Accounting: Chapter 1

accounting system – is the process of recording and reporting financial events, or transactions.
Interest – money paid for the use of money.
S corporations – Corportions with special tax status
International Accounting Standards Board – Regulates global accounting.
Stated Value – Treated and Recorded the same as par value
audit – public accounting firms provide the service of reviewing financial reports and providing an opinion whether or not the financial statements are presented in conformity with generally accepted accounting principles

investors and creditors often require financial statements to be audited in order to have a higher level of confidence in the reliability of the information provided on the financial statements

Income Statement/ Profit and Loss Statements/ Statement of Operations/Operating Statement – a formal financial statement which presents the income, expenses, and resulting net profit or net loss for a given period (R-E) (Revenue-Expenses=Net Income or Net Loss)
money spent is called a…. – "cost" or an "expenditure"
test pilot – One who tests new or modified aeroplanes
Bonding – Obtaining insurance protection against theft by employees.
Study the diagram below and choose the correct statement.
Purpose of Financial Statement Analysis – present financial information in a format that facilitates the analysis and interpretation of a company's performance
long-term investments – investments in securities
investments in tangible fixed assets not currently in operations
investments set aside in special funds
investments in nonconsolidated subsidiaries
Contributed Capital – The amount that stockholders invest in the business.
Common Stock – Equity
paid in capital
Ordinary repairs – Repairs to keep a plant asset in normal, good operating condition; treated as a revenue expenditure and immediately expense.
Individual Earnings Record – An employee record that contains information needed to compute earnings and complete tax reports.
Identifity the element or elements associated with these items.

(a) Arises from peripheral or incidental transactions.

(b) Obligation to transfer resources arising from a past transaction.

(c) Increases ownership interest.

(d) Declares and pays cash dividends to owners.

(e) Increases in net assets in a period from nonowner sources.

(f) Items characterized by service potential or future economic benefit.

(g) Equals increase in assets less liabilities during the year, after adding distributions to owners and subtracting investments by owners.

(h) Arises from income statement activities that constitute the entity's ongoing major or central operations.

(i) Residual interest in the assets of the enterprise after deducting its liabilities.

(j) Increases assets during a period through sale of product.

(k) Decreases assets during the period by purchasing the company's own stock.

(l) Includes all changes in equity during the period, except those resulting from investments by owners and distributions to owners. – A. Gains and Losses
B. Liabilities
C. Investments by Owners, Comprehensive Income
D. Distributions to Owners
E.Comprehensive Income
F. Assets
G. Comprehensive Income
H. Revenues, Expenses
I. Equity
J. Revenues
K. Distributions to Ownerw
I. Comprehensive Income

Study the diаgrаm belоw аnd chооse the correct statement.
quick assets – current assets – inventory – other current assets OR
cash + receivables + short term investments
Revenue – This results from an increase in assets or decrease in liabilities resulting from the operating activities of a company.
With respect to the income statement,
A. contra-revenue accounts do not appear on the income statement.
B. sales discounts increase the amount of sales.
C. contra-revenue accounts increase the amount of operating expenses.
D. sales discounts are included in the calculation of gross profit. – D

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