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What does GAAP stand for?
Generally Accepted Accounting Principles
Who coined the term GAAP?
SEC - Securities & Exchange Commission, FASB - Financial Accounting Standards Board
What is the monetary unit assumption in accounting?
Transactions and events are recorded in monetary units such as USD, Pesos, or Euros.
What does the economic entity assumption require?
A business must be accounted for separately from its owners and any other entity.
What is the cost principle?
Accounting based on the actual cost incurred in transactions.
What is the matching principle?
Expenses should be recorded in the same period as the revenue they helped generate.
What does the revenue recognition principle state?
Revenue is recognized when goods and services are provided to customers.
What is the full disclosure principle?
Financial statements must include all relevant details for decision-making.
What does the time period assumption mean in accounting?
An organization’s activities are recorded and reported in specified time periods.
What is the going concern assumption?
It presumes that a business will continue to operate indefinitely.
Who are internal users of financial data?
Individuals who directly manage the organization, such as purchasing or production managers.
Who are external users of financial data?
Individuals or entities that do not directly run the organization, such as investors or regulators.
What does CPA stand for?
Certified Public Accountant
What is a sole proprietorship?
A business owned by one person with unlimited liability and no separate legal entity.
What is a partnership in business?
A business owned by two or more partners with shared unlimited liability.
What defines a corporation?
A business with one or more shareholders that is a separate legal entity with limited liability.
What is an LLC (Limited Liability Company)?
A business structure with one or more members, providing limited liability and no additional business income tax.
What does DR=CR stand for in accounting?
Debits equal Credits.
Who is Luca Pacioli?
Regarded as the father of accounting.
What type of account is 'Prepaid Expenses'?
Asset account.
What type of account is 'Unearned Revenue'?
Liability account.
What is the normal balance for asset accounts?
Debits increase the account.
What is the normal balance for liability accounts?
Credits increase the account.
How is Book Value calculated?
Cost of the asset minus Accumulated Depreciation.
What are the two methods to calculate bad debt expense?
Aging of A/R and Percentage of Credit Sales.
What are the four basic financial statements?
Balance Sheet, Income Statement, Statement of Equity, and Statement of Cash Flow.
What does a Balance Sheet represent?
A snapshot of a company's financial position at a specific point in time.
What is Net Income?
Revenue minus Expenses.
How do you calculate Gross Profit percentage?
(Gross Profit / Revenue) x 100.
What is Goodwill in accounting?
An intangible asset calculated based on the excess paid over Fair Value of identifiable net assets.
What is the formula to calculate Working Capital?
Current Assets minus Current Liabilities.
What does FOB Shipping Point mean?
Ownership transfers at the shipping point; buyer pays for shipping.
What does FOB Destination entail?
Ownership transfers at the destination point; seller pays for shipping.
What is an asset?
Resources owned by a business that have economic value.
What is a liability?
Debts or obligations of a business that are settled over time.
What is equity in accounting?
The residual interest in the assets of a company after deducting liabilities.
What is Depreciation?
The allocation of the cost of a tangible asset over its useful life.
What is Accrual Accounting?
Accounting method where revenue and expenses are recorded when they are earned or incurred, regardless of when cash is received or paid.
What is the purpose of an Income Statement?
To provide a summary of a company’s revenues and expenses over a specific period.
What does a Statement of Cash Flow represent?
A financial statement showing cash inflows and outflows over a period.
What is Amortization?
The gradual reduction of an intangible asset's value or the repayment of a loan over time.
What is the role of the FASB?
To establish and improve financial accounting and reporting standards.
What is a trial balance?
A report that lists the balances of all general ledger accounts to verify that total debits equal total credits.
What does Liabilities mean?
Obligations of a business that result in future sacrifices of economic resources.
What is the Matching Principle in accounting?
Expenses should be aligned with the revenues they generate within the same period.
What is Bookkeeping?
The recording, storing, and retrieving of financial transactions for a business.
What is the role of an Auditor?
To evaluate and verify a company's financial statements and compliance with accounting standards.
What is Accumulated Depreciation?
The total amount of depreciation expense that has been allocated to a fixed asset over time.
What does the term 'current assets' refer to?
Assets that are expected to be converted to cash or used up within one year.
What does a Liquidity Ratio indicate?
A measure of the ability of a company to meet its short-term obligations.
What is an Operating Expense?
The costs associated with running a business's core operations.
What are Intangible Assets?
