Chapter 11 (11.1-11.4)

Question 1

Accounting

Answer 1

a comprehensive system for collecting, analyzing, and communicating financial information

Question 2

Bookkeeping

Answer 2

recording accounting transactions

Question 3

Accounting Information System (AIS)

Answer 3

organized procedure for identifying, measuring, recording, and retaining financial information

Question 4

Controller

Answer 4

head of the A I S
ensures that the accounting system provides the reports and statements needed for planning, controlling and decision-making

Question 5

Financial Accounting

Answer 5

keeps external parties informed about the firm’s financial condition

Question 6

Managerial Accounting

Answer 6

directed at internal parties (managers)
provides information to facilitate planning, forecasting, and decision-making

Question 7

Professional Accountants
chartered accountants (C A)
certified general accountants (C G A)
certified management accountants (C M A)
equals

Answer 7

Unification
Chartered Professional Accountant (C P A)

Question 8

Asset

Answer 8

anything of economic value owned by a firm or individual

Question 9

Liability

Answer 9

any debt owed by a firm or an individual

Question 10

Owners’ Equity

Answer 10

any positive difference between a firm’s assets and liabilities

Question 11

Double-Entry Bookkeeping System

Answer 11

all transactions are entered in two ways, showing how they impact assets and liabilities

Question 12

Financial statements

Answer 12

reflect the activity and financial condition of a company
Balance Sheets
Income Statements
Statements of Cash Flow

Question 13

Balance Sheets

Answer 13

provide detailed information about the accounting equation factors
Assets
Liabilities
owner’s equity
show a firm’s financial condition at one point in time

Question 14

Current Assets

Answer 14

Cash and assets that can be converted into cash within the year
Accounts receivable - amounts owed to the firm by customers
Inventory - cost of merchandise acquired for sale but not yet sold
Prepaid expenses - supplies on hand and rent (other bills) paid for coming period

Question 15

Fixed Assets

Answer 15

have a long-term use or value

Question 16

Intangible Assets

Answer 16

non-physical assets with economic value (difficult to calculate)

Question 17

Goodwill

Answer 17

the amount paid for an existing business beyond the value of its other assets

Question 18

Income Statement

Answer 18

sometimes called a profit-and-loss statement
description of revenues and expenses that shows the firm’s annual profit or loss

Question 19

Operations

Investments

Financing

Answer 19

Operations
cash flows from buying and selling of goods and services

Investments
cash flows from investment activities

Financing
cash flows from financing activities

Question 20

Revenue Recognition

Answer 20

the formal recording and reporting of revenues in financial statements once the earnings cycle is completed

Question 21

Matching

Answer 21

expenses will be matched with revenues to show net income for an accounting period

Question 22

Budget

Answer 22

a detailed financial plan of estimated receipts and expenditures for a future period

Question 23

Solvency Ratios

Answer 23

Short Term
current ratio (current assets/current liabilities)
Long Term
debt to equity ratio (debt/owner’s equity)
leverage

Question 24

Profitability Ratios

Answer 24

Return on Equity
net income/total owner’s equity
Return on Sales
net income/sales revenue
Earnings per Share
net income/number of common shares outstanding