Financial Accounting, Test 1, Chapters 1-3

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Question

Answer

The economic transaction of the Accounting process; when money is exchanged.

Economic event

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_____ has made doing the accounting process more efficient.

Computers

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____ are individuals and organizations outside a company who want financial information about the company (investors & creditors).

External users

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___ are users within the organization that usually include management & various departments (marketing managers, production supervisors, finance directors, & company officers)

Internal users

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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

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____ is the standard of conduct by which one's actions are judged as right or wrong, honest or dishonest.

Ethics

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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

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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

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____is an effort to reduce differences between U.S. GAAP and IFRS to enhance comparability.

Convergence

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The ___ ___ ___ ____ are a common set of standards that indicate how to report economic events.

Generally Accepted Accounting Principles (GAAP)

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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)

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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)

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The ___ ___ ____ ____ ___ (__) determines auditing standards and reviews auditing firms.

Public Company Accounting Oversight Board (PCAOB)

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The ___ ___ ___ ___ (__) is the primary accounting standard-setting body in the U.S.

Financial Accounting Standards Board (FASB)

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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)

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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

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___ ___ states that only transaction data that can be expressed in terms of money is included in the accounting record.

Monetary Unit

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__ ___ states that activities of one entity be kept separate and distinct from all others.

Economic Entity

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The 3 Business Enterprises are:

Proprietorship, Partnership, & Corporation

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___ is a business owned by one person; you're the sole owner of the business.

Proprietorship

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___ is a business owned by two or more persons associated as partners.

Partnership

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___ is business organized as a separate legal entity under state corporation law & having divided into transferable shares of stock.

Corporation

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___ just involves only the recording of the economic events aka just one part of the accounting process.

Bookkeeping

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The 2 Measurement Principles are:

Cost and Fair Value Principle

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The ___ ____ dictates that companies record assets at their cost at the time the assets were purchased. Also known as historical principle.

Cost Principle

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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

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____ means that financial information is capable of making a difference in a decision.

Relevance

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___means that the numbers and descriptions match what really existed or happened – it is factual

Faithful

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____ 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

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____ are claims against assets. They are existing debts and obligations.

Liabilities

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__ __ 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

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__ __ 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

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___ are income earned, the amount of money earned for the services you provided.

Revenues

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___ 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

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___ are the distribution of cash or other assets to stockholders.

Dividends

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There are 4 financial statements:

Income statement, Retained Earnings statement, Balance sheet, and Statement of class flow.

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An ___ ___presents the revenues and expenses and resulting net income or net loss for a specific period of time.

income statement

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A ___ ___ ___ summarizes the changes in retained earning for a specific period of time.

retained earnings statement

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A __ ___ reports the assets, liabilities, and stockholders’ equity of a business enterprise at a specific date.

balance sheet

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A __ __ __ __ summarizes information about the cash inflow (receipts) and outflows (payments) for a specific period of time.

statement of class flow

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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

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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

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___ increase assets. ___ increase liabilities.

Debits, Credits

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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

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A ___ ___ ___ are entries that involve only two accounts.

simple journal entry

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A ___ ___ __ are entries that involve more than two accounts.

compound journal entry

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Most companies have a __ __ ___ that lists the accounts and the account numbers, which identity their location in the ledger.

chart of accounts

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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

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__ __ are monthly and quarterly time periods.

Interim periods

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A ___ ___ is an accounting time period that is one year in length.

fiscal year

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A ___ ___ is from January 1 to December 31 that most business use.

calendar year

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__ ___ are required each time financial statements are prepared.

Adjusting entries.

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Adjusting entries for ___ are required to record revenues earned and expenses incurred in the current period.

accruals

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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

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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

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Under __ __ __, transactions that change a company's financial statements are recorded in the periods in which the events occur.

accrual basis accounting

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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

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Accruals, adjusting entry will increase both a balance sheet and an income statement account, include:

accrued revenue and expenses.

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__ ___ 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

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__ ___ 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

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Deferrals include:

prepaid expenses and unearned revenue

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__ __ 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

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__ __ 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

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The __ ___ is prepared from the revenue and expense accounts.

income statement

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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

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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

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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

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____ 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

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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.

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MAKE SURE TO KNOW THE PROBLEMS && THE NORMAL BALANCE FOR EACH ACCOUNT

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