A200 Final Exam ReviewChapter 1 Formulas & Key ConceptsChapter 1 1-2,7,13-29,31,33-361. Explain the term stakeholder. Distinguish between stakeholders with a direct versus an indirect versus indirect interest in the companies that issue accounting reports.-Stakeholders are the parties that use accounting information-Direct interest = owners, managers, creditors, suppliers, employees-Indirect interest = financial analysts, brokers, attorneys2. Why is accounting called the language of business?-Accounting provides information that is useful in making decisions by all participants in the market for resource goods and services7. What type of return does an investor expect to receive in exchange for providing financial resources to a business? What type of return does a creditor expect from providing financial resources to an organization or business?-investors expect a distribution of the business’s profits as a return on their financialinvestment-creditors lend financial resources to businesses and receive interest as a return or profit on their investment13. What role do assets play in business profitability?-assets are used to produce earnings14. To whom do the assets of a business belong?-assets of a business belong to that business entity and the claims on the assets belong to resource providers15. What is the nature of creditors’ claims on assets?-creditors loan money to the business, they have first claim to the assets of the business16. What term describes creditors’ claims on the assets of a business?-liabilities is a term used to describe creditors’ claims on the assets of a business17. What is the accounting equation? Describe each of its three components.- ASSETS = LIABILITIES + STOCKHOLDERS EQUITY 18. Who ultimately bears the risk and collects the rewards associated with operating a business?-The owners bear the risk and collect the rewards19. What does a double-entry bookkeeping system mean?-a system in which every transaction affects at least two accounts (balance)20. How does acquiring capital from owners affect the accounting equation?-capital is acquired by issuing stock, increases assets and stockholders equity21. What is the difference between assets that are acquired by issuing commonstock and those that are acquired using retained earnings?-assets from common stock are the result of investments by owners-assets from retained earnings are assets that the business acquires through earnings22. How does earning revenue affect the accounting equation?-increases asset side and increases retained earnings account23. What are 3 primary sources of assets?-investments by owners (issue of stock)-borrowing from creditors-earnings activities24. What is the source of retained earnings?-result of a business retaining its earned assets reather than distributing those earnings to its owners25. How does distributing assets (paying dividends) to owners affect the accounting equation?-decrease the asset side and decrease retained earnings26. What are the similarities and differences between dividends and expenses?-both decrease assets and retained earnings-dividends are transfer of wealth27. What four general-purpose financial statements do business enterprises use?-income statement-measures difference between asset increases and decreases-statement of changes in stockholders’ equity-explains the effect of transactions on stockholders’ equity-balance sheet-lists the assets and claims as of a date-statement of cash flows-explains how a company obtained and used cash during the accounting period28. Which of the general-purpose financial statements provides information about the enterprise at a specific designated date?-The balance sheet29. What causes a net loss?-when expenses exceed revenues in a given accounting period31. How are asset accounts usually arranged in the balance sheet?-operating activities-explains cash generated from revenue and cash paid for expenses-investing activities-include cash received or spent on productive assets-financing activities-include cash inflows and outflows33. How do temporary accounts differ from permanent accounts? Name three temporary accounts. Is retained earnings a temporary or permanent account?-temporary accounts are used to capture information for a single accounting period-temporary balances are transferred out of the accounts at end of period-permanent accountings carry over -retained earnings is a permanent accountChapter 2 Formulas & Key ConceptsChapter 2 1-2, 4-6,8-16,18-28,30-321. What does accrual accounting attempt to accomplish?-attempts to record the effects of accounting in the period in which they occur not when cash is exchanged2. Define recognition. How is it independent of collecting or paying cash?-reporting an event in the financial statements-in accrual events are recognized before cash is paid4. If cash is collected in advance of performing services, when is the associated revenue recognized?-when the services are rendered 5. What does the term asset source transaction mean?-increase assets and liabilities/equity6. What effect does the issue of common stock have on the accounting equation?-increases assets and equity8. Give an example of an asset source transaction? What is the effect of this transaction on the accounting equation?-common stock -> increase assets, common stock-revenue earned -> increase assets, retained earnings-borrowed funds -> increase assets, increase liabilities 9. When is revenue recognized under accrual accounting?’-when the revenue is earned10. Give an example of an asset exchange transaction. What is the effect of this transaction on the accounting equation?-collection of cash from accounts receivable, total assets unchanged11. What is the effect on the claims side of the accounting equation when cash is collected in advance for services?-liability created, increases claims side of the accounting equation12. What does the term unearned revenue mean?-cash that has been collected for services not yet performed13. What effect does expense recognition have on the accounting equation?-decreasing assets or increasing liabilities while decreasing stockholders equity14. What does the term claims exchange transaction mean?-where liabilities increase and retained earnings decrease or vice versa15. What type of transaction is a cash payment to creditors? How does this time of transaction affect the accounting equation?-asset use transactions16. When are expenses recognized under accrual