ACC 131 Ch.1

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  1. Define Accounting
    Identifying, measuring, recording, and communicating financial information about a company so decision makers can make decisions.
  2. Sole Proprietorship
    • Easily formed
    • Tax advantages
    • Controlled by owner
  3. Sole Proprietorship
    • Personal Liability
    • Limited Life
  4. Partnership
    • Access to the resources and skills of partners
    • tax advantages
  5. Partnership
    • Shared control
    • Personal liability
    • Limited Life
  6. Corporation
    • Easier to raise money
    • Easier to transfer ownership
    • Limited liability
  7. Corporation
    • More complex to organize
    • Higher taxes
  8. Sole Proprietorship
    • Business owned by one person
    • Usually small, local businesses
    • Owner is responsible for the debt of the business
    • Formed/dissolved at the wishes of the owner
  9. Partnership
    • Owned jointly by 2 or more individuals
    • Professional practices and law firms
    • Increased access to financial resources and individual skills
    • Dissolved when any partner leaves, but remaining partner can form new partnership
  10. Corporation
    • Organized under the laws of a particular state
    • Owned by one or more stockholders
    • Able to raise large amounts of money
  11. What are financing activities?
    Obtaining funds to start a business (from owners or creditors)
  12. Operating Activities
    Operating the business to earn a profit
  13. Investing Activities
    Buying assets which are used to generate revenues
  14. 2 types of financing that companies use to obtain funds
    Issuing stock (stockholders' equity) or borrowing money (creditors)
  15. Define Liability
    The obligation to repay a creditor.
  16. What are investing activities commonly referred to as?
    Property, plant, and equipment
  17. Revenue
    The increase in assets that results from the sale of products or services.
  18. Expenses
    The cost of assets used, or the liabilities created, in the operation of the business.
  19. Net income
    When revenue is greater than expenses
  20. Net Loss
    When expenses are greater than revenues.
  21. Name the 4 types of financial statements.
    • Balance Sheet
    • Income Statement
    • Retained Earnings Statement
    • Statement of Cash Flows
  22. Balance Sheet
    Reports the resources (assets) owned by a company and the claims against those resources (liabilities and stockholders' equity) at a specific point in time.
  23. Income Statement
    Reports how well a company has performed its operations (revenue, expenses, and income) over a period of time.
  24. Retained Earnings Statement
    Reports how much of the company's income was retained in the business and how much was distributed to owners over a period of time.
  25. Statement of Cash Flow
    Reports the sources and uses of a company's cash over a period of time.
  26. Who has the power to set accounting rules for publicly traded companies?
    Securities and Exchange Commission
  27. Generally accepted accounting principles (GAAP)
    Common set of rules and conventions, developed to guide the preparation of financial statements
  28. List some current assets.
    • Cash
    • Short-term investments
    • Accounts receivable
    • Inventories
    • Other current assets (a 'catch-all' category)
  29. Long-term Investments
    Similar to short-term investments except for the duration of holding; they can include land and buildings not currently used in operations.
  30. Property, pland and equipment
    Includes tangible productive assets used in operations, like land, buildings, equipment, and furniture.
  31. Intangible Assets
    Lack physical substance and include patent, trademarks, copyrights and goodwill.
  32. Current Liabilities
    Obligations that will be satisfied, through the payment of cash or by providing goods or services, within one year or the operating cycle, whichever is longer.
  33. Give examples of some liabilities
    • Accounts payable
    • Salaries payable
    • Unearned revenue
    • Interest payable
    • Income taxes payable
  34. Long-term liabilities
    Obligations that will require payment beyond one year or the operating cycle.
  35. 2 common examples of long-term liabilities.
    • Notes payable
    • Bonds payable
  36. Notes payable
    An obligation to repay cash borrowed at a future date
  37. Bonds payable
    A form of an interest-bearing note payable issued by corporations in an effort to attract a large amount of investors.
  38. What 2 things make up stockholders' equity?
    • Contributed capital
    • Retained earnings
  39. Retained earnings
    The accumulated net income of a company that has not been distributed to owners in the form of dividends.
  40. Contributed capital
    The owners' contributions of cash and other assets to the company.
  41. Liquidity
    • The ability to pay obligations as they become due.
    • The relationship between current assets and current liabilities helps determine this.
  42. 2 ways to measure liquidity
    Working capital and current ratio equations.
  43. Working capital equation
    Working Capital=Current assets-current liabilities
  44. Current Ratio equation
    Current Ratio=Current Assets /Current Liabilities
  45. Revenue
    The increase in assets that result from the sale of products or services
  46. Expenses
    The cost of resources used to earn revenues during a period.
  47. Income Statement
    reports the results of a company's operations-the sale of goods and services and the associated cost of operating the company-for a given period.
  48. Single-step income statements
    Have only 2 categories: total revenues and total expenses
  49. Multiple-step income statements
    Provide classifications of revenues and expenses that financial statement users find useful.
  50. Gross Margin (how to find it)
    Gross Margin=Net sales-Cost of Goods sold
  51. Income from operations (how to find it)
    Gross Margin-Operating expenses
  52. Net Income (how to find it)
    Net Income=Income from operations- (Nonoperating Revenues-expenses)
  53. Net Profit Margin
    Company's ability to generate profit.
  54. Net Profit Margin equation
    Net Profit Margin=Net income/sales revenue
  55. Difference between directly and indirectly contributing capital
    • Directly: Through purchases of common stock from the company
    • Indirectly: By the company retaining some or all of the net income earned each year rather than paying it out in dividends.
  56. Cash flows from operating activities
    Any cash flows directly related to earning income. Includes cash sales and collections of accounts receivable, as well as cash payments for goods, services, salaries, and interest.
  57. Cash flows from investing activities
    Any cash flow related to the acquisiton or sale of investments and long-term assets such as property, plant, and equipment
  58. Cash flows from financing activities
    Any cash flow related to obtaining capital of the company. This category includes the issuance and repayment of debt, common stock transactions, and the payment of dividends.
Card Set
ACC 131 Ch.1
accounting 131 chapter 1
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