Accounting 1 2200

Question 1

What are the four financial statements?

Answer 1

1) Balance Sheet
2) Income Statement
3) Statement of Owners Equity
4) Statement of Cash Flows

Question 2

What does GAAP stand for?

Answer 2

Generally accepted accounting principles.

Question 3

What is a Balance Sheet?

Answer 3

Statement of financial position (Assets, Liabilities, Equity). Prepared at a specific point in time.

Question 4

What are Assets?

Answer 4

Economic resources owned.

Question 5

What are Liabilities?

Answer 5

Debts owed.

Question 6

What is Equity?

Answer 6

Amount of owner’s investment.

Question 7

What is the Fundamental Accounting Equation?

Answer 7

Assets = Liabilities + Equity

Question 8

What are Current Assets?

Answer 8

Expire or converted to cash within one year. Examples include Cash, Accounts Receivable, Inventory, Supplies.

Question 9

What are Long Term Assets?

Answer 9

Expire or converted to cash after one year. Examples include Property-Plant-Equipment (P-P-E), Trademark, Patent, Copyright.

Question 10

What is the Historical Cost Concept?

Answer 10

Assets are shown at their cost to acquire, not their current value.

Question 11

What are Current Liabilities?

Answer 11

Due within one year. Examples include accounts payable, short term notes payable, salaries payable, income taxes payable, utilities payable.

Question 12

What are Long-Term Liabilities?

Answer 12

Due after one year. Examples include long term notes payable, mortgage payable, bonds payable.

Question 13

What is Contributed Capital/Common Stock?

Answer 13

Investments made by owners by buying stock.

Question 14

What are Retained Earnings?

Answer 14

Net income earned that is kept for growth and expansion rather than paid out in dividends.

Question 15

What is an Income Statement?

Answer 15

Financial statement that shows profitability for the company for a period of time (Revenues and Expenses).

Question 16

What are Revenues?

Answer 16

Amounts earned during the accounting period.

Question 17

What are Expenses?

Answer 17

Costs incurred in the process of earning revenue.

Question 18

What is Gross Profit?

Answer 18

Profit earned from selling inventory.

Question 19

What is the Statement of Owner’s Equity?

Answer 19

Financial statement that shows changes in equity for a period of time.

Question 20

What is the Common Stock Equation?

Answer 20

Beginning Balance + Additional Sales of Common Stock = Ending Contributed Capital.

Question 21

What is the Retained Earnings Equation?

Answer 21

Beginning Balance + Net Income - Dividends = Retained Earnings.

Question 22

What are key points about Dividends?

Answer 22

Dividends are not considered an expense, they’re a contra-equity.

Question 23

What does the Statement of Cash Flows show?

Answer 23

Changes in cash inflows and cash outflows for a period of time.

Question 24

What are Operating Activities?

Answer 24

Associated with the primary operations of the business.

Question 25

What are Investing Activities?

Answer 25

Cash Flows associated with purchasing or selling long term assets.

Question 26

What are Financing Activities?

Answer 26

Cash Flows associated with the sources of funding the business.

Question 27

What is the Realization Principle?

Answer 27

Record Revenue when the earning process is complete.

Question 28

What is the Matching Concept?

Answer 28

Record expenses in the same accounting period that relate to the revenue being earned.

Question 29

What type of accounting must all companies that sell stock use?

Answer 29

Accrual Accounting.

Question 30

What type of accounting can be used by companies that do not sell stock?

Answer 30

Cash Accounting.

Question 31

What is an Account?

Answer 31

Place where all increases and decreases in financial statement items are recorded.

Question 32

What is a Debit?

Answer 32

Left.

Question 33

What is a Credit?

Answer 33

Right.

Question 34

What is an Accounting Transaction?

Answer 34

Economic events that require recording in the financial statements.

Question 35

What is a Ledger?

Answer 35

All accounts of the company taken together.

Question 36

What is a Journal?

Answer 36

Place where all accounting transactions are initially recorded.

Question 37

What is a Journal Entry?

Answer 37

The means used to record transactions in the journal.

Question 38

What is Double Entry Accounting?

Answer 38

Every transaction must be recorded with at least one debit and one credit.

Question 39

What is Posting?

Answer 39

The process of transferring debit and credit amounts from the journal to the ledger.

Question 40

What is Analyzing Transactions?

