Chapter 11

Question 1

Define accounting

Answer 1

A comprehensive information system in analyzing, collecting, and communicating financial information. Measures business performance, translating them into info for management decisions

Question 2

Bookkeeping

Answer 2

Process of keeping records of transactions such as taxes paid, incomes and expenses.

Question 3

Accounting information system (AIS)

Answer 3

Ensuring that financial information is reliable and consistent, so that they can be used in accounting statements and management reports.

Question 4

Controller (Chief accounting officer)

Answer 4

Ensures the AIS provides the correct reports for planning, decision-making, and other management activities

Question 5

Which group does the financial accounting system serve?

Answer 5

External groups, such as consumers, unions, stockholders, and government agencies

Question 6

Which group does the managerial accounting serve?

Answer 6

Internal users, such as managers, employees, salespeople, and purchasing agents

Question 7

Which three accounting organizations in Canada help to certify accounting professionals? (united to make which group?)

Answer 7

Chartered accountant (CA)
Certified management accountant (CMA)
Certified general accountant (CGA)
(Chartered professional accountant (CPA))

Question 8

What do chartered accountants (CA) do?

Answer 8

Half work in CA firms, half work in government/industry.

Certify the validity of a company’s financial information for external parties (stakeholders, lenders, etc)

Question 9

What do certified general accountant (CGA) do?

Answer 9

Most work in private firms, few working CGA/CA firms.

Also on external financial reporting, emphasizing the use of computers.

Question 10

What do certified management accountant (CMA) do?

Answer 10

Work in all types of organizations.
Combines and analyze both financial and non-financial info to help companies stay competitive. Bring accountants into the planning and overall strategy process of the firm.

Question 11

Audit

Answer 11

One of the services accountants provide

Making sure a company’s AIS is following certain accounting rules.

Question 12

Generally accepted accounting principles (GAAP)

Answer 12

Standard set of accounting rules that each nation had its own version of

Question 13

International financial reporting standards (IFRS)

Answer 13

To accommodate the globalizing economy, more than 140 countries adopted this “global GAAP”

Question 14

Forensic accountants

Answer 14

“detective accountants”, assist in the investigation of business and financial issues that may conflict to a court of law.

Question 15

Tax services

Answer 15

One of the services accountants provide

Preparing tax returns and assisting with tax planning

Question 16

Management consulting services

Answer 16

One of the services accountants provide

Range from personal financial planning to planning corporate mergers

Question 17

Private accountants

Answer 17

Salaried employees that deal with day-to-day company accounting needs.
Large businesses require several for specialized areas, while smaller firms can have one deal with all of the work

Question 18

What is the accounting equation

Answer 18

Assets = Liabilities +Owners’ equity

Question 19

Asset & Liability

Answer 19

Asset: any economic resource that is expected to benefit a firm/individual that owns it
Liability: debt that the firm owes to an outside party

Question 20

Owner’s equity

Answer 20

Amount of money that owner would receive if they sold all the company’s assets and paid of its liabilities

Question 21

Two sources that make up Owner’s equity

Answer 21

1. Amount the owner originally invested

2. Profits earned by and reinvested in the company

Question 22

What are the three important financial statements?

Answer 22

Balance sheets
Income statements
Statements of cash flows

Question 23

Balance sheets

Answer 23

Supplies detailed info about assets, liabilities, and owners’ equity

Question 24

Current assets (liquidity)

Answer 24

Cash, and assets that can be converted into cash within a year. (The ease of converting assets into cash)

Question 25

Fixed assets

Answer 25

Assets of long term use or value. i.e., land, buildings, and equipment.

Question 26

Depreciation

Answer 26

Determining an asset’s useful life in years, dividing its worth by that many years, and then subtracting the resulting amount each year

Question 27

Intangible assets

Answer 27

Cost of obtaining rights or privileges such as patents, trademarks, copyrights, and franchise fees

Question 28

Goodwill

Answer 28

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

Question 29

Current liabilities

Answer 29

Debts that must be paid within one year

Question 30

Long-term liabilities

Answer 30

Debts that are not due for at least one year

Question 31

Retained earning

Answer 31

Profits, which could have been distributed to shareholders, are kept instead for the use by the company

Question 32

Income statement

Answer 32

Describes revenues and expenses in a way that it results in a figure showing the firm’s annual profit or loss
(three major categories: revenues, cost of goods sold, and operating expenses)

Question 33

Revenues & Revenue recognition

Answer 33

Funds that flow into a business from the sale of goods or services
Formal recording and reporting of revenues in financial statements

Question 34

Cost of goods sold

Answer 34

Costs of obtaining materials to make the products sold during the year

Question 35

Calculating gross profit (or gross margin)

Answer 35

Revenues - cost of goods sold

Question 36

Operating expenses

Answer 36

Resources that must flow out of a company for it to earn revenues

Question 37

1. Selling expenses

2. General and administrative expenses

Answer 37

1. activities related to selling the firm’s goods or services (i.e., salaries for the sales force, delivery costs, etc)
2. expenses related to the general management of the company, such as management salaries, insurance, etc.

Question 38

Operating income (Net income)

Answer 38

Income before tax, calculated by comparing gross profit against operating expenses (Operating income-income taxes)

Question 39

Statement of cash flows

Answer 39

Describes a company’s yearly cash receipts and cash payments

Question 40

Three cash flow activities

Answer 40

1. Cash flow from operations
2. Cash flow from investing
3. Cash flow from financing

Question 41

Budget

Answer 41

Detailed report on estimated receipts and expenditures for a future period, usually a year. Only shared within the company, carrying an “internal financial statement” title.