Test Bank for Financial Accounting, Exam 1 2023
What are financial statements? - CORRECT ANSWER-"Financial Statements are
the business documents companies use to report the results of their activities to
people and groups that can include managers, investors, creditors, and regulatory
agencies." pg 1
List the basic financial statements in order: - CORRECT ANSWER-Income
statement, Statement of Retained Earnings, Balance Sheet, Statement of Cash
Flows
"an information system that measures business activities, processes data into
financial statements and reports, and communicates results to decision makers."
(page 3) - CORRECT ANSWER-Accounting
"a mechanical part of accounting, just as arithmetic is a part of mathematics;
accounting as a field is much more than this mechanical part."(page 3) - CORRECT
ANSWER-Bookkeeping
"form of business organization consists of a single owner and the owner is personally
liable for all the business's debts." (page 4) - CORRECT ANSWER-Proprietorship
"Income from the (fill in blank) form of business organization "flows through" to the
owners; each owner can legally bind all partners into unlimited debt." (page 4) -
CORRECT ANSWER-Partnership
"When organized as a (fill in blank), the owners are not personally liable for the
business's debts and the business's income "flows through" to the owners to be
taxed at the owners' own tax rates." (page 5) - CORRECT ANSWER-Limited-liability
company (LLC)
"Although its advantages include the ability to raise large sums of capital and the no
personal liability for its owners, one potential disadvantage of the (fill in blank) form
of business organization is that its income is subject to double taxation." (page 5) -
CORRECT ANSWER-Corporation
who/ what controls a Corporation? (page 5) - CORRECT ANSWER-
stockholders/shareholders
What are the two frameworks for the measurement and disclosure of financial info?
(page 5) - CORRECT ANSWER-Generally Accepted Accounting Principles (GAAP)
and International Financial Reporting Standards (IRFS)
Two regulatory bodies that create the standards for each framework for the
measurement and disclosure of info? (page 5) - CORRECT ANSWER-Financial
Accounting Standards Board (FASB) and International Accounting Standards Board
(IASB)
Does the Financial Accounting Standards Board (FASB) regulate Generally
Accepted Accounting Principles (GAAP) or International Financial Reporting
, Standards (IRFS)? What about the International Accounting Standards Board
(IASB)? - CORRECT ANSWER-Financial Accounting Standards Board (FASB) =
GAAP (US)
International Accounting Standards Board (IASB) = IRFS (International)
Entity Assumption - CORRECT ANSWER-"any organization that stands apart as a
separate economic unit. Sharp boundaries are drawn around each entity so as not to
confuse its affairs with those of others." (page 7)
"In measuring and reporting accounting information, we assume that the entity will
continue to operate long enough to use existing assets—land, buildings, equipment,
and supplies—for its intended purposes." (page 7) - CORRECT ANSWER-Continuity
(going- concern) assumption
Historical cost principle (page 7) - CORRECT ANSWER-An accounting principle that
states that companies should record assets at their cost.
Accountants assume that the dollar's purchasing power is stable over time (page 7) -
CORRECT ANSWER-Stable monetary unit assumption
Fair Value (page 8) - CORRECT ANSWER-the amount that a business could sell an
asset for, or the amount that a business could pay to settle a liability
What are debts that are payable to 'outsider claims' in a business? (9) - CORRECT
ANSWER-Liabilities (side note Liabilities have normal CREDIT balance)
What represents the 'insider claims' of a business? (9) - CORRECT ANSWER-
Owner's Equity
Accounting Equation - CORRECT ANSWER-Assets = Liabilities + Equity or (also
seen as) Assets-Liabilities= Equity
Two sub parts of stockholders' equity: (10) - CORRECT ANSWER-Paid-In Capital
Retained Earnings
Are dividends expenses? Do they affect net income? (11) - CORRECT ANSWER-
NO and NEVER
Calculation for Net Income - CORRECT ANSWER-Revenue-Expenses
Calculation for Retained Earnings - CORRECT ANSWER-(if beginning) Beginning
retained earnings (which is the ending retained earnings from the year before) + Net
Income or Net loss (revenue-expenses) - Dividends declared
What statement tells how well a company performed during the year? (13) -
CORRECT ANSWER-Income Statement
How can you tell a company's financial position? (13) - CORRECT ANSWER-Net
income or loss
What are financial statements? - CORRECT ANSWER-"Financial Statements are
the business documents companies use to report the results of their activities to
people and groups that can include managers, investors, creditors, and regulatory
agencies." pg 1
List the basic financial statements in order: - CORRECT ANSWER-Income
statement, Statement of Retained Earnings, Balance Sheet, Statement of Cash
Flows
"an information system that measures business activities, processes data into
financial statements and reports, and communicates results to decision makers."
