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A comprehensive set of questions and answers covering key concepts in introductory financial accounting. It covers topics such as the three basic activities of accounting, internal and external users, ethics, gaap, accounting principles, forms of business ownership, the accounting equation, transactions, financial statements, and more. A valuable resource for students preparing for an exam in introductory financial accounting.
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Three Basic Activities of Accounting - ANS ✓✓ -identify, record, communicate Internal Users - ANS ✓✓ -marketing, management, finance, human resources External Users - ANS ✓✓ -investors and creditors Ethics - ANS ✓✓ -standards of conduct by which one's actions are judged as right or wrong; fair or unfair; honest or dishonest Generally Accepted Accounting Principles (GAAP) - ANS ✓✓ -standards that are generally accepted and universally practiced Historical Cost Principle - ANS ✓✓ -dictates that companies record assets at their cost Fair Value Principle - ANS ✓✓ -states that assets and liabilities should be reported at fair value Monetary Unit Assumption - ANS ✓✓ -requires that companies include accounting records only transaction data that can be expressed in fair terms of money Economic Entity Assumption - ANS ✓✓ -requires that activities of the entity kept separate and distinct from the other activities of its owner and all other economic entities
Forms of Business Ownership - ANS ✓✓ -proprietorship, partnership, corporation Proprietorship - ANS ✓✓ -owned by one person; owner receives all profits and is responsible for all debts Partnership - ANS ✓✓ -owned by two or more persons; unlimited personal liability; partnership agreement Corporation - ANS ✓✓ -ownership divided into shares; separate legal entity organized under corp. law; limited liability Basic Accounting Equation - ANS ✓✓ -Assets = Liabilities + Stockholder's Equity Transactions - ANS ✓✓ -business's economic events recorded by accountants; external or internal Retained Earnings - ANS ✓✓ -Revenues - Expenses - Dividends Financial Statements - ANS ✓✓ -Income Statement; retained earnings; balance sheet; statement of cash flows Income Statement - ANS ✓✓ -reports profitability of the company's operations over a specific time Income Statement Format - ANS ✓✓ -Revenues - Expenses = Net Income (Loss) Retained Earnings Statement - ANS ✓✓ -reports the changes in retained earning for a specific period of time; same time period as income statement Balance Sheet - ANS ✓✓ -reports assets, liabilities, and stockholder's equity at a specific date -> In that order
Expense Recognition Principle - ANS ✓✓ -Match expenses with revenues in the period when the company makes efforts to generate those revenues Matching Principle - ANS ✓✓ -managing revenues and expenses Adjusting Entries - ANS ✓✓ -required for financial statements; includes one income statement and on balance sheet account Deferrals - ANS ✓✓ -expenses or revenues that are recognized at a date later than the point when cash was originally exchanged Depreciation - ANS ✓✓ -the process of allocating the cost of an asset to expense over its useful life Book Value Formula - ANS ✓✓ -cost - accumulated depreciation Book Value - ANS ✓✓ -the difference between the cost of a depreciable asset and its related accumulated depreciation(contra-asset account) Accrued Revenues - ANS ✓✓ -revenues for services performed but not yet received in cash or recorded Accrued Expenses - ANS ✓✓ -expenses incurred but not yet paid in cash or recorded Face Amount - ANS ✓✓ -principle (P) Adjusted Trial Balance - ANS ✓✓ -financial statements prepared directly from ATB--> Income Statement; Retained Earnings; Balance Sheet Relevance - ANS ✓✓ -Relative size of an item
Materiality - ANS ✓✓ -item is material when size makes it likely to influence the decision of an investor or creditor Faithful Representation - ANS ✓✓ -information accurately depicts what occurred Worksheet - ANS ✓✓ -not a permanent accounting record; optional 5 Components of a Worksheet - ANS ✓✓ -Trial Balance; Adjustments; Adjusted Trial Balance; Income Statement; Balance Sheet Net Income on a Worksheet - ANS ✓✓ -Debit - Income Summary; Credit - Balance Sheet Retained Earnings (End) Formula - ANS ✓✓ -RE(Beg) + Net Income - Dividends = RE(End) Accounts Payable - ANS ✓✓ -Balance Sheet --> Credit Column Temporary Accounts - ANS ✓✓ -revenues, expenses, dividends Post-Closing Trial Balance - ANS ✓✓ -A list of permanent accounts and their balances after a company has journalized and posted closing entries. Current Assets - ANS ✓✓ -cash and other assets expected to be exchanged for cash or consumed within a year Operating Cycle - ANS ✓✓ -The average time required to purchase inventory, sell it on account, and then collect cash from customers—that is, go from cash to cash. Intangible Assets - ANS ✓✓ -long-term assets --> (patents, trademarks, copyrights, goodwill); that have no real physical form but do have value