Test #1

Question 1

What is accounting?

Answer 1

Information system that analyzes, records, summarizes and communicates the results of a business’ activities

Question 2

Financial Accounting

Answer 2

reports used outside the company by external users (financial statements

Question 3

Management Accounting

Answer 3

reports used inside the company by internal users (detailed financial plans and reports about operating performance.

Question 4

Internal users

Answer 4

• includes finance, marketing, human resources, production, company officers
• accounting information helps improve efficiency and effectiveness of planning, organizing and running companies

Question 5

External Users

Answer 5

• creditors, investors/shareholders, customers, regulators
• accounting information used to determine credit, lending, ownership, compliance, performance
• accounting information is communicated to external users via financial statements.

Question 6

Forms of Businesses

Answer 6

Sole proprietorship, partnership, corporation

Question 7

Sole proprietorship

Answer 7

one owner, owner personally liable for business debts, owner taxed on profits, easy to set-up, common

Question 8

Partnership

Answer 8

• more than one owner, partners personally liable for business debts, partners taxed on profits, easy to set up , common for professional practices

Question 9

Corporation

Answer 9

one or more owners, owner(s) are NOT personally liable for business debts, separate legal entity, subject to many regulations, corporation taxed on profits, public or private.

Question 10

Financial Statements

Answer 10

• a company’s primary means of communicating its finances
  -transactions are recorded, classified, and summarized
  -each statement provides different information but they are all linked together
• Basic Accounting Equation : Assets= Liabilities +
  Shareholders Equity

Question 11

How to find net income

Answer 11

revenue-expenses= net income

Question 12

Order of financial statements

Answer 12

1. Income Statement
2. Statement of Retained Earnings
3. Balance Sheet

Question 13

Income Statemetn

Answer 13

presents revenue, expenses and profit/loss for a specific period of time

Question 14

statement of retained earnings

Answer 14

summarizes the changes in shareholders’ equity for a specific period of time
-reports the way net income and the distribution or payment of dividends affected the financial position of the company during a period of time.

Question 15

Balance Sheet

Answer 15

reports assets, liabilities and owner’s equity at a specific date.

Question 16

Canadian Generally Accepted Accounting Principles (GAAP)

Answer 16

rules of accounting approved by the Canadian Institute of Chartered Accountants (CICA) for use in Canada

Question 17

International Financial Reporting Standards

Answer 17

Rules of accounting created by Internal Accounting Standards Board (IASB) for international use

Question 18

Accounting Standards for Private Enterprises (ASPE)

Answer 18

Rules of accounting for private enterprises

Question 19

Unit of Measure

Answer 19

a business’s domestic currency is the appropriate unit of measure for it to use in its accounting

Question 20

Separte entity

Answer 20

each business must be accounted for separately from its owner or any other economic entity.

Question 21

Going Concern

Answer 21

a company will continue operating for a period of time sufficient to carry out its commitments, obligations, and objectives

Question 22

time period

Answer 22

ongoing business activities will be divided up int periods of a year, quarter, month, week, etc.

Question 23

Cost

Answer 23

transactions are recorded based on the actual cash amount received or paid (or cash equivalent in the absence of cash)

Question 24

Revenue recognition

Answer 24

revenue must be recorded when it is earned, regardless or when cash or another asset is exchanged

Question 25

Matching

Answer 25

When you recognized revenue, you should match related expenses with that revenue

Question 26

full disclosure

Answer 26

should include all information in a business' financial statements that would affect a reader's understanding of those statements.

Question 27

Ethics

Answer 27

- to assist with ensuring high standards of ethical behavior, common to have formal Standards of Conduct - Ethical practices build trust, which promotes loyalty and long-term relationships with customers, suppliers, employees and investors

Question 28

Chart of accounts

Answer 28

a list of all the accounts (names and corresponding account numbers) used to record the financial results in the accounting system

Question 29

Journals

Answer 29

are used to record the effects of each financial transactin; organized by date

Question 30

Ledgers

Answer 30

are used to summarize the effects of the journal entries on each account; organized by account

Question 31

T-accounts

Answer 31

best representation of how each account is impacted (simplified version of a ledger account)

Question 32

Current assests

Answer 32

are assets that twill be used up or converted to cash within 12 months

Question 33

Current liabilities

Answer 33

are debts and obligations that will be paid, settled, or fulfilled within 12 months

Question 34

Non-current (or long-term)

Answer 34

assets and liabilities are assets and liabilities that do not meet the definition of 'current'

Question 35

Current ration

Answer 35

shows whether current assets are sufficient to pay current liabilities - a higher ratio means a better ability to pay Current ratio= current assets / current liabilities 10,630/ 630= 16.9 (high ratio)