Advertisement Upgrade to remove ads

account payable

A liability backed by the general reputation and credit standing of the debtor.

accounting

The information system that measures business activities, processes that information into reports and financial statements, and communicates the results to decision makers.

accounting equation

The most basic tool of accounting: Assets = Liabilities + Owner's Equity.

assets

An economic resource that is expected to be of benefit in the future.

balance sheet

List of an entity's assets, liabilities, and owners' equity as of a specific date. Also called the statement of financial position.

board of directors

Group elected by the stockholders to set policy for a corporation and to appoint its officers.

capital

Another name for the owners' equity of a business.

cash

Money and any medium of exchange that a bank accepts at face value.

common stock

The most basic form of capital stock.

corporation

A business owned by stockholders. A corporation is a legal entity, an "artificial person" in the eyes of the law.

cost principle

Principle that states that assets and services should be recorded at their actual cost.

current assets

An asset that is expectd to be converted to cash, sold, or consume during the next 12 months, or within the business's normal operating cycle if longer than a year.

current liabilities

A debt due to be paid within 1 year or within the entity's operating cycle if the cycle is longer than a year.

dividends

Distributions (usually cash) by a corporation to its stockholders.

entity

An organization or a section of an organization that, for accounting purposes, stands apart from other organizations and individuals as a separate economic unit.

expenses

Decrease in retained earnings that results from operations; the cost of doing business; opposite of revenues.

fair value

The amount that a business could sell an asset for, or the amount that a business could pay to settle a liability.

financial accounting

The branch of accounting that provides information to people outside the firm.

financial statements

Business documents that report financial information about a business entity to decision makers.

financing activities

Activities that obtain from investor and creditors the cash needed to launch and sustain the business; a section of the statement of cash flows.

fixed assets

Another name for property, plant, and equipment.

generally accepted accounting principles (GAAP)

Accounting guidelines, formulated by the Financial Accounting Standards Board, that govern how accounting is practiced.

goig-concern concept

Holds that entity will remain in operation for the forseeable future.

income statement

A financial statement listing an entity's revenues, expenses, and net income or net loss for a specific period. Also called the statement of operations.

investing activities

Activities that increase or decrease the long-term assets available to the business; a section of the statement of cash flows.

liabilities

An economic obligation (a debt) payable to an individual or an organization outside the business.

limited liability company

A business organization in which the business (not the owner) is liable for the company's debts.

long-term debt

A liability that falls due beyond 1 year from the date of the financial statements.

management accounting

The branch of accounting that generates information for the internal decision makers of a business, such as top executives.

merchandise inventory

The merchandise that a company sells to customers, also called inventory.

net earnings

Another name for net income.

net income

Excess of total revenues over total expenses. Also called net earnings or net profit.

net loss

Excess of total expenses over total revenues.

net profit

Another name for net income.

note payable

A liability evidenced by a written promise to make a future payment.

objectivity activities

Activities that create revenue or expense in the entity's major line of business; a section of the statement of cash flows. Operating activities affect the income statement.

owners' equity

The claim of the owners of a business to the assets of the business. Also called capital, stockholder's equity, or net assets.

paid-in capital

The amount of stockholder's equity that stockholders have contributed to the corporation. Also called contributed capital.

partnership

An association of 2 or more persons who co-own a business for profit.

plant assets

Another name for property, plant, and equipment.

property, plant, and equiment

Long-lived assets, such as land, buildings, and equipment, used in the operation of the business. Also called plant assets or fixed assets.

proprietorship

A business with a single owner.

reliability principle

The accounting principle that ensures that accounting records and statements are based on the most reliable data available. Also called the objectivity principle.

retained earnings

The amount of stockholders' equity that the corporation earned through profitable operation and has not given back to stockholders.

revenues

Increase in retained earnings from delivering goods or services to customers or clients.

shareholder

Another name for stockholder.

stable-monetary-unit concept

The reason for ignoring the effect of inflation in the accounting records, based on the assumption that the dollar's purchasing power is relatively stable.

statement of cash flows

Reports cash receipts and cash payments classified according to the entity's major activites: operating, investing, and financing.

statement of financial position

Another name for the balance sheet.

statement of operations

Another name for the income statement

statement of retained earnings

Summary of the changes in the retained earnings of a corporation during a specific period.

stock

Shares into which the owners' equity of a corporation is divided.

stockholders

A person who owns stock in a corporation. Also called a shareholder.

stockholders' equity

The stockholders' ownership interest in the assets of a corporation.

Since cost is a reliable measure to use in financial accounting, the cost principle states that assets and services should be recorded at their actual cost.

True

Common stock and net income are the main components of paid-in capital.

False

Expenses are decreases in retained earnings that result from operations.

True

Net income appears only on the income statement

False

For business puposes, dividend payments are classified as expenses

False

Able Co. has $500,000 in assets and $400,000 in liabilities; therefore, the equity is $100,000.

True

Yummy Inc. has beginning retained earnings of $10,000, net income of $50,000, and dividend payments of $5,000; therefore, the ending retained earnings is $55,000.

True

Ramos, Inc. has monthly revenues of $30,000 and monthly expenses of $18,000, and the company paid $4,000 in dividends; therefore, net income for the month is $12,000.

True

There are two sections to the statement of cash flows-operating activities and investing activities.

False

A balance sheet reports the company's financial position over a period of time.

False

For which form of business ownership(s) are the owners not legally distinct from the business?

Partnership & Proprietorship

Which of the following are characteristics of useful accounting information?

