Accounting 211 Chapter 1-4
Three types of businesses are - correct answer 1. Financing Activities: borrowing or paying back money
to lenders and receiving additional funds from stockholders or paying them dividends
2. Investing Activities: buying or selling items such as plant and equipment used in the production of
beverages.
3. Operating Activities: the day-to-day process of purchasing raw tea and other ingredients from
suppliers, manufacturing beverages, delivering them to customers, collecting cash from customers, and
paying suppliers.
GAAP stands for - correct answer Generally Accepted Accounting Principles
FASB stands for - correct answer Financial Accounting Standards Board
What is a CPA - correct answer a. Certified Public Accountant - CPA designation is granted only on
completion of requirements specified by the state that issues the license
b. Requirements generally include college degree with a specified number of accounting courses, good
character, one to five years of professional experience, and successful completion of the CPA exam
What is a business transaction - correct answer A transaction is:
1. An exchange of assets or services for assets, services, or promises to pay between a business and one
or more external parties to a business or
2. A measurable internal event such as the use of assets in operations
Accounting Equation - correct answer Assets = Liabilities + Owner's Equity
4 Principal Financial Statements - correct answer Balance Sheet
Stockholders Equity
Statement of Cash Flows
Income Statement
Balance Sheet - correct answer a statement of the assets, liabilities, and capital of a business or other
organization at a particular point in time, detailing the balance of income and expenditure over the
preceding period
Assets = Liabilities + Stockholders' Equity
Income Statement - correct answer Income Statement (statement of income, statement of earnings, or
statement of operations) - reports the revenues less the expenses of the accounting period
Revenues - Expenses = Net Income
Statement of Stockholders' Equity - correct answer reports the way that net income and the distribution
of dividends affected the financial position of the company during the accounting period
Beginning balance + Increases - Decreases = Ending balance
Statement of Cash Flows - correct answer reports inflows and outflows of cash during the accounting
period in the categories of operations, investing, and financing
+/- Cash Flows from Operating Activities
+/- Cash Flows from Investing Activities
+/- Cash Flows from Financing Activities
= Change in Cash
What is a chart of Accounts? How is it organized? - correct answer A list of all account titles and their
unique numbers; are usually organized by financial statement element (asset, liability, stockholders'
equity, revenue, and expense accounts in that order)
Examples of Asset accounts are? - correct answer cash, supplies, equipment
Examples of Liability accounts are? - correct answer Accounts payable, notes payable, unearned rent
What accounts are found in Stockholders equity? - correct answer Capital Stock & Retained Earnings
What is a normal balance? - correct answer The debit or credit balance that would be expected in a
specific account in the general ledger.
What does a trial balance do? - correct answer a bookkeeping or accounting report that lists the
balances in each of an organization's general ledger accounts
Accrual basis of accounting means? - correct answer Revenue is reported when earned, not when cash is
received. Sales under accrual basis are recorded once the customer has received the goods or services -
it does not depend on when the cash is received
The Matching Concept - correct answer A concept of accounting in which expenses are matched with the
revenue generated during a period by those expenses.
Adjusting entries affect what type of accounts? - correct answer Income Statement & Balance Sheet
What is Deferred Revenue? - correct answer Payments received in advance for services which have not
yet been performed or goods which have not yet been delivered.
What is Accrued Revenue? - correct answer Income that has been earned from customers, but no
payment has been received
Deferred Expense? - correct answer a cost that has already been incurred, but which has not yet been
consumed
Accrued Expense? - correct answer an expense that is recognized on the books before it has been paid
Adjusting Entries accomplish what? - correct answer Prepaid expenses need to be adjusted at the end of
the period to reflect amounts that have expired or used during the period. Adjusting entries affect one
income statement account and one balance sheet account
What is the difference between revenue and gain? - correct answer In accounting, a gain is the result of a
peripheral activity, such as a retailer selling one of its old delivery trucks. A gain occurs when the cash
amount (or its equivalent) received is greater than the asset's carrying amount, which is also referred to
as the assets book value. For example, if the company receives $3,000 for the old delivery truck, and the
truck's carry amount (book value) at the time of the sale was $600, the company will have a gain of
$2,400.
Revenue is the amount earned from a company's main operating activities, such as a retailer selling
merchandise or a law firm providing legal services.
What is the accounting cycle? How many steps does it have? - correct answer Accounting Cycle
1. Identify and analyze transactions
2. Journalizing (record transactions)
3. Post journal entries to the ledger
4. Trial Balance
5. Adjusting Entries
6. Financial Statements
7. Closing entries
What is a worksheet? - correct answer a spreadsheet used to prepare accounting information and
reports. most often used in the accounting cycle process to draft an unadjusted trial balance, adjusting
journal entries, adjusted trial balance, and financial statements.
What accounts are listed on a trial balance? - correct answer - Trial balance - list of all accounts with their
balances to provide a check on the equality of the debits and credits
- A trial balance lists the names of the T-accounts in one column in financial statement order (assets,
liabilities, stockholders' equity, revenues, and expenses), with their ending debit or credit balances in the
next two columns
- Debit balances are indicated in the left column and credit balances are indicated in the right column
- Then the two columns are totaled to provide a check on the equality of the debits and credits
What accounts are set to zero at the end of the accounting period? - correct answer Temporary Accounts
What is another name for a nominal account? - correct answer Revenue, Expense, Gain, and Loss
Accounts
What accounts never get shut or reset to zero? What are they called? - correct answer permanent
accounts
What is the post-closing trial balance sheet? Why does it get prepared? - correct answer a list of all
accounts and their balances after the closing entries have been journalized and posted to the ledger. In
other words, the post closing trial balance is a list of accounts or permanent accounts that still have
balances after the closing entries have been made. helps you verify that these accounts have zero
balances. It also verifies that debits still equal credit amounts after the closing entries, which ensures
that you start the next accounting period with the correct amounts.
What is a contra asset account? - correct answer an asset account where the account balance is a credit
balance. It is described as "contra" because having a credit balance in an asset account is contrary to the
normal or expected debit balance. Accumulated Depreciation is an example of a contra account.
What is Depreciation? - correct answer allocating the cost of a tangible asset over its useful life and is
used to account for declines in value.
What are Current Liabilities? - correct answer are obligations to be paid with current assets within one
year
What are current Assets? Where are they listed? - correct answer are those used or turned into cash
within one year (as well as inventory). Balance sheet
Long-term liabilities are listed where? - correct answer Balance sheet
Are Dividends listed on the Balance Sheet or Income Statement? - correct answer balance sheet
how many months are in a fiscal year - correct answer 12
Current Ratio formula is? - correct answer dividing current assets by current liabilities
Net Profit Margin Formula? - correct answer divide your sales revenue by your net income
Total Asset Turnover? - correct answer an efficiency ratio that measures a company's ability to generate
sales from its assets by comparing net sales with average total assets. In other words, this ratio shows
how efficiently a company can use its assets to generate sales.
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