Non-physical assets that have value, such as patents and trademarks.
What does 'Capital Structure' refer to?
The mix of debt and equity financing a company uses to fund its operations.
What is the purpose of Generally Accepted Accounting Principles (GAAP)?
GAAP is a framework of accounting standards and principles used to ensure transparency and consistency in financial reporting.
What are retained earnings?
Retained earnings refer to the cumulative amount of net income that a company retains, rather than distributing it as dividends to shareholders.
What is a financial audit?
A financial audit is an independent examination of financial information of an entity, whether profit-oriented or not, regardless of its size.
What is the role of the SEC?
The Securities and Exchange Commission (SEC) enforces laws against market manipulation and ensures transparency in financial reporting.
What is the difference between cash accounting and accrual accounting?
Cash accounting records revenue and expenses when cash is exchanged, while accrual accounting records them when they are earned or incurred.
What is a budget in accounting?
A budget is a financial plan that outlines projected revenues and expenses for a specific period.
What is the significance of the accounting cycle?
The accounting cycle is a series of steps that businesses follow to capture and report financial transactions.
What are current liabilities?
Current liabilities are obligations that a company expects to settle within one year.
What is a ledger in accounting?
A ledger is a book or electronic record that contains accounts for recording financial transactions.
What is the importance of internal controls?
Internal controls are processes designed to ensure reliability in financial reporting, compliance with laws
What are the three main categories of assets?
Current Assets, Fixed Assets, and Intangible Assets.
What is a current liability?
A liability that a company expects to settle within one year.
What are Accounts Receivable?
Money owed to a business by its customers for goods or services delivered.
What is the purpose of the Income Statement?
To summarize revenues and expenses over a specific period to determine net income.
What does Net Profit Margin indicate?
The percentage of revenue that remains as profit after all expenses are deducted.
What is Liquidity?
The ability of a company to meet its short-term financial obligations.
What does the term 'financial leverage' mean?
Using borrowed funds to increase the potential return on investment.
What is a cash flow statement?
A financial report that provides data regarding all cash inflows and outflows a company receives.
What is the difference between fixed assets and current assets?
Fixed assets are long-term resources, while current assets are short-term resources converted to cash within a year.
What is a financial ratio?
A mathematical relationship between two financial statement figures, used for assessing a company's performance.
What is a Fiscal Year?
A fiscal year is a year as reckoned for taxing or accounting purposes, usually not aligning with the calendar year.
What is a Trial Balance used for?
A trial balance is used to verify that total debits equal total credits and to prepare financial statements.
What does 'Capital Expenditure' mean?
A capital expenditure refers to funds used by a company to acquire or upgrade physical assets.
What is Financial Accounting?
Financial accounting is the process of recording, summarizing, and reporting financial transactions.
What is a Depreciation Schedule?
A depreciation schedule outlines the allocation of the cost of an asset over its useful life.
What is Working Capital Management?
Working capital management involves managing short-term assets and liabilities to ensure a company can continue its operations.
What is a Cash Equivalent?
Cash equivalents are short-term investments that are easily convertible to cash, with negligible risk.
What is a Contingent Liability?
A contingent liability is a potential obligation that may become actual depending on the outcome of a future event.
What does 'Earnings per Share' (EPS) represent?
Earnings per Share (EPS) measures a company's profitability on a per-share basis.
What is the purpose of a Management Accounting report?
Management accounting reports are used internally to help management make informed business decisions.
What is a financial statement?
A formal record of the financial activities and position of a business, person, or entity.
What are the types of financial statements?
The main types are the Balance Sheet, Income Statement, and Cash Flow Statement.
What is the purpose of the Balance Sheet?
To provide a snapshot of a company's assets, liabilities, and equity at a specific point in time.
What is the importance of the Income Statement?
It shows the company's profitability by detailing revenues and expenses over a specific period.
What role does a budget play in accounting?
A budget serves as a financial plan that guides business operations by outlining expected revenues and expenses.
What is the difference between fixed assets and tangible assets?
Fixed assets are long-term resources used in operations, while tangible assets have physical form.
What does ROI stand for?
Return on Investment, a measure of the profitability of an investment.
What is a financial forecast?
A projection of a company's future financial performance based on historical data and assumptions.
What are the characteristics of an effective financial audit?
An effective audit is independent, thorough, and adheres to established auditing standards.
What does a cash flow statement highlight?
It highlights the cash generated and used during a specific period from operations, investing, and financing
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