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Accounting Exam 1
| Term | Definition |
|---|---|
| What are the two primary functions of financial accounting? | measure business activities of a company and communicate those measurements to external parties for decision-making purposes |
| managerial accounting | accounting information provided for internal uses (managers) |
| financial accounting | accounting information provided to external users |
| accounting | a system of maintaining records of a company's operations and communicating that information to decision makers |
| financing activities | include transactions the company has with investors and creditors, such as issuing stock and borrowing cash from a local bank |
| investing activities | transactions involving the purchase and sale of resources that are expected to benefit the company for several years |
| operating activities | transactions that relate to the primary operations of the company, like rent, salaries, utilities, taxes, and ads |
| assets | total resources of a company |
| liabilities | amounts owed to creditors |
| stockholders equity | owners' claims to resources |
| What is the basic accounting equation? | asset = liabilities + stockholders' equity |
| revenues | the amounts recognized when the company sells the products or provides services to customers |
| expenses | the costs of providing products and services and other business activities during the current period |
| net income | it's the difference between revenues and expenses |
| dividends | cash payments to stockholders. |
| Dividends are expenses, T or F | F |
| financial statements | periodic reports published by the company for the purpose of providing information to external users |
| what is the primary means of communicating business activities? | financial statements |
| what are the 4 primary financial statements? | income statement, statement of stockholders equity, balance sheet, statement of cash flows |
| income statement | reports the company's revenues and expenses over an interval of time |
| statement of stockholders equity | summarizes the changes in stockholders equity over an interval of time |
| common stock | represents amount invested by stockholders when they purchase shares of stock. It's the external source of equity |
| retained earnings | its balance represents all net income minus all dividends over the life of the company. It's the internal source of equity. |
| liabilities | amounts owed by the company, also referred to as "payables" |
| statement of cash flows | measures activities involving cash receipts and cash payments over an interval of time |
| what are the 3 categories of cash transactions? | operating, investing, and financing |
| what do investors and creditors heavily rely on to make investing and lending decisions? | financial accounting information |
| FASB is governed by who? | The Securities and Exchange Commission (SEC) |
| What 4 basic assumptions must be made to support the existance of GAAP? | economic entity, monetary unit, periodicity, and going concern |
| accounting cycle | full set of procedures used to accomplish the measurement/communication process of financial accounting |
| external transactions | transactions between the company and a separate company or individual |
| internal transactions | transactions between the company and a separate economic entity. |
| asset account | cash, supplies, and equipment |
| liability account | accounts payable, salaries payable, taxes payable |
| chart of accounts | a list of all account names used to record transactions of a company |
| if total assets increase. then liabilities or stockholders equity ___________ by the same amount | increases |
| if total assets decrease, then liabilities or stockholders equity __________ by the same amount | decreases |
| After each transaction, the accounting equation must always what? | remain in balance |
| revenue recognition principle | companies recognize revenue at the time they provide goals and services to customers |
| accounts recievable | record of specific people and companies from whom we expect to receive cash in the future |
| paying salaries for the current period causes an asset to __________ and stockholders equity to __________ | decrease, decrease |
| expenses reduce net income and therefore | reduce the amount of retained earnings |
| when a company has a cost that benefits future periods, then we typically... | record an asset rather than an expense |
| DEALOR | Dividends, Expenses, Assets, Liabilities, Owner's Equity, and Revenue |
| DEA | debit increase, credit decrease |
| LOR | credit increase, debit decrease |
| journal | provides a chronological record of all transactions affecting a firm |
| for each transition, total debits must equal total what? | credits |
| posting | the process of transferring the debit and credit information from the journal to individual ledger accounts |
| general ledger | provides, in a single collection, each account with its individual transactions and resulting account balance |
Created by:
njone162