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Financial Accounting, Test 1, Chapters 1-3

The economic transaction of the Accounting process; when money is exchanged. Economic event
_____ has made doing the accounting process more efficient. Computers
____ are individuals and organizations outside a company who want financial information about the company (investors & creditors). External users
___ are users within the organization that usually include management & various departments (marketing managers, production supervisors, finance directors, & company officers) Internal users
The accounting process is to ____ the economic transaction/event, ____ the economic event, and _____ the economic events of an organization to interested users. identify, record, and communicate
____ is the standard of conduct by which one's actions are judged as right or wrong, honest or dishonest. Ethics
Enron was setting up dummy corporations in different countries to boost their sells & they couldn't produce the work/money, so the company went down which informed the... Sarbanes-Oxley Act
management certify accuracy of information, serve penalties for fraudulent activity, increased independence of auditors/responsibility for board of directors;intent is to reduce unethical corporate behavior&decrease likelihood of future corporate scandal Sarbanes-Oxley Act
____is an effort to reduce differences between U.S. GAAP and IFRS to enhance comparability. Convergence
The ___ ___ ___ ____ are a common set of standards that indicate how to report economic events. Generally Accepted Accounting Principles (GAAP)
The Standard-Setting Bodies are: Securities and Exchange Commission (SEC), Public Company Accounting Oversight-Board (PCAOB), Financial Accounting Standards Board (FASB), and International Accounting Standards Board (IASB)
The ___ ___ ___ ____ (__) is the agency of the U.S. government that oversees U.S. financial markets and accounting standard-setting bodies. They’re the ones that created the SOX. Securities and Exchange Commission (SEC)
The ___ ___ ____ ____ ___ (__) determines auditing standards and reviews auditing firms. Public Company Accounting Oversight Board (PCAOB)
The ___ ___ ___ ___ (__) is the primary accounting standard-setting body in the U.S. Financial Accounting Standards Board (FASB)
The __ __ ___ ___ (__) issues international report standards (IFRS) that have been adopted by many outside of the U.S. They're trying to combine this & FASB because it will make it easier for investors to compare U.S. & foreign companies, & raise capital. International Accounting Standards Board (IASB)
The __ ___ ___ requires that the activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities. economic entity assumption
___ ___ states that only transaction data that can be expressed in terms of money is included in the accounting record. Monetary Unit
__ ___ states that activities of one entity be kept separate and distinct from all others. Economic Entity
The 3 Business Enterprises are: Proprietorship, Partnership, & Corporation
___ is a business owned by one person; you're the sole owner of the business. Proprietorship
___ is a business owned by two or more persons associated as partners. Partnership
___ is business organized as a separate legal entity under state corporation law & having divided into transferable shares of stock. Corporation
___ just involves only the recording of the economic events aka just one part of the accounting process. Bookkeeping
The 2 Measurement Principles are: Cost and Fair Value Principle
The ___ ____ dictates that companies record assets at their cost at the time the assets were purchased. Also known as historical principle. Cost Principle
The __ ___ ___ indicates that assets and liabilities should be reported at fair value; is the price received to sell an asset or settle a liability. Fair Value Principle
____ means that financial information is capable of making a difference in a decision. Relevance
___means that the numbers and descriptions match what really existed or happened – it is factual Faithful
____ are resources owned by a business. They are used in carrying out such activities as production and sales. The common characteristic possessed by all of them is the capacity to provide future services or benefits. Assets
____ are claims against assets. They are existing debts and obligations. Liabilities
__ __ is the ownership claim on total assets; it is equal to total assets - total liabilities; consist of Common Stock and Retained Earnings (Revenues, Expenses & Dividends). Stockholders' Equity
__ __ is the percentage you own in the business; is the term used to describe the total amount paid in by stockholders for the shares they purchase. Common Stock
___ are income earned, the amount of money earned for the services you provided. Revenues
___ are the decreases in stockholders' equity that result from operating the business; they are the cost of assets consumed or services used in the process of earning revenue. Expenses
___ are the distribution of cash or other assets to stockholders. Dividends
There are 4 financial statements: Income statement, Retained Earnings statement, Balance sheet, and Statement of class flow.
