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Question 1

Primary functions of accounting

Answer 1

Measure the activities of a company and communicate those measurements to help individuals make good decisions

Question 2

Corporation

Answer 2

company that is legally separate from its owners

Question 3

Sole proprietorship

Answer 3

business owned by one person

Question 4

Partnership

Answer 4

business owned by two or more

Question 5

income statement

Answer 5

reports the company’s revenues and expenses over an interval of time

Question 6

Statement of stockholders equity

Answer 6

summarizes the changes in stockholders’ equity over an interval of time

Question 7

Balance sheet

Answer 7

presents the financial position of the company on a particular date

Question 8

statement of cash flows

Answer 8

measures activities involving cash receipts and cash payments over an interval of time

Question 9

6 steps in measuring external transactions

Answer 9

1 use source documents to identify accounts affected by an external transactions
2 analyze the impact of the transaction on the accounting equation
3 assess whether the transaction results in a debit or credit to account balances
4 record the transaction in a journal using debits and credits
5 post the transaction to the general ledger
6 prepare a trial balance

Question 10

Debits

Answer 10

left-hand side accounts
Dividend, expense, asset (DEA)

Question 11

Credits

Answer 11

right hand side accounts
Liability, owner’s equity, revenue (LOR)

Question 12

Accrual basis accounting

Answer 12

record transactions in the period in which the economic event actually occurs
revenue: The performance obligation is satisfied, meaning the goods are delivered or services are performed
Expenses must match the revenue they help generate. when they contribute to earning revenue

Question 13

Cash basis accounting

Answer 13

record revenues only when cash is received; record expenses only when cash is paid

Question 14

Accural basis accounting recordings

Answer 14

Assets - the time those resources are obtained
Liabilities - the time those obligations occur
Revenues - the time goods and services are provided to customers
Expenses - the time costs are used in running the company

Question 15

Accounts that need to be adjusted

Answer 15

Prepaid expenses
Deferred revenues
Accrued expenses
Accrued revenues

Question 16

Accrued expenses

Answer 16

occur when a company incurs costs, such as salaries, by the end of the current period but will not pay those salaries until the following period
Aje needed to record salaries payable for the amt to be paid and to recognize salaries exp

Question 17

Accrued revenues

Answer 17

occur when a company provides goods and services and therefore generates the right to receive cash from a customer
Aje to record the amount receivable and to recognize revenue, even though that cash wont be received until a future period

Question 18

Prepaid expenses

Answer 18

Prepaid expenses arise when a company pays cash (or has an obligation to pay cash) to acquire an asset that is not used until a later period
purchase of buildings, equipment, supplies, rent in advance
AJE is needed to decrease the asset’s balance to its remaining unused amt and recognize an expense for the cost of asset used

Question 19

Depreciable assets

Answer 19

the process of allocating the cost of an asset, such as equipment, to expense over the asset’s useful life

Question 20

Deferred revenues

Answer 20

arise when a company receives cash in advance from customers, but products and services won’t be provided until a later period

Question 21

Key point about AJE

Answer 21

needed when cash flows or obligations occur before the revenue- or expense -related activity (prepayment) or when cash flows occur after the revenue- or expense-related activity (accural)

Question 22

Temporary accounts

Answer 22

revenues, expenses, and dividends
Transfer to RE

Question 23

closing revenue

Answer 23

credit income summary + debit revenue, -> transfer income summary to RE

Question 24

closing expense

Answer 24

debit income summary + credit expense -> transfer income summary to RE

Question 25

closing dividends

Answer 25

debit RE -> credit dividend, do NOT transfer to income summary

Question 26

Invested capital

Answer 26

The amount of money paid into a company by its owners

Question 27

Stockholder rights

Answer 27

Right to vote, right to receive dividends, and the right to share in the distribution of assets if the company is dissolved

Question 28

Advantages of corporation

Answer 28

Limited liability Ability to raise capital and transfer ownership

Question 29

Disadvantages of corporation

Answer 29

Additional taxes Double taxation: corporate incomed taxed once on earnings at the corporate level and again on the dividend level More paperwork

Question 30

Different types of shares

Answer 30

Authorized stock Issued stock

Question 31

types of issues stock

Answer 31

Outstanding stock: the number of issued shares held by investors. Only these shares receive dividends Treasury stock: the number of issued shares repurchased by the company, Not an asset, decrease in SHE

Question 32

Par value

Answer 32

the legal capital per share of stock that’s assigned when the corporation is first established

Question 33

Additional paid in capital

Answer 33

the portion of the cash proceeds from issuing stock above par value

Question 34

Preferred stock

Answer 34

“preferred over CS” Preferred stockholders usually have first rights to a specific amount of dividends most preferred stock does not have voting rights

Question 35

Earned capital

Answer 35

The net assets of the company that have been earned for the stockholders rather than invested by the stockholders

Question 36

Different between SHE in balance sheet and the statement of stockholder’s equity

Answer 36

Balance sheet: Preferred stock, common stock, APIC, RE, treasury stock, accumulated other comprehensive income Statement of stockholders equity: Summarizes the changes in the balance in each account over time

Question 37

Return on equity

Answer 37

the ability of company management to generate profits from the resources provided by owners Net income / avg stockholders equity

Question 38

Dividend yield

Answer 38

dividends per share/stock price

Question 39

earnings per share

Answer 39

net income - dividends on preferred stock / avg shares of CS outstanding

Question 40

Price earnings ratio

Answer 40

how the stock is trading relative to current earnings Stock price/ earnings per share