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accounting Test 1 @2
| Term | Definition |
|---|---|
| The information infrastructure of the firm/economy that permits it to achieve its objectives. | Accounting |
| The function that is responsible for providing useful information to other functional area and external parties. | Accounting and information systems function |
| Assets equal liabilities plus owner's equity | Accounting equation |
| A system in which income is measured as the difference between the sale (revenues) earned and the expenses incurred during the period, regardless of when cash is paid or received. | Accrual basis of accounting |
| The rights to use resources that have expected future economic benefits. | Asset |
| The financial statement that designed to show the ending amounts of the company’s assets, liabilities, and owner’s equity. | Balance sheet |
| The exchange of goods or services on an arm’s-length basis that results in mutual benefit for both parties involved. | Business |
| The concept that requires an accounting system to reflect only information about economic events that pertain to a particular entity. | Business entity concept |
| A system in which income is measured as the difference between the cash received from customers and the cash paid to employees and other suppliers of goods and services. | Cash basis accounting |
| A business entity that is legally separate and distinct from its owners. | Corporation |
| An asset likely to be used or consumed within one year. | Current asset |
| A liability likely to be paid or otherwise discharged within one year. | Current liability |
| A measure of company liquidity; the relationship between current assets and current liabilities. | Current ratio |
| A measure of company solvency and its ability to meet its long-term obligations. | Debt-to-equity ratio |
| A situation in which the profits earned by the corporation are taxed twice - once at the business level and again at the owner level if the profits are distributed as dividends. | Double Taxation |
| An amount incurred from using resources or services in the effort to generate revenue. | Expense |
| The function that is responsible for managing the financial resources of the business. | Finance function |
| The group the SEC holds responsible for determining accounting standards in the United States | Financial Accounting Standards Board (FASB) |
| Statements prepared to communicate the results of business activities to interested users. | Financial statements |
| The set of reporting standards applicable to all US companies that issue financial reports for external users. | Generally accepted accounting principles (GAAP) |
| The concept that assumes that, absent from any information to the contrary, the business entity will continue into the foreseeable future. | Going concern concept |
| The function that is responsible for ensuring that capable employees are given opportunities to succeed in a safe work environment. | Human resource function |
| The financial statement designed to show the net income of the company for a period of time. | Income statement |
| The set of global reporting standards for the preparation of public financial statements. | International Financial Reporting Standards (IFRS) |
| A philosophy that stipulates products should be received by customers just as they are needed and, in the quantities needed. | Just-In-Time (JIT) |
| The amount of time that elapses from when a customer places an order until the customer receives that order. | Lead time |
| The obligation to transfer economic resources to suppliers of goods and services at some point in the future. | Liability |
| A situation in which the money invested in a corporation is at risk, but investors’ personal possessions are not at risk if the business fails. | Limited liability |
| Eliminates the impact of unlimited liability for all the owners, does not limit the number of owners as required by the S-corporation, and does not limit participation in the management of the firm like limited partnerships. | Limited liability company (LLC) |
| A partnership in which the individual partners are liable only for their own actions and the actions of those individuals under their control. | Limited liability partnership (LLP) |
| A partnership composed of one or more general partners and one or more limited partners; only the general partners’ personal possessions are at risk if the business should fail. | Limited partnership |
| See noncurrent assets; an asset that is likely to provide economic benefits for more than one year. | Long-term assets |
| See noncurrent liability; an obligation that extends beyond one year. | Long-term liability |
| A business organized to convert raw materials into finished goods. | Manufacturing firm |
| The function of business that determines the wants and needs of consumers and devises a system for distributing the goods and services customer’s demand. | Marketing function |
| A business that obtains and distributes goods to customers. | Merchandising company |
| The concept that asserts money is the common measurement unit of economic activity. | Monetary unit concept |
| A situation whereby each partner has the power to act for all, and legally obligate, other partners. | Mutual agency |
| Asset minus liabilities. | Net assets |
| A company’s total revenue less it’s total expenses for a period of time. | Net income |
| An asset that is likely to provide economic benefits for more than one year. | Noncurrent asset |
| An obligation that extends beyond one year. | Noncurrent liability |
| Represents the claims on the business to transfer the residual interest (net assets of the business) to the owners. | Owner’s equity |
| A business owned by two or more individuals whose personal possessions are at risk if the business fails. | Partnership |
| An agreement that outlines the rights and responsibilities of each partner. | Partnership Agreement |
| The concept that requires that the success or failure of the business be determined at regular intervals. | Periodicity concept |
| The time span from the conception of the product until it is no longer demanded by consumers. | Product life cycle |
| The function that is responsible for planning, directing, and controlling the operations of the business. | Production and operations functions |
| A measure of company profitability; the relationship between net income and sales. | Return on sales ratio |
| An amount earned from rendering services or transferring resources to customers. | Revenue |
| A small business corporation owned by no more than 100 individuals; its profits are taxed at the individual level rather than the corporate level. | S-corporation |
| A business that exists to provide services such as loaning money, finding investors, and other services for which it charges fees. | Service firm |
| A business owned by one person whose personal possessions are at risk if the business fails. | Sole proprietorship |
| Those people and entities (both internal and external) that have a stake, or interest, in the outcomes of the company. | Stakeholders |
| The financial statement designed to show the cash inflows and cash outflows for the periods of time covered by the income statement. | Statement of Cash Flows |
| The financial statement designed to show the changes that occurred in owners’ equity during the period of time covered by the income statement. | Statement of Owner’s Equity |
| A situation where once the assets of a business are exhausted, the personal assets of the owners can be used to satisfy liabilities of the business. | Unlimited liability |
| A strategy in which a company strives to adapt to changing market conditions by developing new products/services, markets, and technologies. | Flexibility strategy |
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