting

Answer 1

An information and measurement system that identifies, records, and communicates and organizations business activities.

Question 2

Recordkeeping/bookkeeping

Answer 2

The recording of transactions and events

Question 3

Financial accounting

Answer 3

Focuses on the needs of external users

Question 4

Managerial accounting

Answer 4

Focuses on the needs of internal users

Question 5

External users

Answer 5

Do not directly run the organization;

non-managerial employees, lenders (creditors), shareholders (investors), and customers.

Question 6

Internal users

Answer 6

Directly run the organization;

HR managers, production managers, etc.

Question 7

Data analytics

Answer 7

Process of analyzing data to identify meaningful relations and trends

Question 8

Data visualization

Answer 8

Graphical presentation of data to help people understand their significance.

Question 9

Internal controls

Answer 9

Procedures to protect assets, ensure reliable accounting, promote efficiency, and uphold company policies.

Question 10

Auditors

Answer 10

Verify the effectiveness of internal controls

Question 11

Financial accounting is governed by concepts and relies known as…

Answer 11

GAAP; Generally accepted accounting principles - they want information to have relevance and faithful representation.

Question 12

Who is given the task of setting GAAP from the Securities and Exchange Commission (SEC)?

Answer 12

The financial accounting standards board (FASB)

Question 13

The _______ issues ________ that identify preferred accounting practices.

Answer 13

1) international accounting standards board (IASB)

2) international financial reporting standards (IFRS)

Question 14

The FASB conceptual framework consists of the following:

Answer 14

1) objectives
2) qualitative characteristics
3) elements
4) recognition and measurement

Question 15

There are 4 general accounting principles:

Answer 15

1) measurement principle (cost principle)
2) revenue recognition principle
3) expense recognition principle (matching principle)
4) full disclosure principle

Question 16

There are 4 accounting assumptions:

Answer 16

1) going-concern assumption
2) monetary unit assumption
3) time period assumption
4) business entity assumption

Question 17

The _______ or ________, says that information disclosed by an entity must have benefits to the user that are greater than the costs of providing it.

Answer 17

The cost-benefit constraint, or cost constraint.

Question 18

Assets

Answer 18

Resources a company owns or controls

Question 19

Liabilities

Answer 19

Creditors claims on assets

Question 20

Equity

Answer 20

The owners claim on assets and is equal to assets minus liabilities.

Question 21

Accounting equation:

Answer 21

Assets = liabilities + equity

Question 22

Expanded accounting equation

Answer 22

Assets = Liabilities + Contributed Capital + Beginning Retained Earnings + Revenue- Expenses - Dividends.

Question 23

Common stock

Answer 23

Contributed Capital: Reflects inflows of cash and other net assets.

Question 24

Dividends

Answer 24

Contributed capital; Outflows of cash

Question 25

Revenues

Answer 25

Retained earnings; increase equity

Question 26

Expenses

Answer 26

Retained earnings; decrease equity

Question 27

External transactions

Answer 27

Exchanges of value between two entities, which cause changes in the accounting equation.

Example: sale of AppleCare Protection Plan by Apple.

Question 28

Internal transactions

Answer 28

Exchanges within an entity, which may or may not affect the accounting equation.

An example; target’s use of its supplies.

Question 29

Events

Answer 29

Happenings that affect the accounting equation and are reliably measured.

Question 30

Net income

Answer 30

Occurs when revenues exceed expenses.

Question 31

Net loss.

Answer 31

Occurs when expenses exceed revenues.

Question 32

3 factors that push a person to commit fraud:

Answer 32

Opportunity, pressure, rationalization