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Accounting 153 ch1-3
| Question | Answer |
|---|---|
| What do liquidity ratios tell you? | Measures the short term abilities of a company to pay its maturing obligations and to meet unexpected need for cash. |
| What is the basic accounting equation? | Assets = Liabilities + Stockholder's Equity. |
| What is a ratio? | An expression of the mathematical relationship between one quantity and another. |
| What is an expense? | The cost of assets consumed or services used in the process of generating revenues. |
| What is liquidity? | The ability of a company to pay obligations that are expected to become due within the next year or operating cycle. |
| Change 40% to a fraction | 2/5 |
| What is accounting? | The information system that identifies, records, and communicates the economic events of an organization to interested users. |
| What is an asset? | The resources owned by a business. |
| What is solvency? | The ability of a company to pay interest as it comes due and to repay the balance of debt due at its maturity. |
| What are the 3 types of long term investment? | Generally: 1. Investments in stocks and bonds of other corporations that companies hold for more than one year. 2. Long term assets such as land or buildings, not currently being used in company operations. 3. Long term notes receivable. |
| What is meant by faithful representation? | Information that is complete, neutral & free from error. |
| What is the formula for interest? | Interest=Principal*rate*time |
| What is the Statement of Stockholder's Equity? | A financial statement that presents the causes of changes to stockholders equity during the period; including those that caused retained earnings to change. |
| What is the International Accounting Standards Board? | An accounting standard setting body that issues standards adopted by many countries outside of the U.S. |
| Change 20% to a fraction | 1/5 |
| What is a corporation? | A business organized as a separate legal entity owned by stockholders. |
| What is a sole proprietorship? | A business owned by one person. |
| What is comparability? | The ability to compare the accounting information of different companies because they use the same accounting principles. |
| Change 75% to a fraction | 3/4 |
| What do solvency ratios tell you? | Measures the ability of a company to survive over a long period of time. |
| What are International Financial Reporting Standards? | Accounting standards issued by the IASB, that have been adopted by many countries outside of the U.S. |
| What is a net loss? | The amount by which expenses exceed revenues. |
| What is meant by Property, Plant & Equipment? | Assets with relatively long useful lives that are currently used in operating the business. |
| Who is the Public Company Accounting Oversight Board (PCAOB)? | The group charged with determining auditing standards and reviewing the performance of auditing firms. |
| What is common stock? | Term used to describe the total amount paid in by stockholders for the shares they purchase. |
| What is the formula for working capital? | WC= Current Assets - Current Liabilities. |
| What is a Certified Public Accountant? | An individual who has met certain criteria and is thus allowed to perform audits of corporations. |
| What is the historical cost principle? | An accounting principle that states that companies should record assets at their cost. |
| Change 12 1/2% to a fraction? | 1/8 |
| What is a liability? | Amounts owed to creditors in the form of debts and other obligations. |
| What is stockholder's equity? | The owners' claims to assets |
| What is revenue? | The increase in assets or decrease in liabilities resulting from the sale of goods or the performance of services in the normal course of doing business. |
| What is timely information? | Information that is available to decision makers before it loses its capacity to influence decisions. |
| What is free cash flow? | Net cash provided by operating activities after adjusting for capital expenditures and cash dividends paid. |
| What are long term liabilities (long term debt)? | Obligations that a company expects to pay after one year. |
| What is net income? | The amount by which revenues exceed expenses. |
| What is the Sarbanes-Oxley (SOX)Act? | Regulations passed by congress to reduce unethical corporate behavior. |
| What is relevance? | The quality of information that indicates the information makes a difference in a decision. |
| What are current liabilities? | Obligations that a company expects to pay within the next year or operating cycle, whichever is longer. |
| What are dividends? | Payments of cash from a corporation to its stockholders. |
| What are current assets? | Assets that companies expect to convert to cash or use up within one year or the operating cycle whichever is longer. |
| What are retained earnings? | The amount of net income retained in the corporation. |
| What is Earnings Per Share and how do you calculate it? | A measure of the net income earned on each share of common stock. formula: net income-preferred dividends/average # of common shares outstanding during the year. |
| What is a classified balance sheet? | A balance sheet that groups together similar assets and similar liabilities, using a number of standard classifications and sections. |
| What is an income statement? | A financial statement that reports a companies revenues and expenses and resulting net income or net loss for a specific period of time. |
| What do profitability ratios tell you? | Measures the operating success of a company for a given period of time. |
| What is current ratio? | A measure of liquidity computed as: current assets/current liabilities. |
| What is a balance sheet? | A financial statement that reports the assets & claims to those assets at a specific point in time. |
| What is a retained earnings statement? | A financial statement that summarizes the amounts and causes of changes in retained earnings for a specific time period. |
| What is the acronym for a classified balance sheet? | Certain Lazy People Increasingly Cause Long Stares |
| What is accrual basis accounting? | Accounting basis in which companies record, in the periods in which the events occur, transactions that change a company's financial statements, even if cash was not exchanged. |
| What is accrued expenses? | Expenses incurred but not yet paid in cash or recorded. |
| What is accrued revenues? | Revenues for services performed but not yet received in cash or recorded. |
| What is adjusted trial balance? | A list of accounts and their balances after all adjustments have been made. |
| What are adjusting entries? | Entries made at the end of an accounting period to ensure the revenue recognition and expense recognition principles are followed. |
| What is book value? | The difference between the cost of a depreciable asset and its related accumulated depreciation. |
| What is cash basis accounting? | Accounting basis in which a company records revenue only when it receives cash and an expense only when it pays cash. |
| What are closing entries? | Entries at the end of an accounting period to transfer the balances of temporary accounts to a permanent stockholder's equity account, Retained Earnings. |
| What is a Contra asset account? | An account that is offset against an asset account on the balance sheet. |
| What is depreciation? | The process of allocating the cost of an asset to expense over its useful life. |
| What is earnings management? | The planned timing of revenues, expenses, gains, and losses to smooth out bumps in net income. |
| What is the expense recognition principle (matching principle)? | The principle that matches expenses with revenues in the period when the company makes efforts to generate those revenues. |
| What is a fiscal year? | An accounting period that is one year long. |
| What is income summary? | A temporary account used in closing revenue and expense accounts. |
| What is periodicity assumption? | An assumption that the economic life of a business can be divided into artificial time periods. |
| What are permanent accounts? | Balance sheet accounts whose balances are carried forward to the next accounting period. |
| What are Post-closing trial balance? | A list of permanent accounts and their balances after a company has journalized and posted closing entries. |
| What are prepaid expenses? | Expenses paid in cash before they are used or consumed. |
| What is quality of earnings? | Indicates the level of full and transparent information that a company provides to users of its financial statements. |
| What is the revenue recognition principle? | The principle that companies recognize revenue in the accounting period in which the performance obligation is satisfied. |
| What is a reversing entry? | An entry made at the beginning of the next accounting period; the exact opposite of the adjusting entry made in the previous period. |
| What are temporary accounts? | Revenue, expense and dividend accounts whose balances a company tranfers to Retained earnings at the end of an accounting period. |
| What are unearned revenues? | Cash received and a liability recorded before services are performed. |
| What is useful life? | The length of service of a productive asset. |
| What is a worksheet? | A multiple-column form that companies may use in the adjustment process and in preparing financial statements. |
Created by:
jayreed1972
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