Chapter One

Question 1

Accounting

Answer 1

set of concepts and techniques that are used to measure and report financial information about an economic unit

Question 2

Financial accounting

Answer 2

external reporting to parties outside the firm

follow GAAP

Question 3

managerial accounting

Answer 3

providing information for internal management

Question 4

historical cost principle

Answer 4

The historical cost principle is based on the concept that it is best to report certain financial statement elements at amounts that are tied to objective and verifiable past transactions

Question 5

Assets

Answer 5

economic resources of the entity, and include such items as cash, accounts receivable (amounts owed to a firm by its customers), inventories, land, buildings, equipment, and even intangible assets like patents and other legal rights. Assets entail probable future economic benefits to the owner.

Question 6

Liabilities

Answer 6

amounts owed to others relating to loans, extensions of credit, and other obligations arising in the course of business. Implicit to the notion of a liability is the idea of an “existing” obligation to pay or perform some duty

Question 7

Owners’ equity

Answer 7

Net assets

equivalent to assets minus liabilities

Question 8

dividends

Answer 8

distributions to shareholders as a return on their investment
reduce retained earnings

Question 9

retained earnings

Answer 9

The excess of a corporation’s income over its dividends

income of b that has not been distributed to owners

Question 10

owner investments

Answer 10

Resources provided to an organization by a person in exchange for a position of ownership in the organization

Question 11

balance sheet

Answer 11

Specific date

A financial statement that presents a firm’s assets, liabilities, and owners’ equity at a particular point in time

focuses on the accounting equation by revealing the economic resources owned by an entity and the claims against those resources (liabilities and owners’ equity).

Question 12

Asset=

Answer 12

liabilities + stockholder’s equity

Question 13

work done with promise to pay

Answer 13

add to AR

add to Retained earnings

Question 14

pay $ for expenses

Answer 14

minus from cash

minus from retained earnings

Question 15

Income =

Answer 15

Revenue - expenses

Question 16

Revenue

Answer 16

“top line” amount corresponding to the total benefits generated from business activity

Question 17

Income

Answer 17

“bottom line” amount that results after deducting expenses from revenue.

Question 18

Income Statement

Answer 18

A summary of an entity’s results of operation for a specified period of time
provides information about revenues generated and expenses incurred
single or multiple step approach

Question 19

net income or net loss

Answer 19

difference between the revenues and expenses

on income statement

Question 20

statement of retained earnings

Answer 20

succinct reporting of these changes in retained earnings from one period to the next. In essence, the statement is nothing more than a reconciliation or “bird’s-eye view” of the bridge between the retained earnings amounts appearing on two successive balance sheets.

A financial statement that discloses changes in retained earnings during a designated period of time; those changes usually attributable to income and dividends

Question 21

Shareholder dividends decrease

Answer 21

retained earnings

Question 22

Statement Of Cash Flows

Answer 22

details the enterprise’s cash flows.

reveals how cash is generated and expended during a specific period of time

three unique sections that isolate the cash inflows and outflows attributable to

(a) operating activities, cash
(b) investing activities, purchase
(c) financing activities. payment of dividends

Question 23

balance

Answer 23

Income Statement net income to
Statement of Retained earnings retained earnings to
Balance Sheet

Question 24

Asset

Answer 24

The economic resources owned by an entity; entailing probable future benefits to the entity

Question 25

Liabilities

Answer 25

Amounts owed by an entity to others

Question 26

Revenue

Answer 26

Inflows and other benefits received in exchange for the providing of goods and services

Question 27

Expense

Answer 27

The costs incurred in producing revenues

Question 28

Equation for Ending Equity

Answer 28

Beginning Equity +
Stock Issuances -
Dividends +
Net Income =
Ending Equity

Total Equity - beg e - ending e