An ___ ___presents the revenues and expenses and resulting net income or net loss for a specific period of time. income statement
A ___ ___ ___ summarizes the changes in retained earning for a specific period of time. retained earnings statement
A __ ___ reports the assets, liabilities, and stockholders’ equity of a business enterprise at a specific date. balance sheet
A __ __ __ __ summarizes information about the cash inflow (receipts) and outflows (payments) for a specific period of time. statement of class flow
Every account consist of this and it is the basic form of accounting; it has a Title, Left/Debit side with a Debit balance (if its the positive side), and a Right/Credit side with a Credit balance (if its the positive side). T-Account
An ____ is an individual accounting record of increases and decreases in a specific asset, liability, or stockholders' equity item; every one has a normal balance. account
___ increase assets. ___ increase liabilities. Debits, Credits
The Recording Process is: ____ each transaction for its effects on the accounts, ___ the transaction information in a journal (book of original entry), and ____ the journal information to the appropriate accounts in the ledger (book of accounts). Analyze, Enter, and Transfer
A ___ ___ ___ are entries that involve only two accounts. simple journal entry
A ___ ___ __ are entries that involve more than two accounts. compound journal entry
Most companies have a __ __ ___ that lists the accounts and the account numbers, which identity their location in the ledger. chart of accounts
The ___ ___ ___ (or periodicity) assumes that the economic life of a business can be divided into artificial time periods and that useful reports covering those periods can be prepared for the business. time period assumption
__ __ are monthly and quarterly time periods. Interim periods
A ___ ___ is an accounting time period that is one year in length. fiscal year
A ___ ___ is from January 1 to December 31 that most business use. calendar year
__ ___ are required each time financial statements are prepared. Adjusting entries.
Adjusting entries for ___ are required to record revenues earned and expenses incurred in the current period. accruals
Adjusting entries for ___ are required to record the portion of it that represents either the expense incurred or the revenue earned in the current accounting period. deferrals
Adjusting entries are made in order for ___ to be recorded in the period in which they are earned and ___ to be recognized in the period in which they occurred. Revenues, Expenses
Under __ __ __, transactions that change a company's financial statements are recorded in the periods in which the events occur. accrual basis accounting
An alternative to accrual basic accounting is ___ __ __ which is when revenues are record when cash is received and expenses are recorded when cash is paid. cash basis accounting
Accruals, adjusting entry will increase both a balance sheet and an income statement account, include: accrued revenue and expenses.
__ ___ are earned but not yet received in cash/recorded; the adjusting entry increases (debits) an asset account and increases (credits) a revenue account. Accrued Revenues
__ ___ are incurred but not yet paid in cash or recorded; the adjusting entry increases (debits) an expense account and increases (credits) a liability account. Accrued Expenses
Deferrals include: prepaid expenses and unearned revenue
__ __ are paid in cash and recorded as assets before they are used or consumed; the adjusting entry increases (debits) an expense account and decreases (credits) an asset account. Prepaid Expenses
__ __ is cash received and recorded as liabilities before revenue is earned; the adjusting entry results in a decrease (debit) to a liability account and an increase (credit) to a revenue account. Unearned Revenues
The __ ___ is prepared from the revenue and expense accounts. income statement
The ___ __ __ is derived from the retained earnings and dividends accounts and the new income (or net less) shown in the income statement. retained earnings statement
The __ __ is then prepared from the asset, liability, and common stock accounts from the adjusted trail balance and the ending retained earnings balance as reported in the retained earnings statement. balance sheet
An __ __ __ is prepared after all adjusting entries have been journalized and posted; its purpose is to prove the equality of the total debit and credit balances in the ledger after all adjustments have been made. adjusted trail balance
____ is the allocation of the cost on an asset to expense over its useful life in a rational and systematic manner; deals with your fixed assets; total cost - salvage value / # of years that you're supposed to use it; an estimate. Depreciation
Put this list in the proper order; Steps 1-6. 1: Prepare a trial balance, 2: Make adjusting entries, 3: Prepare an adjusted trial balance, 4: Prepare the income statement, 5: Prepare the retained earnings statement, 6: Prepare the balance sheet.
Created by: ibenoit95