Accounting

Question 1

What is a financial statement

Answer 1

A statement that shows a business’s profitability over a stated period of time(like a movie not a snapshot).

Question 2

What is a fiscal year?

Answer 2

A fiscal year (FY) is a period that a company or government uses for accounting purposes and preparing financial statements.

Question 3

Name the 3 types of businesses.

Answer 3

Manufacturing business, Service business, and retail/merchandising business.

Question 4

Describe a service business:

Answer 4

Simplest type of accounting. A service provides intangible products, and services instead of goods. In an income statement, you would see the revenue and expenses. ex. theatre

Question 5

Describe a merchandising business:

Answer 5

-A business that sells tangible goods.
-Buy inventory of goods and keep track of them.
-Often buy inventory on credit(pay for it later)
-Discount if they pay their bills early.
-Track inventory at the start of year, and how much they purchased, they they subtract to get COGS
Income statements show revenue, expenses, and cost of goods sold. ex. bath and body works

Question 6

What are 4 sections of an income statement/

Answer 6

Revenue, expenses, COGS, Net profit

Question 7

How do you tell if a business is successful base on an income statement?

Answer 7

Calculate the rate of return on net sales. (portion of business sales that are kept as profit).ex. higher rate=more profitable company.

Question 8

How can businesses increase their ROS

Answer 8

• Increase price of goods
• Decrease cost of product inventory
• reduce cost of preparing product ex. if you manufacture.

Question 9

Describe a manufacturing business.

Answer 9

Most complex accounting because it has 3 types of inventory and direct labour.

• raw materials inventory
• Goods in process inventory
• Finished goods inventory
• Direct labour= cost of making the good

Question 10

What is a balance sheet?

Answer 10

A financial statement that shows the financial position of a business on a specific date. A snapshot of wether a business is financially strong.

Question 11

What are three sections of balance sheet?

Answer 11

• Assets
• Liabilities
• equity

Question 12

Types and definition of Assets

Answer 12

-Items of value owned by a business ex. cash, inventory, accounts receivables.
2 types= Current assets-easily converted into cash, ex. cash or inventory
Long term(Capital assets)-Kept by a business for a long time ex. furniture

Question 13

Types and definition of Liabilities

Answer 13

-Debts of business ex. accounts payable, loan payable, mortgage payable.
2 types=Current liabilities: payed within a year
Long term(capital)liabilities:Take longer than a year to pay

Question 14

What is Owner’s Equity?

Answer 14

Amount of assets remained in a business after liabilities are payed . ex. in corporation it would be called shareholders equity.

Question 15

How can you tell if a company is doing well based on the balance sheet?

Answer 15

Calculate the working capital which indicates wether a business is able to pay for its short term debts using its short term assets.

Question 16

What does the current ratio tell?

Answer 16

how many dollars of liquid assets a business has for every dollar of short term debt. An acceptable ratio is 2:1. Very low=company could not pay for short term debts quickly. Very high= Company might have too much money tied up in current assets.

Question 17

What is a cashflow statement

Answer 17

shows the cash coming in, and the cash going out in a business over a period of time.”Like a movie”includes months. ex. cash sales, selling equipment, collected accounts receivable, paying salaries, paying rent, buying new equipment.

Question 18

how will owner make sure that they make money on their investment?

Answer 18

By calculating the rate of return on average owner’s equity.

Question 19

What is the ALOE formula?

Answer 19

assets-liabilities=owner’s equity

Question 20

Cost of Goods Available For sale

Answer 20

Beginning Inventory+purchases

Question 21

Cost of goods sold

Answer 21

COGAFS-ending inventory

Question 22

Gross Profit

Answer 22

Revenue-COGS

Question 23

Net Income

Answer 23

Gross Profit-Expenses

Question 24

Working Capital

Answer 24

Current Assets-Current Liabilities

Question 25

Current ratio

Answer 25

Current assets/Current liabilities

Question 26

Rate of Return on Net Sales

Answer 26

Net income/revenueX100%

Question 27

Average Owner’s Equity

Answer 27

Beginning Owner’s Equity+Ending owner’s equity/2

Question 28

Rate of return on average owner’s equity

Answer 28

Net Income/average owner’s equityX100%

Question 29

Net cash Flow

Answer 29

Total Cash in-Total cash out

Question 30

Depreciation

Answer 30

Decrease in the value of assets

Question 31

The matching principle

Answer 31

directs a company to report an expense and the related revenues at the same time on its income statement.

Question 32

The cost principle

Answer 32

assets are recorded at the cash amount/ same amount that business payed to acquire them

Question 33

Preauthorized Payments

Answer 33

Any agreement between a bank and an account holder whereby the account holder gives the bank permission to automatically debit the account by a certain amount every month.

Question 34

Bookkeeping

Answer 34

Bookkeeping is the recording of financial transactions,

Question 35

Double-entry bookkeeping

Answer 35

Double-entry accounting is based on the fact that every financial transaction has equal and opposite effects in at least two different accounts.

Question 36

What is accounting?

Answer 36

is the process of recording, analyzing and interpreting the economic activities of a business.