Accounting

Question 1

Choosing a methodology for an accounting item and treating all similar items using the exact methodology is known as what principle?

Answer 1

Consistency principle

Question 2

Define a liability

Answer 2

A future payment obligation of the company

Question 3

Define an asset

Answer 3

A tangible or intangible resource owned by the company.

Question 4

Define GAAP

Answer 4

A widely accepted set of standard guidelines for financial accounting.

Question 5

Define net income before taxes

Answer 5

= Operating profit + non-operating income - Non-operating expenses

Question 6

Define net worth

Answer 6

= Assets - liabilities

Question 7

Define posting

Answer 7

Recording a journal in the ledger

Question 8

Define the general ledger

Answer 8

A record of all the financial transactions of an entity

Question 9

Define working capital

Answer 9

= Current assets - current liabilities

Question 10

Difference between current and long-term assets

Answer 10

Current assets are expected to be converted into cash within a year while long-term assets are held longer than a year.

Question 11

Do you book a debit or a credit to increase a liability account?

Answer 11

Credit

Question 12

Do you book a debit or a credit to increase an asset account?

Answer 12

Debit

Question 13

Do you book a debit or a credit to increase an equity account?

Answer 13

Credit

Question 14

Do you book a debit or a credit to increase an expense account?

Answer 14

Debit

Question 15

Do you book a debit or a credit to increase an income account?

Answer 15

Credit

Question 16

Do you book a debit or a credit to increase a revenue account?

Answer 16

Credit

Question 17

Explain the concept of double-entry accounting.

Answer 17

For every debit there is an equal offsetting credit and the converse is true for every credit there is an equal offsetting debit.

Question 18

Financial statements that shows a company’s revenues, expenses and profits over a period of time.

Answer 18

The Income Statement

Question 19

Financial statement that shows a firm’s assets, liabilities and owner’s equity at a point in time.

Answer 19

The balance sheet

Question 20

Formula for owner’s equity

Answer 20

Assets minus liabilities

Question 21

A liability due within a year is known as?

Answer 21

A current liability

Question 22

A listing of debits and credits to be entered into a ledger is known as?

Answer 22

A Journal

Question 23

List some common liability accounts that payroll impacts.

Answer 23

• Taxes payable
• Benefits payable (ie. 401k, FSA)
• Garnishments payable
• Employee Stock Purchase Plan liability

Question 24

List the steps in the accounting cycle.

Answer 24

• List transactions in journals
• Post journals to ledgers
• Prepare the trial balance
• Post accruals and adjustments
• Prepare the adjusted trial balance
• Prepare the financial statements
• Close the books
• Reconcile the accounts
• Post reversing entries to begin the next period.

Question 25

The matching principle

Answer 25

Matching expenses and revenues to the accounting period in which they actually incur.

Question 26

Recording revenue and income when actually earned is what accounting principle?

Answer 26

Realization principle

Question 27

The Sincerity Principle

Answer 27

That an accounting professional will reflect the company’s financial position truthfully.

Question 28

True or False: A debit entry always decreases an account and a credit entry always increases it.

Answer 28

False. Debit means left and credit means right. Whether or not a debit/credit increases or decreases an account depends on the type of account.

Question 29

What is a chart of accounts?

Answer 29

A listing of general ledger account numbers and names.

Question 30

What is a company’s “bottom line”?

Answer 30

= Net income before taxes - taxes

Question 31

What is an accounting transaction?

Answer 31

A change to the value of an asset, liability or equity.

Question 32

What is FASB?

Answer 32

Financial Accounting Standards Board that sets the standards for financial transactions.

Question 33

What is the classification of each asset, liability, expense and revenue called?

Answer 33

An Account

Question 34

When using a single unit of currency to record transactions in a company’s financial statements an accountant is following what principle?

Answer 34

Monetary Unit Principle

Question 35

When would you run a trial balance?

Answer 35

After all journals have been posted to the general ledger.

Question 36

Why do you run a trial balance?

Answer 36

To prove that debits and credits are equal in the general ledger.