Chapter 8

Question 1

Accounting

Answer 1

A system for recognizing, organizing, analyzing, and reporting information about the financial transactions that affect an organization.

Question 2

Key users of Accounting information:

Answer 2

1. Managers:
2. Stockholders
3. Employees
4. Creditors
5. Suppliers
6. Government Agencies

Question 3

Managers

Answer 3

Marketing managers need info on sales in various regions and for various product lines. Financial managers need up to date facts about debt, cash, inventory, and capital.

Question 4

Stockholders

Answer 4

As owners of the company, most stockholders have keen interest in the company’s financial performance.

Question 5

Employees

Answer 5

Strong financial performance would help employees make their case for nice pay raises and hefty bonuses. Weak financial performance could mean layoffs

Question 6

Creditors

Answer 6

Bankers and other lenders will want to assess a firm’s creditworthiness by looking at its accounting statements before granting a loan.

Question 7

Suppliers

Answer 7

They would like to make sure the company can pay for the order it places.

Question 8

Government Agencies

Answer 8

Accurate information is required for meeting the requirements for the IRS and other federal and state agencies.

Question 9

Management Accountants:

Answer 9

Work within an organization, preparing reports and analyzing financial information specific to that organization. Develop budgets, cost management, performance appraisal, and asset management. They often prepare reports for managers and financial statements for owners and other stakeholders. They help a firm improve its performance by identifying areas where mismanagement, waste, and fraud may exist.

Question 10

Public Accountants:

Answer 10

Provide a broad range of accounting and consulting services to clients on a fee basis. Clients may be individuals, corporations, non-profit orgs or government agencies. Typical services include income tax preparation, external auditing services, and consultation on a variety of accounting issues and problems. They often help new companies design their accounting systems and procedures and mature companies update and improve their accounting systems.

Question 11

Government Accountants:

Answer 11

Work for a wide variety of government agencies at the local, state, and federal levels. Ensure that government agencies properly manage and account for the public funds they use. Others are employed by government regulatory agencies to audit the finances of private firms or individuals to ensure that government regulations are met and that all appropriate taxes are paid.

Question 12

Financial Accounting

Answer 12

The branch of accounting that prepares financial statements for use by owners, creditors, suppliers, and other external stakeholders.

Question 13

Generally Accepted accounting principles

Answer 13

A set of accounting standards that is used in the preparation of financial statements.

Question 14

Financial Accounting Standards Board:

Answer 14

The private board that establishes the generally accepted accounting principles used in the practice of financial accounting.
Also ensures that financial statements are: relevant, reliable, and consistent.

Question 15

Financial Accounting Standards Board:

Answer 15

The private board that establishes the generally accepted accounting principles used in the practice of financial accounting.
Also ensures that financial statements are: relevant, reliable, consistent and comparable.

Question 16

What are the 3 Financial Statements:

Answer 16

1. Balance Sheet
2. Income Statement
3. Statement of Cash Flows

Question 17

What can be found in an Income Statement?

Answer 17

1. Assets
2. Liabilities
3. Owner’s Equity

Question 18

Assets

Answer 18

1. Current Assets = cash and other assets the firm expects to use up or convert into cash within a year

2, Property, plant, and equipment is the other category of assets. Stuff the firm owns.

Question 19

Current Liabilities

Answer 19

debts that are due within a year of the date on the balance sheet

Question 20

Long-Term Liabilities

Answer 20

debts that don’t come due until more than a year after the date on the balance sheet.

Question 21

Owner’s Equity

Answer 21

Claims the owners have against their firm’s assets. For corporations, stocks are the key owners’ equity.

Question 22

Balance sheets are organized to reflect the accounting equation:

Answer 22

Assets = Liabilities + Owners’ Equity

Question 23

What can be found in an Income Statement?

Answer 23

1. Revenue
2. Expenses
3. Net-Income

Question 24

Revenue

Answer 24

Increases in a firm’s assets that result from the sale of goods, provision of services, or other activities intended to earn income.

Question 25

Accrual-Basis Accounting

Answer 25

Method of accounting that recognizes revenue when it is earned and matches expenses to the revenues they helped produce.

Question 26

Expenses

Answer 26

Resources that are used up as the result of business operations.

Question 27

Net-income

Answer 27

The difference between the revenue a firm earns and the expenses it incurs in a given time period.

Question 28

Statement of cash flows

Answer 28

Identifies a firm’s sources and uses of cash in a given accounting period.

Question 29

Cash flows from _____:

Answer 29

1. Operating Activities 2. Investing Activities 3. Financing Activities

Question 30

Operating Activities

Answer 30

1. Amount of cash that flowed into the company from the sale of goods or services 2. cash from dividends and interest received from ownership of the financial securities of other firms

Question 31

Investing Activities

Answer 31

Cash received from the sale of fixed assets (such as land and buildings) and financial assets bought as long-term investments.

Question 32

Financing Activities

Answer 32

Cash received from issuing additional shares of its own stock or from taking out long term loans.

Question 33

Sarbanes-Oxley Act of 2002

Answer 33

law that banned business relationships that might create conflicts of interest between CPA firms and the companies they audit.

Question 34

Managerial Accounting

Answer 34

Branch of accounting that provides reports and analysis to managers to help them make informed business decisions.

Question 35

Operating Budgets

Answer 35

Budgets that communicate an organization's sales and production goals and the resources needed to achieve these goals.

Question 36

Financial Budgets

Answer 36

Budgets that focus on the firm’s financial goals and identify the resources needed to achieve these goals.

Question 37

Master Budgets

Answer 37

A presentation of an organization’s operational and financial budgets that represents the firm’s overall plan of action for a specified time period.