(page 3) - CORRECT ANSWER-Accounting
"a mechanical part of accounting, just as arithmetic is a part of mathematics;
accounting as a field is much more than this mechanical part."(page 3) - CORRECT
ANSWER-Bookkeeping
"form of business organization consists of a single owner and the owner is personally
liable for all the business's debts." (page 4) - CORRECT ANSWER-Proprietorship
"Income from the (fill in blank) form of business organization "flows through" to the
owners; each owner can legally bind all partners into unlimited debt." (page 4) -
CORRECT ANSWER-Partnership
"When organized as a (fill in blank), the owners are not personally liable for the
business's debts and the business's income "flows through" to the owners to be
taxed at the owners' own tax rates." (page 5) - CORRECT ANSWER-Limited-liability
company (LLC)
"Although its advantages include the ability to raise large sums of capital and the no
personal liability for its owners, one potential disadvantage of the (fill in blank) form
of business organization is that its income is subject to double taxation." (page 5) -
CORRECT ANSWER-Corporation
who/ what controls a Corporation? (page 5) - CORRECT ANSWER-
stockholders/shareholders
What are the two frameworks for the measurement and disclosure of financial info?
(page 5) - CORRECT ANSWER-Generally Accepted Accounting Principles (GAAP)
and International Financial Reporting Standards (IRFS)
Two regulatory bodies that create the standards for each framework for the
measurement and disclosure of info? (page 5) - CORRECT ANSWER-Financial
Accounting Standards Board (FASB) and International Accounting Standards Board
(IASB)
Does the Financial Accounting Standards Board (FASB) regulate Generally
Accepted Accounting Principles (GAAP) or International Financial Reporting
, Standards (IRFS)? What about the International Accounting Standards Board
(IASB)? - CORRECT ANSWER-Financial Accounting Standards Board (FASB) =
GAAP (US)
International Accounting Standards Board (IASB) = IRFS (International)
Entity Assumption - CORRECT ANSWER-"any organization that stands apart as a
separate economic unit. Sharp boundaries are drawn around each entity so as not to
confuse its affairs with those of others." (page 7)
"In measuring and reporting accounting information, we assume that the entity will
continue to operate long enough to use existing assets—land, buildings, equipment,
and supplies—for its intended purposes." (page 7) - CORRECT ANSWER-Continuity
(going- concern) assumption
Historical cost principle (page 7) - CORRECT ANSWER-An accounting principle that
states that companies should record assets at their cost.
Accountants assume that the dollar's purchasing power is stable over time (page 7) -
CORRECT ANSWER-Stable monetary unit assumption
Fair Value (page 8) - CORRECT ANSWER-the amount that a business could sell an
asset for, or the amount that a business could pay to settle a liability
What are debts that are payable to 'outsider claims' in a business? (9) - CORRECT
ANSWER-Liabilities (side note Liabilities have normal CREDIT balance)
What represents the 'insider claims' of a business? (9) - CORRECT ANSWER-
Owner's Equity
Accounting Equation - CORRECT ANSWER-Assets = Liabilities + Equity or (also
seen as) Assets-Liabilities= Equity
Two sub parts of stockholders' equity: (10) - CORRECT ANSWER-Paid-In Capital
Retained Earnings
Are dividends expenses? Do they affect net income? (11) - CORRECT ANSWER-
NO and NEVER
Calculation for Net Income - CORRECT ANSWER-Revenue-Expenses
Calculation for Retained Earnings - CORRECT ANSWER-(if beginning) Beginning
retained earnings (which is the ending retained earnings from the year before) + Net
Income or Net loss (revenue-expenses) - Dividends declared
What statement tells how well a company performed during the year? (13) -
CORRECT ANSWER-Income Statement
How can you tell a company's financial position? (13) - CORRECT ANSWER-Net
income or loss
