Accounting - Chapter 1

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silverx12
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Accounting - Chapter 1
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2013-02-25 01:11:38
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Accounting
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Accounting Sp 13
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  1. Define:

    accounting
    the process by which financial information about a business is recorded, classified, summarized, interpreted, and communicated to owners, managers, and other interested parties
  2. Define:

    accounting system
    a process designed to accumulate, classify, and summarize financial data
  3. Define:

    auditing
    the review of financial statements to assess their fairness and adherence to generally accepted accounting principles
  4. Define:

    auditor's report
    an independent accountant's review of a firm's financial statements
  5. Define:

    certified public accountant (CPA)
    an independent accountant who provides accounting services to the public for free
  6. Define:

    corporation
    a publicly or privately owned business entity that is separate from its owners and has a legal right to own property and do business in its own name
  7. T or F:

    In a corporation stockholders are responsible for the debts or taxes of the business
    False; in a corporation stockholders are not responsible for the debts or taxes of the business
  8. Define:

    creditor
    one to whom money is owed
  9. Define:

    discussion memorandum
    an explanation of a topic under consideration by the Financial Accounting Standards Board
  10. Define:

    economic entity
    a business or organization whose major purpose is to produce a profit for its owners
  11. Define:

    entity
    anything having its own separate identity, such as an individual, a town, a university, or a business
  12. Define:

    exposure draft
    a proposed solution to a problem being considered by the Financial Accounting Standards Board
  13. Define:

    financial statements
    periodic reports of a firm's financial position or operating results
  14. Define:

    generally accepted accounting principles (GAAP)
    accounting standards developed and applied by professional accountants
  15. Define:

    governmental accounting
    accounting work performed for a federal, state, or local governmental unit
  16. Define:

    international accounting
    the study of accounting principles used by different countries
  17. Define:

    management advisory services
    services designed to help clients improve their information systems or their business performance
  18. Define:

    managerial accounting (also called private accounting)
    accounting work carried on by an accountant employed by a single business in industry
  19. Define:

    partnership
    a business entity owned by two or more people who are legally responsible for the debts and taxes of the business
  20. Define:

    public accountants
    members of firms that perform accounting services for other companies
  21. Define:

    separate entity assumption
    the concept of keeping a firm's financial records separate from the owner's personal financial records
  22. Define:

    social entity
    a nonprofit organization, such as a city, public school, or public hospital
  23. Define:

    sole proprietorship
    a business entity owned by one person who is legally responsible for the debts and taxes of the business
  24. Define:

    Statements of Financial Accounting Standards
    accounting principles established by the Financial Accounting Standards Board
  25. Define:

    stock
    certificates that represent ownership of a corporation
  26. Define:

    stockholders (also called shareholders)
    the owners of a corporation
  27. Define:

    tax accounting
    a service that involves tax compliance and tax planning
  28. What are the three areas that accountants usually practice in?
    public accounting, managerial accounting, governmental accounting
  29. What three services do public accountants usually offer?
    auditing, tax accounting, management advisory services
  30. What are the "Big Four" public accounting firms in the US?
    • Deloitte & Touche
    • Ernst & Young
    • KPMG
    • PricewaterhouseCoopers
  31. Identify the users of financial information
    • owners and managers
    • suppliers
    • banks
    • tax authorities
    • regulatory agencies and investors
    • customers
    • employees and unions
  32. What are the responsibilities of the Securities and Exchange Commission (SEC)?
    • * oversee the financial information provided by publicly owned corporations to their investors and potential investors
    • * reviews the accounting methods used by publicly owned corporations
  33. Why was the Sarbanes-Oxley Act passed?
    in response to the wave of corporate accounting scandals
  34. The Sarbanes-Oxley Act creates a five-member Public Company Accounting Oversight Board.  What is the responsibility of the Board?
    they have investigative and enforcement powers to oversee the accounting profession and to discipline corrupt accountants and auditors
  35. Who oversees the Public Company Accounting Oversight Board?
    the Securities and Exchange Commission
  36. What does the Sarbanes-Oxley Act prohibit accountants from doing?
    • accountants cannot offer a broad range of consulting services to publicly traded companies that they audit
    • accounting firms are required to change the lead audit or coordinating partner and the reviewing partner for a company every five years
  37. Why is accounting called the "language of business"?
    the results of the accounting process - financial statements - communicate essential information about a business to concerned individuals and organizations
  38. What are the names of three accounting job positions?
    clerk, bookkeeper, accounant
  39. Which organization has the final say on financial accounting issues faced by publicly owned corporations?

