Chapter 14

Question 1

what does accounting allow?

Answer 1

allows to report financial information about nonprofit organizations like churches, schools, hospitals, fraternities, and gov agencies

Question 2

what is accounting?

Answer 2

the recording, classifying, summarizing and interpreting of financial events and transactions in an organization to provide good management to make good decisions about operations

Question 3

what are the 6 steps to the accounting cycle?

Answer 3

1. analyze (source docs like sales slips or travel records)
2. record transactions in journals
3. transfer/post journal entries to ledger
4. take a trial balance
5. prepare financial statements
6. analyze financial statements

Question 4

who doe the accounting cycle rely on?

Answer 4

bookkeepers and an accountant

Question 5

how is an accountant different than a bookkeeper

Answer 5

Bookkeepers handle the day-to-day tasks of recording financial transactions, while accountants provide insight and analysis of that data and generate accounting reports.

Question 6

whats a ledger?

Answer 6

An accounting ledger is an account or record used to store bookkeeping entries for balance-sheet and income-statement transactions. Accounting ledger journal entries can include accounts like cash, accounts receivable, investments, inventory, accounts payable, accrued expenses, and customer deposits.

Question 7

whats a financial statement

Answer 7

a summary of all the financial transactions that have occured over a particular time, they indicate current health and stability

Question 8

what are the key financial statements of a business

Answer 8

1. the balance sheet (reports financial condition on a specific date)
2. the income statement (summarizes revenues, cogs, and expenses for a specific time period)
3. the statement of cash flows (provides summary of money coming into and out of the firm)

Question 9

whats the fundamental accounting equation

Answer 9

assets=liabilities + owners’ equity

Question 10

what are assets

Answer 10

economic resources (things of value) owned by a firm

Question 11

what does liquidity mean

Answer 11

the ease with which an asset can be converted to cash

Question 12

what are current assets

Answer 12

items that can or will be converted into cash within 1 year. They include cash, accounts receivable and inventory

Question 13

what are fixed assets

Answer 13

long term assets that relatively permanent like land or buildings

Question 14

what are intangible assets

Answer 14

long term assets that have no physical form but do have value like patents, trademarks, copyrights and goodwills

Question 15

what are liabilities

Answer 15

what a business owes to others (debts)

Question 16

what are current liabilities

Answer 16

debts due in one year or less

Question 17

what are long term liabilities

Answer 17

debts not due for one year or more

Question 18

what are accounts payable

Answer 18

current liabilities or bills the company owes others for merchandise or services purchased on credit but has not yet paid for

Question 19

what are notes payable

Answer 19

can be short or long term liabilities, that a business promises to repay by a certain date

Question 20

what are bonds payable

Answer 20

long term liabilities; money lent to the firm by bondholders that it must pay back

Question 21

what is equity

Answer 21

assets minus the amount of money you owe others (liabilities)

Question 22

what is stockholders equity/shareholders equity

Answer 22

value of what stockholders own in a firm - liabilities

Question 23

what is owners equity

Answer 23

the amount of the business that belongs to the owners minus any liabilities owed by the business

Question 24

whats an income statement

Answer 24

the statement that shows a firms bottom line or its profit after costs, expenses and taxes (it summarizes the revenue)

Question 25

what is financial accounting

Answer 25

accounting info and analyses prepared for people outside the company

Question 26

whats a private accountant

Answer 26

an accountant who works for a single firm, gov agency or non profit

Question 27

whats a public accountant

Answer 27

an accountant who provides accounting services to individuals or businesses on a fee basis

Question 28

whats a CPA

Answer 28

a certified public accountant: an accountant who passes a series of examinations established by the american institute of certified public accountants and meets the states requirement for education and experience

Question 29

whats the sarbanes-oxley act

Answer 29

new goc reporting standards for publicly traded companies

Question 30

what do managerial accounants do

Answer 30

provides info and analysis to managers inside the organization to help decision making

Question 31

whats a tax accountant

Answer 31

a trained person in tax law and is responsible for preparing tax returns or developing tax strategies

Question 32

whats the difference between booking and accounting

Answer 32

bookkeeping is part of accounting and includes the systematic recording of data

Question 33

gross margin equation

Answer 33

revenue-cost of goods sold

Question 34

equation for net income before taxes

Answer 34

gross margin-operating expenses

Question 35

equation for net income or loss

Answer 35

net income before taxes- taxes

Question 36

whats depreciation

Answer 36

the systematic write off of the cost of a tangible asset over its estimated useful life

Question 37

what are retained earnings

Answer 37

the accumulated earnings from a firms profitable operations that are reinvested in the business and not paid out to stockholders in dividends