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ADM 1340 EXAM LATEST UPDATE
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ADM 1340 EXAM LATEST UPDATEAccounting - Answer The process of identifying, recording, and communicating the
economic events of a business to interested users of the information
Accounting equation - Answer The equation that states that Assets = Liabilities +
Shareholder's Equity
Assets - Answer The resources owned or controlled by a business that provide future
economic benefits
Corporation - Answer A business organized as a separate legal entity having ownership
divided into transferable shares held by shareholders
Deficit - Answer A negative balance in retained earnings from a corporation to its
shareholders, often in the form of cash
Dividends - Answer The distribution of retained earnings from a corporation to its
shareholders, often in the form of cash
Expenses - Answer The decrease in economic benefits that result from the costs of
assets consumed or services used in ongoing operations to generate revenue
Financing activities - Answer Activities that include (1) borrowing (or repaying) cash to
lenders, and (2) issuing (or reacquiring) shares or paying dividends to investors
Fiscal year - Answer An accounting period that is one year long
Generally Accepted Accounting Principles (GAAP) - Answer A general guide, having
substantial authoritative support, that describes how economic events should be
recorded and reported for financial reporting purposes
Income statement - Answer Also known as statement of earnings or statement of profit
and loss. A financial statement that presents revenues and expenses and resulting profit
or loss of a company for a specific period of time.
Investing activities - Answer Activities that include purchasing and disposing of
long-lived assets such as property, plant, and equipment and long-term investments
Liabilities - Answer The debts and obligations of a business. Liabilities are claims of
lenders and other creditors on the assets of a business.
Loss - Answer Also known as net loss. The amount by which expenses are more than
revenues. The opposite of profit.
Operating activities - Answer Activities that result from day-to-day operations and
include revenues and expenses and related accounts such as receivables, supplies,
inventory, and payables
,Partnership - Answer A business owned by more than one person
Profit - Answer Also known as net income or net earnings. The amount by which
revenues are more than expenses.
Accounts payable - Answer Amounts owed to suppliers for purchases made on credit
(on account)
Accounts receivable - Answer Amounts owed by customers who purchased products or
services on credit (on account)
Bank indebtedness - Answer A short-term loan up to a maximum amount pre-arranged
with a bank to cover cash shortfalls
Comparability - Answer An enhancing qualitative characteristic of useful information
that enables users to identify and understand similarities in, and differences among,
items
Conceptual framework - Answer A coherent system of interrelated elements that guides
decisions about what to present in financial statements, alternative ways of reporting
economic events, and appropriate ways of communicating this information
Contra asset account - Answer An account that is offset against (reduces) an asset
account on the statement of financial position
Cost basis of accounting - Answer A basis of measurement that states that assets and
liabilities should be recorded and reported at their cost at the time of acquisition, as well
as during the time the asset is held
Cost constraint - Answer The constraint that the costs of obtaining and providing
information should not be higher that the benefits that are gained by providing it
Current assets - Answer Cash and other resources that it is reasonable to expect will be
converted into cash, or will be sold or used up within one year of the company's financial
statement date or its operating cycle, whichever is longer
Current liabilities - Answer Obligations that will be paid or settled which one year of the
company's financial statement date or its operating cycle, whichever is longer
Current maturities of long-term debt - Answer The portion of a non-current of long-term
loan that is repayable int he current year
Current ratio - Answer A measure of liquidity used to evaluate a company's short-term
debt-paying ability. It is calculate by dividing current assets by current liabilities.
Debt to total assets - Answer A measure of solvency showing the percentage of total
financing that is provided by lenders and other creditors. It is calculated by dividing
total liabilities by total assets.
Earnings per share (EPS) - Answer A measure of profitability showing the profit earned
, by each common share. It is calculate dividing profit available to common shareholders
by the weighted average number of shares.
Elements of financial statements - Answer A set of definitions of basic terms in
accounting, such as assets, liabilities, equity, revenues, and expenses
Fair value basis of accounting - Answer A basis of measurement that states that assets
should be reported at their fair value (price to sell)
Faithful representation - Answer A fundamental qualitative characteristic describing
information that represents economic reality. It must be complete, neutral, and free
from material error.
Going concern assumption - Answer The assumption that the business will remain in
operation for the foreseeable future
Intangible assets - Answer Assets of a long-lived nature that do not have physical
substance but represent a privilege, or a right granted to, or held by, a company
Liquidity ratios - Answer Measures of a company's short-term ability to pay its maturing
obligations (usually current liabilities) and to meet unexpected needs for cash
Long-term investments - Answer Also known as investments. Investments in debt
securities intended to be held for many years to generate investment revenue or held for
strategic reasons.
Merchandise inventory - Answer Also known as inventory. Goods held for sale to
customers.
Non-current assets - Answer Also known as long-term assets. Assets that are not
expected to be converted into cash, sold, or used up by the business within one year of
the statement date or its operating cycle.
Non-current liabilities - Answer Also known as long-term liabilities. Obligations that are
not expected to be paid or settled within one year of the company's operating cycle.
Notes payable - Answer Also known as loans payable. Amounts owed to suppliers,
banks, or others that are supported by a written promise to repay.
Notes receivable - Answer Also known as loans receivable. Amounts owed by
customers or others that are supported by a written promise to repay.
Objective of financial reporting - Answer The provision of information about a company's
financial position, performance, and changes in financial position that is useful to
existing and potential investors, lenders, and other creditors in making decisions about
providing resources for the company
Operating cycle - Answer Average period of time it takes for a business to pay cash to
obtain products or services and then receive cash from customers for these products or
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