Reliability

The going-concern concept

assumes that the entity will remain in operation for the foreseeable future.

A Jacksonville business paid $45,000 cash for equipment used in the business. At the time of purchase, the equipment had a list of price of $65,000. When the balance sheet was prepared, the value of the equipment had increased to $68,000. What is the relevant measure of the value of the equipment?

Historical cost, $45,000

The relevant measure of value of the assets of a company that is going out of business is the:

Current market value

The accounting equation can be stated as

Assets - liabilities = stockholders' equity

Expenses are:

Decreases in retained earnings resulting from operations

At the beginning of the period, assets were $450,000 and stockholders' equity was $200,000. During the year, assets increased by $50,000, liabilities decreases by $40,000, and stockholders' equity increased by $90,000. Beginning liabilities must have been:

$250,000

If liabilities increase $200,000 during a given period and stockholders' equity decreases $65,000 during the same period, assets must:

increase $135,000.

A retail store buys t-shirts for $125 and sells them for $160. The store's cost of goods sold would be:

$125

For which form of business ownership are the owners of a business legally distinct from the business?

Corporation

Generally accepted accounting principles, or GAAP, are the rules and procedures established by the Financial Accounting Standards Board, or the FASB.

True

The stable-monetary-unit concept of accounting:

enables accountants to ignore the effect of inflation in the accounting records.

The reliability principle is also called the

objectivity principle

The accounting equation can be stated as

Asses - Liabilites = Stockholders' equity

Which of the following best describes a liability? Liabilities are:

Payables of the corporation

Payables are classified as

liabilities

Net income is computed as

revenues - expenses

Which of the following must be added to the beginning retained earnings to compute ending retained earnings?

net income

At the beginning of the period, assets were $490,000 and stockholders' equity was $240,000. During the year, assets increased by $60,000, liabilities increased by $40,000, and stockholders' equity increased by $20,000. Beginning liabilities must have been:

$250,000

Stockholders' equity for Commerce-GA Corporation on 01/01/2008 and 12/31/2008 were $60,000 and $75,000, respectively. Assets on 01/01/2008 and 12/31/2008 were $115,000 and $105,000, respectively. Liabilities on 01/01/2008 were $55,000. What is the amount of liabilities on 12/31/2008?

$30,000

Dividends appear on the

statement of retained earnings

A companys' gross profit for the period is reported on the

income statement

Which of the following financial statements shows the net increase or decrease in cash during the period?

statement of cash flows

The income statement covers a defined period of time

a defined period of time

A retail store sells t-shirts for $85 and purchases them for $60. The store's cost of goods sold would be:

$60

Current assets are assets expected to be converted to cash, sold, or consumed:

within the nex 12 mths

Equipment would appear on the

balance sheet with long term assets

Accounts receivable would appear on the

balance sheet with the current assets

Which of the following statements should be prepared before the balance sheet is prepared?

Income statement and statement of retained earnings

Retained earnings appears on which of the following financial statements?

Statement of retained earnings and balance sheet, but not the income statement or statement of cash flows

Prepaid expense accounts appear on

the balance sheet

A company purchased office supplies for cash. This transaction increased assets and

decreased assets

A company paid cash for an amount owed to a creditor. This transaction decreased cash and:

decreased liabilities

The owner of a business paid cash from his personal checking account to purchase an automobile for his personal use. This transaction:

is not a transaction recognized by the business

What type of account is prepaid insurance?

an asset

Consider the following transactions:
I. Borrowed cash on a note payable, $80,000
II. Provided services on account, $10,000
III. Received cash from a customer as payment on account, $8,000
IV. Received a utility bill, $1,200
Total assets would be:

$90000

Receiving a payment from a customer on account would:

have no effect on total assets

Accounting transactions are initially recorded in:

the journal

A chronological record (or history) of an entity's transactions is called a:

journal

Making a cash payment to settle a debt would include a:

debit to accounts payable

The normal balance of the Dividends account is a _______ because it decreases _______.

debit stockholders' equity

The normal balance of the Common Stock account is a ______ because it increases _______.

credit, stockholders' equity

There are two methods used to account for transactions. These methods are:

cash and accrual

The requirement to report accounting information at regular intervals is known as the:

time-period concept

. An accrual refers to an event where the:

expense or revenue is recorded before the cash settlement

Which term refers to the allocation of the cost of an asset over the asset's useful life?

depreciation

An adjustment for which the business paid or received cash in advance is:

a deferral

Which account is credited in the adjusting entry to allocate the cost of equipment?

accumulated depreciation

Arizona Teak Company paid $54,000 for computers. These computers have an estimated service life of 3 years and a salvage value of $3,000. After one year of use, the book value of the computers will be:

$37,000

. In what order are financial statements generally prepared?

income statement, statement of retained earnings and balance sheet

The entry to close expense accounts

decreases retained earnings

Which of the accounts listed below is a NOT a permanent account?

dividends

Please allow access to your computer’s microphone to use Voice Recording.

Having trouble? Click here for help.

We can’t access your microphone!

Click the icon above to update your browser permissions above and try again

Example:

Reload the page to try again!

Reload

Press Cmd-0 to reset your zoom

Press Ctrl-0 to reset your zoom

It looks like your browser might be zoomed in or out. Your browser needs to be zoomed to a normal size to record audio.

Please upgrade Flash or install Chrome
to use Voice Recording.

For more help, see our troubleshooting page.

Your microphone is muted

For help fixing this issue, see this FAQ.

Star this term

You can study starred terms together

NEW! Voice Recording

Create Set