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Accounting Chapter 1 and 2

Net income equals total __ minus total __
revenues, expenses
Cash flow and activity of: Purchase of equipment
negative cash flow, investing activity
Cash flow and activity of: Sale of equipment
positive cash flow, investing activity
Cash flow and activity of: Borrow from a bank
positive cash flow, financing activity
Cash flow and activity of: Purchase Inventory
negative cash flow, operating cash flow
Net income normally _____ equal the cash generated from operations because ______
negative cash flow, financing activity
Cash flow and activity of: Cash collected from customers
positive cash flow, operating cash flow
Accounting equation
Assets = Liabilities + Stockholder’s Equity
Two elements of stockholders’ equity
Retained earnings and common stock
Profits earned by a company that haven’t been paid to the stockholders
Retained earnings
___ is a cost of doing business that is necessary to earn _____
Expenses, profit
What elements does a balance sheet show?
Assets, liabilities, stockholders’ equity
Headings and accounts on balance sheet
A, L, SE, Cash, Retained earnings
Decide on whether or not to lend money
Creditors
Decide on social welfare issues
Regulators
Refers to a code or moral system that provides criteria for what is right and wrong
Ethics
Net income is:
Revenues less expenses, profit
Assets are initially recorded at:
Historical cost
Heading for statement of cash flow
For the year ended…
Heading for income statement
For the year ended…
Heading for statement of stockholders’ equity
For the year ended…
Classifications of inflow and outflow of cash
Operating, Financing, Investing
Shareholders’ equity arises mainly from:
amounts invested by shareholders and amounts earned by the corporation
What does the statement of stockholders’ equity report?
Changes in earnings and dividends for a specific period of time
Net income equals:
Revenues minus expenses
Line items on a balance sheet
Cash, common stock, retained earnings, accounts receivable
Line items on income statement
Sales, income tax expense, cost of goods sold
These activities involve purchasing goods, designing and manufacturing products, and selling goods to customers
Operating activities
Revenues and expenses relate to which activity on the statement of cash flow?
Operating
Legal documents representing ownership in a company
Capital stocks
Earned by selling goods or services to customers
Revenues
What statements does net income appear on?
Income statement and statement of stockholders’ equity
Financing activities involve:
Exchanges between a company and its creditors and stockholders
Investing activities involve:
Purchases of productive assets
Ending cash balance on balance sheet is equal to the sum of what other statements?
The change in cash of statement of cash flows
Beginning of the year cash balance
Which activities involve the buying and selling of land, buildings, and equipment used in the business?
Investing
What kind of activity is involved borrowing money from the bank?
Financing
A business’s assets are financed by whom?
Creditors and stockholders
Heading for a balance sheet
At ……
Income statement equation
BEGINNING retained earnings + net income – dividends = ENDING retained earnings
Steps of ethical decision making
1) Determine facts of situation
2) Identify the ethical issue and stakeholders
3) Identify the values related to the situation
4) Specify the alternative courses of action
5) Evaluate the courses of action in terms of their consistency
Ending retained earnings appear on which statements?
Balance sheet and statement of stockholders’ equity
Which groups have claims on business’s assets?
Stockholders and creditors
Services that CPAs perform
Tax planning
Assurance services
Not-for-profit assurance services
Separate legal entity
Corporation
Cash is reported on the:
Balance sheet and statement of cash flows
An accountant who is employed by a company like Best Buy has a career in:
Private accounting
Net income is equal to:
Revenue minus expenses
Net amount earned
Net income normally _____ equal the cash generated from operations because ______
does not; revenues are earned even if cash has not been collected
Steps of the accounting system
1) Analyze transactions
2) Record journal entries
3) Post amounts to general ledger
4) Prepare a trial balance
5) Adjust revenues and expenses

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