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ADM 1340- MIDTERM QUESTIONS WITH 100%
ACCURATE ANSWERS
Internal users - Accurate answers -manage the company, non-profit, government organization -company officers, managers and directors in finance, marketing and Human Resources external users - Accurate answers -do not work for the company -investors, lenders, customers, tax authorities forms of business organizations - Accurate answers -sole proprietorship -partnership -corporation proprietorship - Accurate answers -one person -limited life -unlimited liability partnership - Accurate answers -more than one person -limited life corporation - Accurate answers -separate legal entity owned by shareholders -indefinite life -pays tax income -public or private -limited liability Generally Accepted Accounting Principles (GAAP) - Accurate answers -rules and practices for the preparation of financial statements -different for private and public corporations 3 main types of business activities - Accurate answers -financing activities -investing activities -operating activities financing activities (3 main types of business activities ) - Accurate answers 2 primal ways of raising funds for corporation are; -selling shares in exchange for cash -borrowing money common shares - Accurate answers the amount paid by investors for shares of ownership in a company (one type known as share captial) shareholders - Accurate answers -owners of common shares -rarely provide all of the financing required by a company (lenders and creditors provide much) dividends - Accurate answers -payments that distribute a portion of income to shareholders
-declared by a company's board of directors lenders (creditors) - Accurate answers -persons or companies that a corporation owes money to -key user groups of accounting information liabilities - Accurate answers amounts owed to lenders and other creditors Bank indebtedness - Accurate answers when a company uses its operating line of credit to cover cash shortfall and overdraws its bank account how corporations borrow money - Accurate answers -short-term bank loan payable -long-term debt long-term debt - Accurate answers bonds payable, mortgage payable, finance lease obligations investing activities (3 main types of business activities) - Accurate answers -involves the purchase/sale of long-lived assets that a company needs in order to operate assets - Accurate answers -resources that a company owns or controls -capable of providing future short/long-lived economic benefits -listed in order of liquidity long-term assets - Accurate answers goodwill, intangible goodwill (long-term asset) - Accurate answers results when a company acquires another company, paying a price that is higher than the value of the purchased company's net indentifiables intangible (long-term asset) - Accurate answers -do not have any physical substance, but represent a right granted, or held by, a company -ex. copy rights, patents, trademarks operating activities (3 main types of business activities ) - Accurate answers -after raising financing and investment in l long-term assets the business can get started income (revenue) - Accurate answers -amount earned from the sales of the goods/services -results from an increase of an asset or a decrease of a liability Accounts Receivable - Accurate answers -credit extended to customers (they will pay their accounts in the future) -economic resource received when accounts are due supplies - Accurate answers -short-term asset -does not include items bought and resold to customers inventory - Accurate answers expense called cost of goods sold expense - Accurate answers -decreases in economic resources, normally the costs of assets that are to generate revenue
operating cycle - Accurate answers the 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 services common current assets - Accurate answers -cash -held for training investments -accounts receivable -notes receivable, including loans receivable -inventory -supplies -prepaid expenses held for training investments (current asset) - Accurate answers investments in debt securities such as bonds of another company, or equity securities such as shares or another company, that are bought with the intention of reselling them after a short period of time in order to earn income from fluctuations in their price Accounts Receivable (current asset) - Accurate answers are amounts owed to a company by customers who purchased products or services on credit (on account) and are normally supported with an invoice accrued revenues - Accurate answers types of receivables that arise when payments for revenues earned by the company have not yet been received in cash notes receivable (current asset) - Accurate answers amounts owed to the company by customers or others that are s supported by a written promise to repay -normally interested bearing -ex. loans recieveable inventory (current asset) - Accurate answers is goods held for sale to customers supplies - Accurate answers include consumable items like office supplies and cleaning supplies -they are expected to be used up within the year prepaid expenses - Accurate answers represent the cost of expenses like rent and insurance paid in advance of use -reflect unused benefits such as office space and insurance coverage available for future use during the year cash equivalents - Accurate answers short-term, highly liquid investments with very little risk that can be easily sold non-current assets - Accurate answers are not expected to be converted to cash, sold, or used up by the business within one year of the financial statement date or its operating cycle common non-current assets - Accurate answers -long-term investments -property, plant and equipment -intangible assets
-goodwill -other assets long-term investments (non-current asset) - Accurate answers includes; -"multi-year investments" in debt securities that management intends to hold to earn interest -"equity securities" of other companies that management plans to hold for many years to generate investment revenue or for strategic reasons property, plant and equipment (non-current asset) - Accurate answers are tangible assets with relatively long useful lives that are being used in operating the business -land, buildings, equipment, furniture, computers and vehicles -listed in balance sheet according to order of permanency revaluation model - Accurate answers when companies list their assets at their current value instead of cost Accumulated Depreciation - Accurate answers shows the cumulative amount of depreciation expense recorded to date over the life of the asset carrying amount - Accurate answers the difference between cost and accumulated depreciation intangible assets (non-current asset) - Accurate answers do not have physical substance and represent a privilege or a right granted to, or held by, a company -normally divided into two groups: finite useful lives, indefinite useful lives -patents, copy rights amortization - Accurate answers the allocation of the cost of certain kinds of intangible assets liabilities - Accurate answers are obligations that result from past transactions and will result in the transfer of an economic resource -listed in order of liquidity current liabilities - Accurate answers are obligations that re to be settled within one year of the company's statement date or operating cycle (whichever is longer) common current liabilities - Accurate answers -bank indebtedness -accounts payable -unearned revenue -notes payable, including bank loans payable -current maturities of long-team debt bank indebtedness (current liabilities) - Accurate answers is a short-term loan from a bank, typically occurring when a company uses an operating line of credit to cover cash shortfalls accounts payable (current liabilities) - Accurate answers represents amounts owed by the company to suppliers for purchase made on credit (account) -usually supported by an invoice
