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Chapter 1 Questions
Terms in this set (33)
Define Accounting. What's the basic purpose of accounting?
What's the distinction between financial and managerial accounting?
Who are some outside groups interested in a company's financial data and what are their particular interests?
What is GAAP? What organization has primary responsibility for their formation in the U.S.?
What are the advantages and disadvantages of the corporate form of business?
What does financial accounting do in the allocation of society's financial resources?
What is the accounting equation? Define assets, liabilities, and stockholder's equity.
What are the 3 principal business activities? How do they differ?
Financial, Operational, and Investing Activities.
What is corporate social responsibility?
Corporate social responsibility is the concern businesses have for society.
What is the difference between GAAP and IFRS?
GAAP is in U.S. while IFRS is international.
What are revenues and expenses?
Revenues are sales from G/S. Expenses are costs made in a company's operations.
What's the purpose of an income statement? Statement of Stockholder's equity? Balance Sheet? Statement of Cash Flows?
Income Statements determine profitability
Statement of Stockholder's equity reports financial changes in events of a company
Balance Sheet shows company's assets, liabilities, and equity.
Statement of Cash Flows shows cash in/outflows.
On December 31st, the Mill Company had $800k in total assets and owed $250k to creditors. If the corporation's common stock is $400k, what is the amount of retained earnings?
$800k - $400k - $250k = $150k in Retained Earnings
What are 3 aspects of the accounting environment that create ethical pressure on the accountant?
Financial pressures, confidentiality, and Short-term profit orientation.
What type of info might you find in the Management's Discussion and Analysis section of the annual report?
Past performance analysis and future opportunities and concerns.
What is the purpose of having financial statements audited by an independent auditor?
Fairer representation for decission-making purposes.
T/F: The accounting process is only interested in communicating economic activity.
T/F: There are few potential users of financial accounting information.
T/F: Financial accounting is primarily used to communicate to outside users.
T/F: Auditors ensure the validity of a company's financial statements.
Why did the FASB develop a conceptual framework?
To help accountants comply with GAAP when creating financial statements
What are 4 primary qualities of accounting information that contribute to decision usefulness?
Relevance Faithful Representation, Comparability, and Understandability
Accounting Entity Concept
the organization for which financial data are to be collected
accounting period concept
period of time covered by financial statements
monetary unit concept
concept that transactions are to be recorded in terms of money
Going Concern Concept
financial statements are prepared with the expectation that a business will remain in operation indefinitely
the most commonly used measurements are based on historical cost and fair value
Revenue Recognition Principle
Record revenue in the period in which it's earned and must be realized and realizable.
Expense Recognition Principle
Match expenses with revenues in the period when the company makes efforts to generate those revenues
Full Disclosure Principle
Accounting principle that dictates that companies disclose circumstances and events that make a difference to financial statement users.
Prescribes that accounting for items that significantly impact financial statement and any inferences from them adhere strictly to GAAP.
only information with benefits of disclosure greater than the costs of providing it need be disclosed
Which of the following is a primary qualitative characteristic of accounting information?
B. Faithful Representation
D. All of the above
D. All of the above
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