ACCT 211 - Exam 1
Accounting - correct answer Information and measurement system that identifies, records, and
communicates relevant information about a company's business activities.
Accounting Equation - correct answer Equality involving a company's assets, liabilities, and equity; Assets
= Liabilities + Equity; also called balance sheet equation
Assets - correct answer Resources a business owns or controls that are expected to provide current and
future benefits to the business.
Audit - correct answer Analysis and report of an organization's accounting system, its records, and its
reports using various tests.
Auditors - correct answer Individuals hired to review financial reports and information systems. Internal
auditors of a company are employed to assess and evaluate its system of internal controls, including the
resulting reports. External auditors are independent of a company and are hired to assess and evaluate
the "fairness" of financial statements (or to perform other contracted financial services)
Balance Sheet - correct answer Financial statement that lists types and dollar amounts of assets,
liabilities, and equity at a specific date.
Bookkeeping - correct answer (recordkeeping) part of accounting that involves recording transactions
and events, either manually or electronically.
Business Entity Assumption - correct answer Principle that requires a business to be accounted for
separately from its owner(s) and from any other entity.
Common Stock - correct answer Corporation's basic ownership share; also generically called capital stock
Conceptual Framework - correct answer The basic concepts that underlie the preparation and
presentation of financial statements for external users; can serve as a guide in developing future
standards and to resolve accounting issues that are not addressed directly in current standards using the
definitions, recognition criteria, an measurement concepts for assets, liabilities, revenues, and expenses.
Corporation - correct answer Business that is a separate legal entity under state or federal laws with
owners called shareholders or stockholders
Cost-benefit constraint - correct answer The notion that the benefit of a disclosure exceeds the cost of
that disclosure.
Cost Principle - correct answer Accounting principle that prescribes financial statement information to be
based on actual costs incurred in business transactions.
Dodd-Frank Wall Street Reform and Consumer Protection Act - correct answer passed by congress in a
desire to (1) promote accountability and transparency in the financial system, (2) to put an end to the
notion of "too big to fail," (3) protect the taxpayer by ending bailouts, and (4) protect consumers from
abusive financial services. (page 14)
Equity - correct answer Owner's claim on the assets of a business; equals the residual interest in an
entity's assets after deducting liabilities; also called net assets
Ethics - correct answer Codes of conduct by which actions are judged as right or wrong, fair or unfair,
honest or dishonest.
Events - correct answer refers to happenings that affect the accounting equations and are reliably
measured.
Expanded Accounting Equation - correct answer Assets = Liabilities + Equity; Equity equals [Owner
Capital - Owner Withdrawals + Revenues - Expenses] for a noncooperation; Equity equals [Contributed
Capital + Retained Earnings + Revenues - Expenses] for a corporation where dividends are subtracted
from retained earnings.
Expense Recognition (Matching) Principle - correct answer Prescribes expenses to be reported in the
same period as the revenues that were earned as a result of the expenses.
Expenses - correct answer Outflows or using up of assets as part of operations of a business to generate
sales.
External Transactions - correct answer Exchanges of economic value between one entity and another
entity.
External Users - correct answer Persons using accounting information who are not directly involved in
running the organization.
Financial Accounting - correct answer Area of accounting aimed mainly at serving external users.
Financials Standards Board (FASB) - correct answer Independent group of full-time members responsible
for setting accounting rules.
Full Disclosure Principle - correct answer Principles that prescribes financial statements (including notes)
to report all relevant information about an entity's operations and financial conditions.
Generally Accepted Accounting Principles (GAAP) - correct answer Rules that specify acceptable
accounting practices.
Going-Concern Assumption - correct answer Principle that prescribes financial statements to reflect the
assumptions that the business will continue operating.
Income statement - correct answer financial statement that subtracts expenses from revenues to yield a
net income or loss over a specified period of time; also includes any gains or losses.
Internal transactions - correct answer Activities within an organization that can affect the accounting
equation.
Internal users - correct answer Persons using accounting information who are directly involved in
managing the organization.
International Accounting Standards Board (IASB) - correct answer Group that identifies preferred
accounting practices and encourages global acceptance; issues International Financial Reporting
Standards.
