Questions and Answers
Why is accounting important?
Businesses, regulatory agencies, and the general public use accounting information.
Identify the type of activity: Preparing and entering a list of checks issued.
Identify the type of activity: Using a cash register to enter sales.
Identify the type of activity: Entering a list of sales invoices for the company's recordkeeper.
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Identify the type of activity: Interpreting information from financial reports.
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Identify the type of activity: Preparing financial statements for creditors.
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What is the term for the recording of transactions and events?
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What is the information and measurement system that identifies and records relevant information about an organization's business activities?
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Who are customers in terms of information users?
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Who are board of directors in terms of information users?
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Who is a payroll clerk in terms of information users?
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Who is a marketing manager in terms of information users?
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Who are suppliers in terms of information users?
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Who is a labor union in terms of information users?
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_____ includes opportunities in general accounting, cost accounting, and internal auditing.
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The majority of accounting opportunities are in _____ accounting.
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What does accounting certification include?
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What should Gail do to make an ethical decision regarding her assignment to audit Morrison?
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What is the proper sequence of steps in making an ethical decision?
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What does the Sarbanes-Oxley Act require?
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Which organization is responsible for developing GAAP in the U.S.?
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Which organization issues International Financial Reporting Standards?
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What principle states a company records the expenses incurred to generate reported revenue?
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What principle states revenue is recognized when goods are provided to the customer?
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What principle requires a company to report details behind financial statements impacting users' decisions?
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What principle states accounting information is based on actual cost?
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What assumption presumes that the business will continue operating in the future?
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What assumption maintains a business is separate from its owner?
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What assumption states that transactions and events are expressed in units of money?
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What assumption states that the life of the company can be divided into specific time periods?
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If equity is $30,000 and liabilities are $19,000, what do assets equal?
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At the end of the year, what is the equity total for Lupo Company?
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What are happenings that affect the accounting equation called?
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What term describes exchanges of value between two entities?
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What describes exchanges within an entity?
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What happens to equity when the business pays $2,000 in cash for rent?
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What happens when Jean Consulting Company receives a bill for utilities set to be paid later?
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What are the four basic financial statements?
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Which items belong on the income statement?
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Which items belong on the statement of retained earnings?
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Which items belong on the balance sheet?
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Which items belong on the statement of cash flows?
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Return on assets measures a company's ability to generate a return on its investment in:
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What does an increase in return on assets indicate?
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What is the return on assets for Rosalind Company?
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Which investment likely has the lowest expected return?
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What is the classification for acquiring resources that an organization plans to use to sell products or services?
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What classification applies to resources contributed by creditors?
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What classification fits the disposing of resources that an organization uses?
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What classification pertains to sales and revenues?
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What classification describes resources contributed by the owner and income left in the organization?
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Study Notes
Importance of Accounting
- Accounting is crucial for businesses, regulatory agencies, and the public by providing essential financial information.
Accounting Activities
- Identifying Activities: Recognizing transactions, such as entering sales invoices.
- Recording Activities: Includes preparing lists of issued checks and entering sales through cash registers.
- Communicating Activities: Encompasses interpreting financial reports and preparing financial statements for stakeholders.
Key Definitions
- Recordkeeping: The systematic logging of transactions manually or electronically.
- Accounting: A comprehensive system for identifying, recording, and communicating relevant business information.
User Types in Accounting
- External Information Users: Customers, board members, suppliers, and labor unions depend on financial information.
- Internal Information Users: Employees like payroll clerks and marketing managers utilize internal financial data for operations.
Managerial Accounting
- Offers career opportunities in general accounting, cost accounting, and internal auditing.
Accounting Opportunities
- The majority lie in private accounting roles, emphasizing business financials.
Accounting Certifications
- Includes designation as a CPA (Certified Public Accountant).
Ethical Decision Making
- Ethical considerations must be prioritized when conflicts of interest arise, such as auditing a company with personal investments.
- Follow the sequence: identify ethical concerns, analyze options, and make a decision.
Regulatory Standards
- The Sarbanes-Oxley Act mandates documentation and verification of internal controls.
- The FASB (Financial Accounting Standards Board) develops GAAP for U.S. companies, while the IASB (International Accounting Standards Board) establishes international standards.
Accounting Principles
- Expense Recognition Principle: Expenses must be matched with related revenues.
- Revenue Recognition Principle: Revenue is recognized when goods/services are provided.
- Full-Disclosure Principle: Financial statements include all details that affect user decisions.
- Measurement Principle: Based on actual cost values.
Accounting Assumptions
- Going-Concern Assumption: Assumes the business will continue operations indefinitely.
- Business Entity Assumption: Each business is considered separate from its owners.
- Monetary Unit Assumption: Transactions are recorded in monetary terms.
- Time Period Assumption: Financial operations are recorded for specific time periods.
Financial Equation
- If equity is $30,000 and liabilities are $19,000, then assets equal $49,000.
Equity Calculation Example
- For Lupo Company: Starting equity was $15,000, earned $35,000, incurred $23,000 in expenses, and paid $2,000 in dividends; ending equity totals $25,000.
Types of Business Activities
- Events: Impact the accounting equation.
- External Transactions: Exchanges between separate entities.
- Internal Transactions: Exchanges within a single entity.
Transaction Analysis
- Paying rent affects the accounting equation by decreasing equity.
- Receiving a utility bill increases liabilities and decreases equity, even if not immediately paid.
Financial Statements
- Four basic statements: Income Statement, Statement of Retained Earnings, Balance Sheet, Statement of Cash Flows.
- Income Statement: Lists revenue, expenses, and net income.
- Statement of Retained Earnings: Includes dividends and retained earnings.
- Balance Sheet: Lists assets such as cash and accounts receivable.
- Statement of Cash Flows: Outlines cash flows from operating, investing, and financing activities.
Performance Metrics
- Return on Assets (ROA): Measures efficiency in generating returns from assets.
- Example calculation: A small business's ROA improved from 11.2% to 12.6% year over year.
Investment Analysis
- U.S. Treasury bonds are likely to offer the lowest expected return compared to other investments.
Business Activity Classification
- Investing: Involves acquiring and disposing of assets for operations.
- Financing: Pertains to resources contributed by creditors or owners.
- Operating: Relates to revenue generating activities, such as sales.
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Description
Explore Chapter 1 of accounting through interactive flashcards. Test your knowledge on key concepts such as the importance of accounting and its various activities including identifying, recording, and communicating. Ideal for students looking to deepen their understanding of foundational accounting principles.