Answer 40

Process of identifying the specific effects of economic events on the accounting elements.

Question 41

What are Gains?

Answer 41

When you sell a non-inventory asset for more than its cost.

Question 42

What is a Loss?

Answer 42

When you sell a non-inventory asset for less than its cost.

Question 43

What are Dividends?

Answer 43

Payments made by a corporation to its stockholders.

Question 44

What is the Accounting Cycle?

Answer 44

1. Record transactions in journal, 2. Post to ledger, 3. Prepare trial balance, 4. Prepare financial statements.

Question 45

What is a Trial Balance?

Answer 45

List of accounts and their balances at a given time.

Question 46

What is Financial Statement Analysis?

Answer 46

Examination of both relationships among financial statement numbers and trends over time.

Question 47

What are Financial Ratios?

Answer 47

Relationships between financial statement amounts.

Question 48

What are Liquidity Ratios?

Answer 48

Measure the short-term ability of the company to pay its debts.

Question 49

What is Working Capital?

Answer 49

Current Assets - Current Liabilities.

Question 50

What is the Current Ratio?

Answer 50

Current Assets / Current Liabilities.

Question 51

What is Accrual Accounting?

Answer 51

Revenues recorded when earned; expenses recorded in the same period they help to earn revenues.

Question 52

What are Adjusting Entries?

Answer 52

Needed to ensure that realization principle and matching concept are followed.

Question 53

What is a Deferral?

Answer 53

Transactions for which cash has been received or paid while the related revenue or expense has not been recorded.

Question 54

What is Accrual?

Answer 54

Transactions for which cash has NOT yet been received or paid, but the related revenue or expense has been earned or incurred.

Question 55

What are Deferred Expenses?

Answer 55

Prepaid expenses recorded as an asset that become an expense when used up.

Question 56

What is Supplies Expense?

Answer 56

When supplies are used up, they become an expense.

Question 57

What is Deferred Revenue?

Answer 57

Company receives cash in advance for goods or services to be performed later.

Question 58

What do Adjusting Entries for Deferred Revenue result in?

Answer 58

A debit to liabilities and a credit to revenue.

Question 59

What is Accrued Revenue?

Answer 59

Revenues earned but not yet received in cash or recorded.

Question 60

What do Adjusting Entries for Accrued Revenue result in?

Answer 60

A debit to assets and a credit to revenues.

Question 61

What are Accrued Expenses?

Answer 61

Expenses incurred but not yet paid for in cash.

Question 62

What do Adjusting Entries for Accrued Expenses result in?

Answer 62

A debit to expenses and a credit to liabilities.

Question 63

What is Depreciation?

Answer 63

The 'using up' of buildings or equipment.

Question 64

How do you record depreciation?

Answer 64

Debit depreciation expense and credit accumulated depreciation.

Question 65

What is Depreciation Expense?

Answer 65

=(cost-residual value)/useful life.

Question 66

What is Accumulated Depreciation?

Answer 66

Contra asset account representing the total amount of the building or equipment being used up.

Question 67

What is Interest?

Answer 67

Principle x Rate x Time.

Question 68

What type of account is Interest?

Answer 68

Accrual account.

Question 69

Is Accrual-basis accounting required by GAAP?

Answer 69

True.

Question 70

Do nominal accounts close to a 0 balance at the end of every year?

Answer 70

Yes, they include revenues, expenses, and dividends.

Question 71

What is the purpose of closing entries?

Answer 71

To transfer net income or net loss and dividends to Retained earnings.

Question 72

What is the Income Statement Format?

Answer 72

Sales Revenue - Cost of Goods Sold = Gross Profit.

Question 73

In what order do you create the financial statements?

Answer 73

Income statement, owner's equity, balance sheet, cash flows.

Question 74

What is the formula for Ending Retained Earnings?

Answer 74

Beginning Retained Earnings + Net Income - Dividends.

Question 75

What is the formula for Gross Profit?

Answer 75

Sales Revenue - Cost of Goods Sold.

Question 76

What is the Total Equity for a Corporation?

Answer 76

Contributed Capital + Retained Earnings.

Question 77

How should you list current assets on the balance sheet?

Answer 77

In order of liquidity, beginning with cash.

Question 78

What do adjusting entries for deferred (prepaid) expenses result in?

Answer 78

Debit to expenses and credit to assets.