International Financial Reporting Standards (IFRS) - correct answer Set of international accounting
standards explaining how types of transactions and events are reported in financial statements; IFRS are
issued by the International Accounting Standards Board
Liabilities - correct answer Creditors' claims on an organization's assets; involves a probable future
payment of assets, products, or services that a company is obligated to make due to past transactions or
events.
Managerial Accounting - correct answer Area of accounting aimed mainly at serving the decision-making
needs of internal users; also called management accounting.
Matching Principle - correct answer Prescribes expenses to be reported in the same period as the
revenues that were earned as a result of the expenses.
Materiality Constraints - correct answer Prescribes that accounting for items that significantly impact
financial statement and any inferences from them adhere strictly the GAAP.
Measurement Principle - correct answer Principle that prescribes financial statement information, and its
underlying transactions and events, be based on relevant measures of valuation; also called the cost
principle.
Monetary Unit Assumption - correct answer Principle that assumes transactions and events can be
expressed in money units.
Net Income - correct answer Owner's claim on the assets of a business; equals the residual interest in an
entity's assets after deducting liabilities; also known as equity.
Net Loss - correct answer Excess of expenses over revenues for a period.
Owner, Capital - correct answer Account showing the owner's claim on company assets; equals owner
investments plus net income (or less not losses) minus owner withdrawals since the company's
inception; also referred to as equity.
Owner Investment - correct answer Assets put into the business by the owner.
Owner Withdrawals - correct answer Account used to record asset distributions to the owner
Partnership - correct answer Unincorporated association of two or more persons to pursue a business for
profit as co-owners.
Proprietorship - correct answer Business owned by one person that is not organized as a corporation;
also called sole proprietorship
Recordkeeping - correct answer part of accounting that involves recording transactions and events,
either manually or electronically; also called bookkeeping.
Return - correct answer Monies received from an investment; often in percent form.
Return on Assets - correct answer (total asset turnover) measure of a company's ability to use its assets
to generate sales; computed by dividing net sales by average total assets.
Revenue Recognition Principle - correct answer The principle prescribing that revenue is recognized
when earned.
Revenues - correct answer Gross increase in equity from a company's business activities that earn
income; also called sales.
Risk - correct answer Uncertainty about an expected return.
Sarbanes-Oxley Act - correct answer (SOX) Created the Public Company Accounting Oversight Board,
regulates analyst conflicts, imposes corporate governance requirements, enhances accounting and
control disclosures, impacts insider transactions and executive loans, establishes new types of criminal
conduct, and expands penalties for violations of federal securities laws.
Securities and Exchange Commission (SEC) - correct answer Federal agency Congress has charged to set
reporting rules for organizations that sell ownership shares to the public.
Shareholders - correct answer Owners of a corporation; also called stockholders.
Shares - correct answer Equity of a corporation divided into ownership units; also called stock.
Sole Proprietorship - correct answer Business owned by one person that is not organized as a
corporation; also called proprietorship.
Statement of cash flow - correct answer A financial statement that lists cash inflows (receipts) and cash
outflows (payments) during a period; arranged by operating, investing, and financing.
Statement of Owner's Equity - correct answer Report of changes in equity over a period; adjusted for
increases (owner investment and net income) and for decreases (withdrawals and net loss).
Stock - correct answer Equity of a corporation divided into ownership units; also called shares.
Stockholders - correct answer Owners of a corporation; also called shareholders.
Time Period Assumption - correct answer Assumption that an organization's activities can be divided into
specific time periods such as months, quarters or years.
Withdrawals - correct answer Payment of cash or other assets from a proprietorship or partnership to its
owner or owners.
Chapter 2 - correct answer ...
Account - correct answer Record within an accounting system in which increases and decreases are
entered and stored in a specific asset, liability, equity, revenue, or expense.
Account Balance - correct answer Difference between total debits and total credits (including the
beginning balance) for an account.
Balance Column Account - correct answer Account with debit and credit columns for recording entries
and another column for showing the balance of the account after each entry.
Chart of Accounts - correct answer List of accounts used by a company; includes identification number
for each account.
Compound Journal Entry - correct answer Journal entry that affects at least three accounts.
