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Business 101 Midterm 2
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Business 101 Midterm 2
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Business 101 Midterm 2What is accounting? - ANS-An information system that:
1) MEASURES business activities (performance/profitability, financial position, and cash
flows)
2) ORGANIZES this data into usable information
3) ANALYZES this information (key)
"The Language of Business" - ANS-Communicate, Describe (tell stories), Comprehend
Without fluency in accounting there is no ability to? - ANS-Assess (gauge performance,
position, etc
Analyze and understand
Describe or predict
What is accounting not? - ANS-only about the numbers
knowing the rules
maintaining records
Accounting is more like a profession like a law firm (T/F) - ANS-True
It's about research, interpretation, precedent, analysis, judgement, ethics
GAAP - ANS-Generally Accepted Accounting Principles (modify rules, rule keepers)
FASB - ANS-Financial Accounting Standards Board
GAAP and FASB are? - ANS-agreed designed rules and ensure that the communication
of financial information is consistent and systematic (point of having the rules)
Financial Accouting - ANS-Accounting information and analyses prepared for people
outside the organization
Managerial Accounting - ANS-Accounting used to provide information and analyses to
managers within the organization to assist them in decision making
Financial Accounting Characteristics - ANS--specific time period
-legal/regulatory requirements
-specific format
-concentrates on the business as a whole
,-mainly presented in monetary terms
-always historical
Managerial Accounting Characteristics - ANS--no specific time period
-no legal/regulatory requirements
-no specific format
-look at any part of business
-monetary or non monetary
-historical or projected
Accrual Accounting - ANS-reports revenue WHEN EARNED and expenses WHEN
INCURRED
GAAP approved
Cash Accounting - ANS-Revenue is recorded when cash is received and expenses are
recorded when cash is paid out
"when cash changes hands"
Cash method main criticism? - ANS-Cash method is simple and easy, but limited
The main criticism of it is that it often leaves a time gab between associated revenue
and expenses
Does not do a good job of matching
(no cash receivable)
Matching Concept - ANS-The idea that revenue should be offset against expenses on
the basis of their cause and effect relationship
Public Accountants - ANS-Accountants that provide services to organizations for a fee-
referred to as CPA
Has the right to officially express an unbiased opinion regarding accuracy of the client's
financial statements
Private (industry) Accountants - ANS-Accountants who are employed either by
businesses or government agencies
Conflict of Interest - ANS-lawmakers already fret that consulting and tax advisory can be
in conflict with auditing
consulting and tax advisory will bias the accounting firms opinion
Accounting Equation - ANS-Assets=Liabilities+stockholders equity
, assets are the economic
liabilities+stockholders equity are sources of financing for economic resources or claim
on the resources
Double entry bookkeeping - ANS-Every action there is a reaction
For every debit there is a credit
Credit entries represent sources of financing and debit entries represent the use of that
financing (T/F) - ANS-True
It maintains the balance of the accounting equation
Judgement is crucial in accounting (T/F) - ANS-True
Accounting Cycle - ANS-Analyze source documents
Record Transactions
Post transactions
Prepare financial statements
Consistent & Systematic= - ANS-Accuracy & Integrity which hopefully leads to some
sort of truth
but accounting is as much an art as science
How do accountants makes decisions? - ANS-On judgement and subjectivity
Three key financial statements? - ANS-Balance Sheet
Income Statement
Statement of cash flows
Definition of Financial statements? - ANS-Financial statements summarize the financial
activities of the business
The Income Statement? - ANS-R-C=P
The income statement reports the revenues minus expenses of the accounting period
What does the income statement show? - ANS-Shows managers and owners whether
the company made or lost money during the period being reported
What are the results of the income statement? - ANS-It's about performance during an
accounting period
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