Horngren's Accounting Chapter 1 Flashcards

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Questions and Answers

What does GAAP stand for?

General Accounting and Auditing Practices

General Accepted Accounting Protocols

Global Assessment of Accounting Practices

Generally Accepted Accounting Principles (correct)

What is accounting?

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

What is financial accounting?

The field of accounting that focuses on providing information to external decision makers.

What is managerial accounting?

The field of accounting that focuses on providing information to internal decision makers. Signup and view all the answers

Who is referred to as a creditor?

Any person or business to whom a business owes money. Signup and view all the answers

What are taxing authorities?

Local, state, and federal governments that levy taxes. Signup and view all the answers

What is the role of Certified Public Accountants (CPAs)?

Licensed professional accountants who serve the general public. Signup and view all the answers

What do Certified Management Accountants (CMAs) specialize in?

Accounting and financial management knowledge typically for a single company. Signup and view all the answers

What does the Financial Accounting Standards Board (FASB) do?

Oversees the creation and governance of accounting standards in the U.S. Signup and view all the answers

What is the Securities and Exchange Commission (SEC)?

U.S. governmental agency that oversees the U.S. financial markets. Signup and view all the answers

What does the Economic Entity Assumption state?

An organization that stands apart as a separate economic unit. Signup and view all the answers

What does the Cost Principle state?

Assets and services should be recorded at their actual cost. Signup and view all the answers

Define a sole proprietorship.

A business with a single owner. Signup and view all the answers

What is a partnership?

A business with two or more owners and not organized as a corporation. Signup and view all the answers

Define a corporation.

A business organized under state law that is a separate legal entity. Signup and view all the answers

What is a Limited-Liability Company (LLC)?

A company in which each member is only liable for his or her own actions. Signup and view all the answers

What does the Going Concern Assumption assume?

The entity will remain in operation for the foreseeable future. Signup and view all the answers

Define the Monetary Unit Assumption.

Requires items on the financial statements to be measured in terms of a monetary unit. Signup and view all the answers

What are International Financial Reporting Standards (IFRS)?

A set of global accounting guidelines formulated by the International Accounting Standards Board. Signup and view all the answers

What does the International Accounting Standards Board (IASB) oversee?

The creation and governance of International Financial Reporting Standards (IFRS). Signup and view all the answers

What is an audit?

An examination of a company's financial statements and records. Signup and view all the answers

What is the Sarbanes-Oxley Act (SOX)?

Requires companies to review internal control and take responsibility for the accuracy and completeness of their financial reports. Signup and view all the answers

What is the accounting equation?

Assets = Liabilities + Equity. Signup and view all the answers

Define assets.

Economic resources that are expected to benefit the business in the future. Signup and view all the answers

What are liabilities?

Debts that are owed to the creditors. Signup and view all the answers

What does equity represent?

The owner's claim to the assets of the business. Signup and view all the answers

What is owner's capital?

Owner contributions to a business. Signup and view all the answers

What are revenues?

Amounts earned from delivering goods or services to customers. Signup and view all the answers

Define expenses.

The cost of selling goods and services. Signup and view all the answers

What are owner's withdrawals?

Payments of equity to the owner. Signup and view all the answers

What is net income?

The result of operations that occurs when total revenues are greater than total expenses. Signup and view all the answers

What is a net loss?

The result of operations that occurs when total expenses are greater than total revenues. Signup and view all the answers

Define a transaction.

An event that affects the financial position of the business and can be measured reliably in dollar amounts. Signup and view all the answers

What is accounts payable?

A short-term liability that will be paid in the future. Signup and view all the answers

What is accounts receivable?

The right to receive cash in the future from customers for goods sold or for services performed. Signup and view all the answers

What are financial statements?

Business documents that are used to communicate information needed to make business decisions. Signup and view all the answers

What is an income statement?

Reports the net income or net loss of the business for a specific period. Signup and view all the answers

What does the Statement of Owner's Equity show?

