For accounting exam

Accounting

Accounting

The information system that identifies, records, and communicates the economic events of an organization to interested users.

Accounting transactions

Assets=?

Liabilities + Stockholders equity

Balance sheet

A financial statement that reports the assets and claims to those assets at a specific point in time

Common stock

Term used to describe the total amount paid in by stockholders for the shares they purchase.

Comparability

Ability to easily evaluate one comoany’s results relative to another’s

Corporation

A business organized as a separate legal entity owned by stockholders.

Current Assets

Assets that a company expects to concert to cash or use up within one year or the operating cycle, whichever is longer.

Current liabilities

Obligations that a company expects to pay within the next year or operating cycle, whichever is longer

Dividends

Payments of cash from a corporation to its stockholders

Expenses

The cost of assets consumed, or services used in the process of generating revenues.

Full disclosure principle

The reporting of sufficient details regarding circumstances and events that would make a difference to financial statement users.

Periodicity assumption

The practice of preparing financial statements at regular intervals

Relevance

The quality of information that indicates the information makes a difference in a decision.

Materiality

The judgement concerning whether omitting or misstating item could influence the secision of a financial statement user.

Historical cost principle

A belief that items should be reported on the balance sheet at the price that was paid to acquire them

Liabilities

Amounts owed to creditors in the form of debts and other obligations.

Intangible assets

Assets that do not have physical substance.

Liquidity

The ability of a company to pay obligations that are expected to become due within the next year or operating cycle.

Liquidity ratios

Measures of the short term ability of a company to pay its maturing obligations and to meet unexpected needs for cash.

Operating cycle

The average time required to purchase inventory, sell it on account, and then collect cash from customers-that is, go from cash to cash in producing revenue.

PPE Property Plant and Equipment

Assets with relatively long useful lives that are currently used in operating the business.

Retained earnings

The amount of net income retained in the corporation

Revenue

The increase in assets or decrease in liabilities resulting from the sale of good or the performance of services in the normal course of business.

Ratio

An expression of the mathematical relationship between one quantity and another.

Solvency

The ability of a company to pay interest as it comes due and to repay the balance of debt due at its maturity.

Solvency rations

Measures of the ability of a company to survive over a long period of time.

Which is NOT one of the 3 forms of business organization?

Creditorship

Which of the following is an example of a financing activity?

Issuing shares of common stock

What is the Basic Accounting Equation?

Assets= Liabilities+ Stockholders equity.

Which of the four financial statements is most useful for determining if a company’s operations were profitable (there was a net profit or net loss) during a given time period?

The Income Statement

Assets on the Balance Sheet are listed in

Order of their liquidity

Which of the following is NOT a business activity that is reported on the Statement of Cash Flows?

Advertising

Net income will result during a time period when

Revenues exceed expenses

A company’s most important asset is its

Cash

Which of the four financial statements is most useful for determining a companys policies about dividends and growth?

The statement of Retained Earnings

The Income Statement shows the company’s net income for the period by itemizing.

Revenues and Expenses

The current ratio formula is

Current Assets DIVIDED BY Current Liabilities

The debt to assets ratio formula is

Total liabilities / Total Assets

Companies that can support higher debt to assets ratios are characterized by having

Stable earning

The assets portion of the Classified Balance Sheet contains all of the following except

Stockholders equity

Which of these is considered a more dependable indicator of liquidity than working capital?

Current ratio

A company has purchased a piece of underdeveloped land. It expects to build a production facility on the land in approximately 5 years. During the 5 years prior to construction of the facility, the land will remain undeveloped and unused. The undeveloped land should be reported on the Classified Balance Sheet under what section?

A Long Term Investment

The code specifies three constituencies to whom accountants have ethical responsibilities

The public, clients, and colleagues

The two fundamental qualities that make financial information “useful” from the standpoint of the FASB and IASB conceptual framework are:

Relevance and Faithful Representation

Income statement

Shows how successfully your business performed during a period of time, by subtracting expenses from revenues.

Retained earnings statement

Indicates how much of previous income was distributed to owners of your business in the form of dividends, and how much was retained in the business to allow for future growth.

Balance sheet

Presents a picture at a point in time of what your business owns (its assets) and what it owes (its liabilities)

Statement of cash flows

Shows where your business obtained cash during a period of time and how that cash was used.

What is the primary criterion by which accounting information can be judged?

Usefulness for decision-making

Which of the following events is not recorded in the accounting records?

An employee is terminated for cause.

The purchase of an asset for cash

leaves total assets unchaed

When a company pays a dividend

Decreases assets and stocholders equity

Paying an account payable with cash affects the components of the accounting equation in the following way

Decreases assets and decreases liabilities.

The effects on the basic accounting equation of performing services to receive cash are to

Increase assets and increase stockholders equity