ratio analysis - Accurate answers expresses the relationships between selected items of financial statement data liquidity ratios - Accurate answers measure a company's short-term ability to pay its maturing obligations and to meet unexpected needs for cash solvency ratios - Accurate answers measure a company's ability to survive over a long period of time by having enough assets to settle its liabilities when they are due profitability ratios - Accurate answers measure a company's operating success for a given period of time intracompany comparisons - Accurate answers covering two or more periods for the same company intercompany comparisons - Accurate answers based on comparisons with a competitor in the same industry industry average comparisons - Accurate answers based on average ratios for particular industries with specific company ratios working capital - Accurate answers -one of the measures of liquidity -the difference between current assets and current liabilities -positive = company can pay it's liabilities (most likely) -negative = need to borrow money current ratio - Accurate answers -important liquidity ratio -is calculated by dividing current assets by current liabilities -measures relative relationship between current assets and current liabilities and makes it possible to compare different companies debt to total assets ratio (solvency) - Accurate answers is one source of information about long- term debt-paying ability -measures the percentage of assets that financed by lenders and other creditors rather than by shareholders -calculated by dividing total debt (liabilities)/ total assets basic earnings per share (EPS) (profitability) - Accurate answers measures the income earned on each common share -calculated by dividing the income available to the common shareholders by the weighted average number of common shares price earnings ratio (P-E) (profitability) - Accurate answers frequently quoted statistic that measures the ratio of the stock market price of each common share to its earnings per share -calculated by market price per share/ basic earnings per share
conceptual framework - Accurate answers guides decisions about what to present in financial statements, alternative ways of reporting economic events, and appropriate ways of communicating information key conceptual framework items - Accurate answers -objective of general purpose financial reporting -qualitative characteristics of useful financial information -underlying assumptions -elements. of financial statements -measurements of the elements of financial statements objective of financial reporting (key conceptual framework items) - Accurate answers to provide financial information about a company that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the company accrual basis of accounting - Accurate answers how financial statements are prepared qualitative characteristics of useful financial information (key conceptual framework item) - Accurate answers identifies the types of information that are likely to be most useful to existing and potential investors, lenders, and other creditors in making their decision -fundamental and enhancing Fundamental Qualitative Characteristics - Accurate answers Relevance and Faithful representation Relevance (Fundamental Qualitative Characteristics) - Accurate answers -knowledge of accounting information has the ability to influence a user's decision -may have predictive value and/or confirmatory value predictive value (relevance) - Accurate answers helps users make predictions about future events Confirmatory Value (Relevance) - Accurate answers helps users confirm or correct their previous predictions or expectations materiality - Accurate answers an important component of relevance -information is considered this if its omission or misstatement could influence the decision of users faithful represent (fundamental qualitative characteristics) - Accurate answers -often requires accountants to report he economic substance rather than the legal form of an event -information must be; complete, neutral, and free from error Complete (Faithful Representation) - Accurate answers nothing important was omitted from the information Neutral (Faithful Representation) - Accurate answers information cannot be biased towards one position or another Free from Error (Faithful Representation) - Accurate answers information must provide an accurate description and no errors can be made in the process used to determine it
double-entry accounting system - Accurate answers A system that records the dual effect of each transaction in appropriate accounts. general journal - Accurate answers transactions are recorded in chronological order in s journal before continuing the recording process in step 3 of the accounting cycle general ledger - Accurate answers contains all the assets, liability, shareholders' equity, dividends declared, revenue, and expense accounts -keeps all the information about changes in specific account balances in one place posting - Accurate answers procedure of transferring journal entries from the general journal to the general ledger accounts trial balance - Accurate answers a list of general ledger accounts and their balances at a specific time Accural Basis Accounting - Accurate answers reporting income when it is earned and expenses when they are incurred Cash Basis Accounting - Accurate answers Reporting income when the cash is received and expenses when the cash is paid. adjusting entries - Accurate answers ensure that the revenue and expense recognition principles are followed and make it possible to produce up-to-date and relevant financial information at the end of the accounting period unadjusted trial balance - Accurate answers A trial balance prepared before adjusting entries are posted retailers - Accurate answers merchandising companies that sell direct to consumers wholesalers - Accurate answers merchandising companies that sell to retailers manufacturers - Accurate answers companies that produce goods for sale to wholesalers raw materials - Accurate answers are the basic goods and materials that are on hand and will be used in production but have not yet been sent into production work in process - Accurate answers is that portion of inventory on which production has started but is not for sale finished goods - Accurate answers inventory is manufactured items that are completed and ready for sale perpetual inventory system - Accurate answers detailed records of the cost of each inventory item are maintained and the cost of each item sold is determined from the records when the sale occurs
periodic inventory system - Accurate answers detailed inventory records are not maintained and the cost of goods sold is determined only at the end of an accounting period
