Mod 8

Question 1

Accounts payable

Answer 1

An obligation to pay a short term debt to a company’s creditors or suppliers

Appears in current liabilities section of the balance sheet

Question 2

Accounts receivable

Answer 2

Money owed to a business by customers for goods or services delivered

Appears in current assets section of the balance sheet

Question 3

Adverse opinion

Answer 3

Auditor’s opinion that a firm’s financial statements do not accurately reflect its financial performance and health

Question 4

Assets

Answer 4

Resources owned by a company that will provide future economic benefits

Question 5

Asymmetric info

Answer 5

Potential lenders, customers, investors, and unions have poorer info about the true economic viability of companies than do the managers

Question 6

Auditor

Answer 6

A person, typically a certified public account, authorized to review and comment on a company’s accounting system and financial statements

Question 7

Auditor’s report

Answer 7

A written opinion of an independent external auditor that attests to the fairness of the financial statements and their conformance with generally accepted accounting principles

Question 8

Balance sheet

Answer 8

A financial statement that reports that assets, liabilities, and stakeholders equity of a business as of a specific date

The sheet reports the cumulative financial impact of the business over the many years it has operated

Question 9

Basic accounting equation

Answer 9

Assets = liabilities + equity

Question 10

Certified public accountant

Answer 10

An accountant that has a professional qualification and is licensed to perform audits

Question 11

Common stock

Answer 11

A balance sheet term used to describe the total amount invested in the company by stockholders in return for shares of the business

Question 12

Equity

Answer 12

The portion of the balance sheet that represents the owner’s claim to the residual interest in the business (assets - liabilities)

Question 13

Expenses

Answer 13

Costs that are matched with revenues on the income statement

Question 14

External users

Answer 14

Individuals or entities that are not directly involved with running the business

Investors, creditors, taxing authorities, customers, labor unions, regulatory agencies

Question 15

Financial accounting standards board

Answer 15

Primary accounting standard setting body in the US

Question 16

Financial accounting

Answer 16

Type of accounting concerned with the preparation of financial statements for external users

Must conform with GAAP

Question 17

Financing activities

Answer 17

Actions a company takes to raise funds to finance its long term investments by issuing stock or debt

Question 18

Generally accepted accounting principles

Answer 18

A common set of accounting rules, standards, and practices defined by standard setting bodies that public companies must use to compile and report their financial statements

Question 19

Going concern

Answer 19

A basic accounting assumption that a company will continue operating for a period of time that is sufficient to carry out its objectives and obligations

Question 20

Income statement

Answer 20

A financial statement that reports the revenues and expenses and the resulting net income or loss of a company for a specific financial reporting period

Question 21

Intangible assets

Answer 21

Assets that have non physical form such as copyrights, patents, trademarks, and other IP

Question 22

Internal users

Answer 22

Managers who use info to plan, organize, and run a business

Question 23

Investing activities

Answer 23

Purchase of long term assets a company needs to operate

Question 24

Liability

Answer 24

Company’s legal debts or obligations owed to creditors that arise over the course of business operations

Question 25

Managerial (cost) accounting

Answer 25

Type of accounting used by company management to run ongoing operations Is company specific and focuses on internal users of financial information Cost accounting does not have to conform with GAAP

Question 26

Net income

Answer 26

Revenue - expenses

Question 27

Net loss

Answer 27

Results when expenses > revenues

Question 28

Notes to financial statement

Answer 28

Supplemental info added to the end of financial statements to clarify and expand upon info presented in the financial statements

Question 29

Operating activities

Answer 29

A company’s core business activities such as manufacturing, distributing, marketing, and selling a good or service

Question 30

Property, plant, and equipment

Answer 30

Long term tangible assets reported on the balance sheet that typically have a life longer than a year Land, buildings, machinery, office furniture, and vehicles

Question 31

Qualified opinion

Answer 31

Auditor’s opinion that the financial statements may not be complete or the methods used by the company do not comply with GAAP

Question 32

Retained earnings

Answer 32

Portion of net income retained by the corporation rather than distributed to shareholders as dividends

Question 33

Revenue

Answer 33

Increase in assets, usually cash and accounts receivable that results from sale of goods or services during normal course of business

Question 34

Sarbanes Oxley act

Answer 34

Act passed by congress in 2002 to protect investors from possibility of fraudulent accounting activities by corporations

Question 35

Statement of cash flows

Answer 35

A financial statement that reports on the cash inflows and outflows due to the operating, financing, and investing activities of a business for a specific financial reporting period

Question 36

Statement of retained earnings

Answer 36

A financial statement that reports the changes in retained earnings for a specific financial reporting period

Question 37

Tangible assets

Answer 37

Assets reported on the balance sheet that have a physical form

Question 38

Tax accounting

Answer 38

Type of accounting that focuses on tax issues faced by corporations IRS governs accounting

Question 39

Unqualified opinion

Answer 39

Auditor’s judgment that a company’s financial statement comply with GAAP and that the financial statements give a fair view of the financial position of the company