Shows the changes in the owner's capital account for a specific period. Signup and view all the answers

What is a balance sheet?

Reports on the assets, liabilities, and the owner's equity as of a specific date. Signup and view all the answers

What does the Statement of Cash Flows report?

Reports on a business's cash receipts and cash payments for a specific period. Signup and view all the answers

What does Return on Assets (ROA) measure?

Measures how profitably a company uses its assets. Signup and view all the answers

Study Notes

Accounting Principles and Concepts

Generally Accepted Accounting Principles (GAAP): Established guidelines for financial reporting in the U.S. formed by the Financial Accounting Standards Board (FASB).
Accounting: An information system that measures, processes, and communicates business activities to decision makers.
Financial Accounting: Focuses on providing information to external stakeholders, such as investors and creditors.
Managerial Accounting: Concentrates on internal informational needs for decision making within an organization.

Key Entities in Accounting

Creditor: Individuals or businesses that have lent money or provided goods/services on credit to a business.
Taxing Authorities: Government entities at local, state, and federal levels responsible for tax collection based on financial information.
Certified Public Accountants (CPAs): Licensed professionals who provide accounting services to the public.
Certified Management Accountants (CMAs): Specialized professionals in financial management, usually working in a single organization.
Financial Accounting Standards Board (FASB): Governs and develops accounting standards in the United States.
Securities and Exchange Commission (SEC): Regulates and oversees U.S. financial markets to protect investors.

Accounting Assumptions and Principles

Economic Entity Assumption: An organization is treated as a separate unit for financial reporting.
Cost Principle: Assets are recorded at their actual acquisition cost.
Going Concern Assumption: Assumes entities will remain operational for the foreseeable future.
Monetary Unit Assumption: Financial statements must be presented in a stable monetary unit.

Business Structures

Sole Proprietorship: A business owned by a single individual.
Partnership: A business owned by two or more individuals.
Corporation: A legal entity distinct from its owners, recognized under state law.
Limited Liability Company (LLC): Protects its members from personal liability for corporate debts.

Financial Statements and Metrics

Audit: A thorough examination of a company’s financial reports and statements.
Sarbanes-Oxley Act (SOX): Legislation requiring companies to improve their internal controls and maintain accurate financial reporting.
Accounting Equation: Represents the relationship between a company's assets, liabilities, and equity (Assets = Liabilities + Equity).

Financial Terms

Assets: Resources expected to provide future economic benefits.
Liabilities: Obligations or debts owed to creditors.
Equity: The owner's claim on the assets of the business.
Owner's Capital: Contributions made by the owner to the business.
Revenues: Earnings from providing goods or services.
Expenses: Costs incurred in the operation of the business.
Owner's Withdrawals: Distributions of equity to the owner.

Performance Metrics

Net Income: Indicates profitability when total revenues are greater than expenses.
Net Loss: Indicates financial loss when total expenses exceed revenues.
Transaction: Impacts the financial position of a business and can be measured in monetary terms.

Account Types

Accounts Payable: Short-term debts that need to be settled in the future.
Accounts Receivable: Money owed to a business from customers for sales made.

Financial Reporting

Financial Statements: Documents providing essential information for business decisions.
Income Statement: Summarizes revenues and expenses over a specific period to show net income or loss.
Statement of Owner's Equity: Details changes in the owner's equity account over time.
Balance Sheet: Snapshot of the company's assets, liabilities, and owner's equity at a specific point in time.
Statement of Cash Flows: Reports cash inflows and outflows during a specific period.

Efficiency Measurement

Return on Assets (ROA): A profitability ratio that measures how effectively a company uses its assets (Net Income/Average Total Assets).

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Description

Explore key concepts from Chapter 1 of Horngren's Accounting, 10th Edition through interactive flashcards. This quiz focuses on foundational accounting principles such as GAAP and the overall accounting process. Test your understanding and reinforce your knowledge of essential financial accounting terminology.