1What is accounting?
The process of measuring economic activity in monetary terms and communicating the results to users
2Under the matching principle, the cost of inventory should be reported as an expense in the income statement when it is purchased, even if it is purchased on credit and will not be paid until the next reporting period.
F
3Current assets are cash and other assets that will be converted into cash or used up during the normal operating cycle of the business or one year, whichever is shorter
F
4The statement of cash flows separates cash flows into operating and nonoperating categories.
F
5Each adjusting entry affects a balance sheet account and an income statement account.
T
6Temporary accounts for a corporation consist of the revenue, expense, and retained earnings accounts.
F
7The typical form of a T-account shows debits on the right and credits on the left.
F
8Who are the external users of financial accounting?
Investors, regulators, creditors
9What document is filed annually with the SEC?
10-K
10What does the basic accounting equation state?
Assets = Liabilities + Equity
11What are assets?
Resources of the company
12What are liabilities?
Obligations of the company
13What is stockholders' equity?
Ownership interest in the assets after liabilities are settled
14What is the accounting cycle?
The process of recording journal entries, adjusting, preparing statements, and closing accounts
15What do T-accounts show?
The effect of transactions on an account
16Which side of a T-account are debits on?
Left
17Which side of a T-account are credits on?
Right
18What is a trial balance?
A listing of all accounts with their ending debit or credit balance
19What is an unadjusted trial balance?
A trial balance before adjusting entries
20What is an adjusted trial balance?
A trial balance after adjusting entries
21What is a closing trial balance?
A trial balance after closing entries
22Which statement is prepared using the adjusted trial balance?
Income Statement, Statement of Stockholders’ Equity, Balance Sheet
23What are permanent accounts?
Assets, liabilities, and stockholders’ equity
24What are temporary accounts?
Revenues, expenses, and dividends
25What happens to temporary accounts at year end?
They are closed into retained earnings
26How is a revenue account closed?
Debit the revenue and credit retained earnings
27How are expense accounts closed?
Credit the expense and debit retained earnings
28What does the balance sheet report?
The company’s financial position at a point in time
29How are current assets listed?
In order of liquidity
30What are examples of current assets?
Cash, short-term investments, accounts receivable, inventory
31What are noncurrent assets?
Assets not expected to convert to cash within one year
32What are examples of noncurrent assets?
Property, plant, equipment, intangible assets
33What are current liabilities?
Obligations due within one year
34What are examples of current liabilities?
Accounts payable, accrued expenses, short-term notes payable
35What are long-term liabilities?
Obligations not due within one year
36What is stockholders’ equity made of?
Common stock and retained earnings
37What does the income statement report?
Revenues and expenses over a period
38How is net income calculated?
Revenue minus expenses
39What does the statement of stockholders’ equity show?
Changes in equity during a period
40How is ending retained earnings calculated?
Beginning retained earnings + net income – dividends
41What does the statement of cash flows report?
Cash inflows and outflows during a period
42What are the three cash flow categories?
Operating, Investing, Financing
43What is included in operating activities?
Day-to-day activities like producing and selling
44What is included in investing activities?
Buying/selling long-term assets
45What is included in financing activities?
Borrowing and issuing stock
46How is net income connected across statements?
It links income statement and equity statement
47Where do ending retained earnings appear?
Statement of equity and balance sheet
48Where does ending cash from cash flows appear?
On the balance sheet
49What is accrual basis accounting?
Recording revenues when earned and expenses when incurred
50When is revenue recognized?
In the period it is earned