Exam 1: Ch. 1 & 2 Vocabulary

Question 1

business owned by 2 more more persons

Answer 1

partnership

Question 2

difference between revenues and expenses

Answer 2

net income

Question 3

users must understand the information within the context of the decision they are making

Answer 3

understandability

Question 4

accounting information that possesses confirmatory value and/or predictive value, and that is material

Answer 4

relevance

Question 5

the economic life of an enterprise (presumed to be indefinite) can be divided into artificial time periods for financial reporting

Answer 5

periodicity assumption

Question 6

the ability of users to see similarities and differences between two different business activities

Answer 6

comparablity

Question 7

an entity that is legally separate from its owners

Answer 7

corporation

Question 8

in the absence of information to the contrary, a business entity will continue to operate indefinitely

Answer 8

going concern assumption

Question 9

the standards being developed and promoted by the IASB

Answer 9

IFRS (International Financial Reporting Standards)

Question 10

the use of similar accounting procedures either over time for the same company, or across companies at the same point in time

Answer 10

consistency

Question 11

a business owned by one person

Answer 11

sole proprietorship

Question 12

a unit or scale of measurement can be used to measure financial statement elements

Answer 12

monetary unit assumption

Question 13

financial accounting information is provided only when the benefits of doing so exceed the costs

Answer 13

cost constraint

Question 14

distributions to stockholders, typically in the form of cash (not considered an expense in running a business)

Answer 14

dividends

Question 15

all economic events with a particular economic entity can be identified

Answer 15

economic entity assumption

Question 16

an international accounting standard-setting body responsible for the convergence of accounting standards worldwide

Answer 16

IASB (International Accounting Standards Board)

Question 17

a financial statement that presents the financial position of the company on a particular date

Answer 17

balance sheet

Question 18

a system of maintaining records of a company’s operations and communicating that information to decision makers

Answer 18

accounting

Question 19

trained individuals hired by a company as an independent party to express a professional opinion of the conformity of that company’s financial statements with GAAP

Answer 19

auditors

Question 20

measurement of business activities of a company and communication of those measurements to external parties for decision-making purposes

Answer 20

financial accounting

Question 21

a record of the business activities related to a particular item

Answer 21

account

Question 22

a consensus among different measurers

Answer 22

verifiability

Question 23

the ability of the information to be useful in decision making

Answer 23

decision usefulness

Question 24

an independent, private body that has primary responsibility for the establishment of GAAP in the U.S.

Answer 24

FASB (Financial Accounting Standards Board)

Question 25

a code or moral system that provides criteria for evaluating right and wrong behavior

Answer 25

ethics

Question 26

accounting information that is complete, neutral, and free from error

Answer 26

faithful representation

Question 27

the rules of financial accounting

Answer 27

GAAP (Generally accepted accounting principles)

Question 28

those who lend money to a company, expecting to be paid back the loan amount plus interest

Answer 28

creditors

Question 29

a financial statement that reports the company's revenues and expenses over an interval of time

Answer 29

income statement

Question 30

regulates auditors and the types of services they furnish to clients, increases accountability of corporate executives, addresses conflicts of interest for securities analysts, and provides for stiff criminal penalties for violators

Answer 30

SOX (Sarbanes-Oxley Act)

Question 31

information being available to users early enough to allow them to use it in the decision process

Answer 31

timeliness

Question 32

amounts recognized when the company sells products or services to customers

Answer 32

revenues

Question 33

total resources of a company (ex: cash, equipment, supplies, inventory, buildings, land, investments)

Answer 33

assets

Question 34

equation that shows a company's resources (assets) equal creditors' and owners' claims to those resources (liabilities and stockholders' equity)

Answer 34

accounting equation

Question 35

amounts invested by stockholders when they purchase shares of stock; external source of equity

Answer 35

common stock

Question 36

costs of providing products, services, and other business activities during the current period

Answer 36

expenses

Question 37

periodic reports published by the company for the purpose of providing information to external users

Answer 37

financial statements

Question 38

amounts owed to creditors (ex: loans, suppliers, employees, utility companies, taxes)

Answer 38

liabilities

Question 39

all net income minus all dividends over the life of the company; internal source of equity

Answer 39

retained earnings

Question 40

a financial statement that measures activities involving cash receipts and cash payments over an interval of time

Answer 40

statement of cash flows

Question 41

a financial statement that summarizes the changes in stockholders' equity over an interval of time

Answer 41

statement of stockholders' equity

Question 42

owners' claims to resources, which arise primarily from contributions by the owners and company operations

Answer 42

stockholders' equity

Question 43

full set of procedures used to accomplish the measurement/communication process of financial accounting

Answer 43

accounting cycle

Question 44

a list of all account names used to record transactions of a company

Answer 44

chart of accounts

Question 45

right side of an account; indicates a decrease to dividend, expense, or asset accounts and an increase to liability, stockholders' equity, or revenue accounts

Answer 45

credit

Question 46

left side of an account; indicates an increase to dividend, expense, or asset accounts and a decrease to liability, stockholders' equity, or revenue accounts

Answer 46

debit

Question 47

transactions a firm conducts with a separate economic entity (individuals and/or other companies)

Answer 47

external transactions

Question 48

a collection of each account with its individual transactions and resulting account balance

Answer 48

general ledger

Question 49

a chronological record of all transactions affecting a firm

Answer 49

journal

Question 50

the format used for recording business transactions

Answer 50

journal entry

Question 51

the process of transferring the debit and credit information from the journal to individual accounts in the general ledger

Answer 51

posting

Question 52

revenue must be recorded in the period in which goods and services are provided to customers for the amount the company is entitled to receive

Answer 52

revenue recognition principle

Question 53

a simplified form of a general ledger account with space at the top for the account title, the left side for recording debits, and the right side for recording credits

Answer 53

T-account

Question 54

a list of all accounts and their balances at a particular date, showing that total debits equal total credits

Answer 54

trial balance

Question 55

a formal document detailing a company's activities and financial performance; they also include management discussion and analysis and note disclosures

Answer 55

annual report

Question 56

management's views on significant events, trends, and uncertainties pertaining to the company's operations and resources; this is included on an annual report

Answer 56

management discussion and analysis (MD&A)

Question 57

additional info to explain the info presented in the financial statements or provide info not included in the financial statements; this is included on an annual report

Answer 57

note disclosures

Question 58

an item must be sufficient in amount or nature to affect a financial decision in order to be reported with GAAP (is it significant enough in investors’ and creditors’ decision-making process?) – ex: a multibillion-dollar company like Nike may report a $6 wastebasket as a current expense instead of a long-term asset because it has no impact on investors’ decisions

Answer 58

materiality

Question 59

Most business transactions affect only two accounts. What are transactions that affect more than two accounts called?

Answer 59

Compound transactions

Question 60

the process of transferring the debit and credit information from the journal to individual accounts in the general ledger

Answer 60

posting