Credit - correct answer Recorded on the right side; an entry that decreases asset and expense accounts,
and increases liability, revenue, and most equity accounts; abbreviated Cr.
Creditors - correct answer Individuals or organizations entitled to receive payments.
Debit - correct answer Recorded on the left side; an entry that increases asset and expense accounts,
and decreases liability, revenue and most equity accounts; abbreviated Dr.
Double-Entry Accounting - correct answer Accounting system in which each transaction affects at least
two accounts and has at least one debit and one credit.
General Journal - correct answer All-purpose journal for recording the debits and credits of transactions
and events
General Ledger - correct answer Record containing all accounts (with amounts) for a business; also called
ledger
Journal - correct answer Record in which transactions are entered before they are posted to ledger
accounts; also called book of original entry.
Journalizing - correct answer Process of recording transactions in a journal
Posting - correct answer ?
Posting Reference (PR) Column - correct answer ?
Source Documents - correct answer Source of information for accounting entries that can be in either
paper or electronic form; also called business papers
T-accounts - correct answer Tool used to show the effects of transactions and events on individual
accounts
Trial Balance - correct answer List of accounts and their balances at a point in time; total debit balances
equal total credit balances.
Unearned Revenue - correct answer Liability created when customers pay in advance for products or
services; earned when the products or services are later delivered
Accounting Periods - correct answer Length of time covered by financial statements; also called reporting
period.
Accrual Basis Accounting - correct answer Accounting system that recognizes revenues when earned and
expenses when incurred; the basis for GAAP
Accrued Expenses - correct answer Costs incurred in a period that are both unpaid and unrecorded;
adjusting entries for recording accrued expenses involve increasing expenses and increasing liabilities.
Accrued Revenues - correct answer Revenues earned in a period that are both unrecorded and not yet
received in cash (or other assets); adjusting entries for recording accrued revenues involve increasing
assets and increasing revenues
Adjusted Trial Balance - correct answer List of accounts and balances prepared after period-end
adjustments are recorded and posted.
ACCT 211 - EXAM 1
Adjusting Entry - correct answer Journal entry at the end of an accounting period to bring an asset or
liability account to its proper amount and update the related expense or revenue account.
Annual Financial Statements - correct answer Financial statements covering a one-year period; often
based on a calendar year, but any consecutive 12-month (or 52-week) period is acceptable.
Book Value - correct answer Asset's acquisition costs less its accumulated depreciation (or depletion, or
amortization); also sometimes used synonymously as the carrying value of an account
Cash Basis Accounting - correct answer Accounting system that recognizes revenues when cash is
received and records expenses when cash is paid.
Contra Account - correct answer Account linked with another account and having an opposite normal
balance; reported as a subtraction from the other account's balance.
Depreciation - correct answer Expense created by allocating the cost of plant and equipment to periods
in which the are used; represents the expense of using the asset.
Expense Recognition or (Matching) Principle - correct answer Prescribes expenses to be reported in the
same period as the revenues that were earned as a result of the expense.
Fiscal Year - correct answer Consecutive 12-month (or 52-week) period chosen as the organization's
annual accounting period.
Interim Financial Statements - correct answer Financial statements covering periods of less than one
year; usually based on one-, three-, or six-month periods.
Natural Business Year - correct answer Twelve-month period that ends when a company's sales activities
are at their lowest point.
Plant Assets - correct answer Tangible long-lived assets used to produce or sell products and services;
also called property, plant and equipment (PP&E) or fixed assets.
Prepaid Expenses - correct answer Items paid for in advance of receiving their benefits; classifies as
assets.
Profit Expenses - correct answer ?
Profit Margin - correct answer Ratio of a company's net income to its net sales; the percent of income in
each dollar of revenue; also called net profit margin.
Straight-line Depreciation Method - correct answer Method that allocates an equal portion of the
depreciable cost of plant assets (cost minus salvage) to each accounting period in its useful life.
Time Period Assumption - correct answer Assumption that an organization's activities can be divided into
specific time periods such as months, quarters, or years.
Unadjusted Trial Balance - correct answer List of accounts and balances prepared before accounts
adjustments are recorded and posted.
Unearned Revenues - correct answer Liability created when customers pay in advance for products or
services; earned when the products or services are later delivere