    A.  Securities and Exchange Commission
    B.  U.S. Treasury Department
    C.  Internal Revenue Service
    D.  Federal Trade Commission
    A.  Securities and Exchange Commission
    (this multiple choice question has been scrambled)
  40. One requirement for becoming a CPA is to pass the:

    A.  Final CPA Examination
    B.  SEC Accounting Examination
    C.  Uniform CPA Examination
    D.  State Board Examination
    C.  Uniform CPA Examination
    (this multiple choice question has been scrambled)
  41. The owner of the sporting goods store where you work has decided to expand the store.  She has decided to apply for a loan.  What type of information will she need to give to the bank?
    current sales and expenses figures, anticipated sales and expenses, and the cost of the expansion
  42. What are the three major legal forms of a business entity?
    sole proprietorship, partnership, and corporation
  43. T or F:

    The life of the business ends when the owner is no longer willing or able to keep the business going
    True
  44. T or F:

    The owner of a sole proprietorship is legally responsible for the debts and taxes of the business.
    True
  45. T or F:

    When paying taxes, the owner's income and the income of the business are separated to compute the total tax responsibility of the owner.
    False; When paying taxes, the owner's income and the income of the business are combined to compute the total tax responsibility of the owner.
  46. T or F:

    In a partnership, when a partner leaves, the partnership is dissolved and a new partnership may be formed with the remaining partners.
    True
  47. T or F:

    Partners are individually, and as a group, responsible for the debts and taxes of the partnership.
    True
  48. What is the only form of business that is a separate legal entity?
    a corporation
  49. The Limited Liability Partnership Act allows a Limited Liability Partnership (LLP) to be formed.  What is an LLP?
    a general partnership that provides some limited liability for all partners
  50. T or F:

    Under an LLP, partners are liable for the actions of another partner.
    False; under an LLP partners are not liable for the actions of another partner.  They are responsible and have liability for their own actions and the actions of those under their control of supervision.
  51. What represents the ownership of a corporation?
    stock
  52. Corporations may be privately or publicly owned.  How are stock exchanged in each type?
    • Stock of privately owned (or closely held) corporations is not traded on an exchange
    • Stock of publicly owned is bought and sold on stock exchanges
  53. What are Subchapter S Corporations (also known as S corporations)?
    entities formed as corporations and are to be treated as a partnership so the corporation pays no income tax
  54. How do business entities end?
    • sole proprietorship ends when the owner dies or discontinues the business
    • partnership ends on the death or withdrawal of a partner
    • corporation does not end when ownership changes
  55. T or F:

    Corporate owners (stockholders) are responsible for the debts or taxes of the corporation.
    False; Corporate owners (stockholders) are not responsible for the debts or taxes of the corporation.
  56. Who has the final say on matters of financial reporting by publicly owned corporations?
    the Securities and Exchange Commission
  57. Who developed the GAAP?
    the Financial Accounting Standards Board (FASB)
  58. What are the steps the FASB follows before issuing Statements of Financial Accounting Standards?
    • the FASB writes a discussion memorandum to explain the topic being considered
    • public hearings are held where interested parties can express their opinions, either orally or in writing
    • the FASB releases and exposure draft, which describes the proposed statement
    • the FASB receives and evaluates public comments about the exposure draft
    • FASB members vote n the statement
    • Note: at least four members must approve for the statement to be issued
  59. What is the International Accounting Standards Board (IASB, formally IASC) responsible for?
    • deals with issues caused by the lack of uniform accounting principles
    • makes recommendations to enhance comparability of reporting practices
  60. Why are generally accepted accounting principles needed?
    GAAP help to ensure that financial information fairly presents a firm's operating results and financial position
  61. How are generally accepted accounting principles developed?
    the FASB develops proposed statements and solicits feedback from interested individuals, groups, and companies.  The FASB evaluates the opinions received and votes on the statement.
  62. A nonprofit organization such as a public school is a(n):

    A.  economic entity
    B.  social entity
    C.  social unit
    D.  economic unit
    B.  social entity
    (this multiple choice question has been scrambled)
  63. An organization that has two or more owners who are legally responsible for the debts and taxes of the business is a:

    A.  social entity
    B.  partnership
    C.  sole proprietorship
    D.  corporation
    B.  partnership
    (this multiple choice question has been scrambled)
  64. You plan to open a business with two of your friends.  You would like to form a corporation, but your friends prefer the partnership form of business.  What are some of the advantages of the corporate form of business?
    • the shareholders are not responsible for the debts and taxes of the corporation
    • corporations can continue in existence indefinitely
  65. What is the purpose of accounting?
    to gather and communicate financial information about a business
  66. What is the purpose of the auditor's report?
    to obtain the objective opinion of a professional accountant from outside the company that the statements fairly present the operating results and financial position of the business and that the information was prepared according to GAAP
  67. What are the three types of business entities?
    sole proprietorship, partnership, and corporation
  68. What does the accounting process involve?
    recording, classifying, summarizing, interpreting, and communicating financial information about a business
  69. How is the ownership of a corporation different from that of a sole proprietorship?
    • a sole proprietorship is a business entity owned by one person
    • a corporation is a separate legal entity that has a legal right to own property and do business in its own name
  70. T or F:

