Chapter 17 Accounting Part of Final

Question 1

What is accounting?

Answer 1

The recording, classifying, summarizing, and interpreting of financial events and transactions to provide management and other interested parties the information they need to make good decisions.

Question 2

Who are outside parties that utilize a firm’s accounting information?

Answer 2

• Employees
• Owners
• Creditors
• Unions
• Investors
• Government

Question 3

What is the accounting cycle?

Answer 3

A six-step procedure that results in the preparation and analysis of the major financial statements.

Question 4

What is double-entry bookkeeping?

Answer 4

The practice of writing every business transaction in two places to ensure accuracy.

Question 5

What is a ledger?

Answer 5

A specialized accounting book or computer program in which information from accounting journals is accumulated into specific categories.

Question 6

What is a trial balance?

Answer 6

A summary of all the financial data in the account ledgers that ensures the figures are correct and balanced.

Question 7

How do computerized accounting programs benefit businesses?

Answer 7

They post information instantly and from remote locations.

Question 8

List the key financial statements of a business.

Answer 8

• Balance sheet
• Income statement
• Statement of cash flows

Question 9

What is the fundamental accounting equation?

Answer 9

Assets = Liabilities + Owners Equity

Question 10

What does a balance sheet report?

Answer 10

A firm’s financial condition at a specific time, composed of assets, liabilities, and owners’ equity.

Question 11

Define assets.

Answer 11

Economic resources (things of value) owned by a firm; items can be tangible or intangible.

Question 12

What are the three categories of assets?

Answer 12

• Current assets
• Fixed assets
• Intangible assets

Question 13

What are liabilities?

Answer 13

What the business owes to others (debts).

Question 14

What are examples of common liability accounts?

Answer 14

• Accounts payable
• Notes payable
• Bonds payable

Question 15

Define owners’ equity.

Answer 15

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

Question 16

What is retained earnings?

Answer 16

The accumulated earnings from a firm’s profitable operations that were reinvested in the business.

Question 17

What does an income statement show?

Answer 17

A firm’s profit after costs, expenses, and taxes.

Question 18

What is net income?

Answer 18

Revenue left over after all costs and expenses, including taxes, are paid.

Question 19

What is cost of goods sold?

Answer 19

A measure of the cost of merchandise sold or cost of raw materials and supplies used for producing items for resale.

Question 20

What is depreciation?

Answer 20

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

Question 21

What does the statement of cash flows report?

Answer 21

Cash receipts and disbursements related to a firm’s three major activities.

Question 22

List the three major activities of a firm.

Answer 22

• Operations
• Investments
• Financing

Question 23

What is cash flow?

Answer 23

The difference between cash coming in and cash going out of a business.

Question 24

What is ratio analysis?

Answer 24

The assessment of a firm’s financial condition using calculations and interpretations of financial ratios.

Question 25

What are key ratios in ratio analysis?

Answer 25

* Liquidity ratios * Leverage (debt) ratios * Profitability (performance) ratios * Activity ratios

Question 26

What do liquidity ratios measure?

Answer 26

A firm's ability to turn assets into cash to pay its short-term debts.

Question 27

What do leverage ratios measure?

Answer 27

The degree to which a firm relies on borrowed funds in its operations.

Question 28

What do profitability ratios measure?

Answer 28

How effectively a firm’s managers are using the firm’s various resources to achieve profits.

Question 29

What do activity ratios measure?

Answer 29

How effectively management is turning over inventory.

Question 30

Define financial accounting.

Answer 30

Accounting information and analyses prepared for people outside the organization.

Question 31

What is the purpose of an annual report?

Answer 31

A yearly statement of the financial condition, progress, and expectations of an organization.

Question 32

What is a private accountant?

Answer 32

An accountant who works for a single firm, government agency, or nonprofit organization.

Question 33

What is a certified public accountant (CPA)?

Answer 33

An accountant who passes a series of examinations established by the AICPA.

Question 34

What is managerial accounting?

Answer 34

Accounting used to provide information and analyses to managers within the organization.

Question 35

What is the purpose of auditing?

Answer 35

To review and evaluate the information used to prepare a company’s financial statements.

Question 36

Define tax accounting.

Answer 36

An accountant trained in tax law and responsible for preparing tax returns or developing tax strategies.

Question 37

What is government and not-for-profit accounting?

Answer 37

An accounting system for organizations whose purpose is not generating a profit but serving ratepayers, taxpayers, and others.

Question 38

5 Key Working Areas in the Accounting Profession:

Answer 38

1. Financial accounting 2. Auditing 3. Government & not for profit 4. Managerial accounting 5. Tax accounting