    The purpose of accounting is to provide financial information about an economic or social entity.
    True
  71. T or F:

    An accounting system is designed to accumulate and classify data about a firm's financial affairs and summarize it in the general journal.
    False
  72. T or F:

    In a sole proprietorship, the owner is responsible for the debts of the business if the firm is unable to pay.
    True
  73. T or F:

    Currently, generally accepted accounting principles are developed by the American Institute of Certified Public Accountants (AICPA).
    False
  74. T or F:

    The Securities and Exchange Commission (SEC) requires that publicly owned corporations submit financial statements to it each year.
    True
  75. T or F:

    Anyone can invest in a closely held corporation.
    False
  76. T or F:

    The separate entity assumption applies only to the corporate form of business.
    False
  77. T or F:

    As the first step in the development of generally accepted accounting principles, the FASB writes an exposure draft, which explains the topic under consideration.
    False
  78. T or F:

    Public accountants work on the staff of federal, state, or local governmental units.
    False
  79. T or F:

    Accounting is defined as the process by which financial information about a business is recorded, classified, summarized, interpreted, and communicated to owners, managers, and other interested parties.
    True
  80. Which of the following is NOT an area in which accountants usually practice?

    A.  Governmental Accounting
    B.  Public Accounting
    C.  Industrial Accounting
    D.  Managerial (Private) Accounting
    C.  Industrial Accounting
    (this multiple choice question has been scrambled)
  81. An example of an economic entity is:

    A.  a business
    B.  a church
    C.  a town
    D.  a nonprofit hospital
    A.  a business
    (this multiple choice question has been scrambled)
  82. Which of the following is NOT a type of information communicated by the financial statements?

    A.  the types of products and services the business provides
    B.  the equity, or value, of the business
    C.  the amount spent on costs (expenses) of the business
    D.  the amount of revenue earned by the business
    A.  the types of products and services the business provides
    (this multiple choice question has been scrambled)
  83. The Financial Accounting Standards Board is responsible for:

    A.  making recommendations to the Securites and Exchange Commission
    B.  establishing accounting systems for businesses
    C.  auditing financial statements
    D.  developing generally accepted accounting principles
    D.  developing generally accepted accounting principles
    (this multiple choice question has been scrambled)
  84. The financial affairs of a business and the financial affairs of the owners should be:

    A.  reported in different parts of the firm's accounting records
    B.  combined in the firm's accounting records
    C.  kept totally separate
    D.  combined only if the owner wants them to be
    C.  kept totally separate
    (this multiple choice question has been scrambled)
  85. The corporations whose stock can be bought and sold on stock exchanges and in over-the-counter markets are referred to as:

    A.  privately owned corporations
    B.  publicly owned corporations
    C.  closely held corporations
    D.  sole proprietorships
    B.  publicly owned corporations
    (this multiple choice question has been scrambled)
  86. A firm issues periodic reports called:

    A.  audits
    B.  summaries
    C.  financial statements
    D.  tax returns
    C.  financial statements
    (this multiple choice question has been scrambled)
  87. The FASB develops Statements of Financial Accounting Standards in the following order:

    A.  issues a discussion memorandum, obtains responses to the discussion memorandum, issues an exposure draft, obtains responses to the exposure draft, issues a statement of principle
    B.  issues an exposure draft, obtains responses to the exposure draft, issues a statement of principle, issues a discussion memorandum, obtains responses to the discussion memorandum
    C.  issues a discussion memorandum, obtains responses to the discussion memorandum, issues a statement of principle, issues an exposure draft, obtains responses to the exposure draft
    D. issues a statement of principle, issues a discussion memorandum, obtains responses to the discussion memorandum, issues an exposure draft, obtains responses to the exposure draft
    A.  issues a discussion memorandum, obtains responses to the discussion memorandum, issues an exposure draft, obtains responses to the exposure draft, issues a statement of principle
    (this multiple choice question has been scrambled)
  88. The review of financial statements to assess their fairness and adherence to GAAP is:

    A.  accounting
    B.  compliance
    C.  preparation
    D.  auditing
    D.  auditing
    (this multiple choice question has been scrambled)
  89. An independent accountant who provides accounting services to the public for a fee is a:

    A.  CPA
    B.  CMA
    C.  CIA
    D.  CFE
    A.  CPA
    (this multiple choice question has been scrambled)

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