ACCT Term Exam

Question 1

“Accounting equation”

Answer 1

Assets = Liabilities + Equity

Question 2

Assets

Answer 2

Resources that a company owns or controls and are expected to yield future benefits for the company.

Question 3

“Audit”

Answer 3

The examination of whether financial statements are prepared using proper concepts and rules.

Question 4

“Balance sheet”

Answer 4

Describe’s a company’s financial position at a point in time, typically presented in either the account form or the report form.

Question 5

“Bookkeeping”

Answer 5

Part of accounting that involves recording transactions and events, either manually or electronically. Typically does not include the preparation of financial statements.

Question 6

“Common stock”

Answer 6

The increase in equity representing an owner’s investment in the company. These are NOT considered revenues of the company.

Question 7

“Corporation”

Answer 7

A separate entity with the same rights and responsibilities as a person, pays additional income taxes, issues stock to shareholders, and has an indefinite business life.

Question 8

“Dividends”

Answer 8

Distributions, typically cash or additional stock shares, to owners of a company. These are not an expense.

Question 9

“Equity”

Answer 9

The owner’s/shareholder’s claims on assets of the company, also called net assets.

Question 10

“Expanded accounting equation”

Answer 10

Assets = Liabilities + Contributed capital + Retained earnings + Revenues − Expenses − Dividends.

Question 11

“Expense recognition/matching principle”

Answer 11

Salaries are not recorded when the employees are paid, the salaries are recorded in the same period that the employee’s work generated revenue.

Question 12

“Expenses”

Answer 12

Decrease in equity from costs of providing products and services to customers.

Question 13

“Financial Accounting Standards Board (FASB)”

Answer 13

This group is given the task of setting concepts and rules that apply to financial reporting in the United States.

Question 14

“Financial accounting”

Answer 14

Primarily provides information for the needs of external users.

Question 15

“Generally Accepted Accounting Principles (GAAP)”

Answer 15

These concepts and rules govern financial accounting in the United States.

Question 16

“Income statement”

Answer 16

This financial statement shows the overall profitability of a company for a specific period of time, such as a month, quarter, or year.

Question 17

“Internal controls”

Answer 17

Procedures to protect assets, ensure reliable accounting, promote efficiency, and uphold company policies and include separation of duties, establishment of responsibilities, and regular independent reviews.

Question 18

“Liabilities”

Answer 18

Creditors’ claims on an organization’s assets; involves a probable future payment of assets, products, or services that a company is obligated to make due to past transactions or events.

Question 19

“Materiality”

Answer 19

Concept that all items that are reasonably likely to impact investors’ decision-making must be recorded or reported in detail in a business’s financial statements using GAAP standards. (not relevance)

Question 20

“Measurement/Cost principle”

Answer 20

Accounting information is measured on a cash or equal-to-cash basis. If a company receives $1,000 for services, those services are valued at $1,000.

Question 21

“Net income”

Answer 21

Amount earned after subtracting all the expenses from all the revenues for a period.

Question 22

“Retained earnings”

Answer 22

This is increased by revenues & gains; decreased by expenses, losses, and dividends; and is carried forward from period to period.

Question 23

“Revenue recognition principle”

Answer 23

Prescribes that revenue is recognized when goods or services are delivered to customers.

Question 24

“Revenues”

Answer 24

These increase equity and are generated by providing products and/or services to customers.

Question 25

"Securities and Exchange Commission (SEC)"

Answer 25

This is a United States agency that oversees proper use of the concepts and rules by companies that sell stock and debt to the public in the United States.

Question 26

"Statement of cash flows"

Answer 26

This is the final financial statement prepared by the company at the end of a financial period and is segregated into the sections operating, investing, and financing activities.

Question 27

"Statement of retained earnings"

Answer 27

Explains changes in equity from net income/(loss) and any dividends over a period of time.

Question 28

"Time period assumption"

Answer 28

The life of a company can be divided into set periods, such as months, quarters, and years, and reports are prepared for those periods.

Question 29

"Account balance"

Answer 29

The difference between total debits and total credits for an account, including the beginning balance.

Question 30

"Chart of accounts"

Answer 30

A list of all ledger accounts with an identification number assigned to each account.

Question 31

"Classified balance sheet"

Answer 31

Groups permanent accounts into categories on a financial statement with current items being reported before noncurrent items.

Question 32

"Credit"

Answer 32

The right side of an account. When a company fulfills an obligation this will increase a revenue.

Question 33

"Debit"

Answer 33

The left side of an account. When a company obtains an asset this will increase the asset.

Question 34

"Double-entry accounting"

Answer 34

System that requires the accounting equation remain in balance. This means each transaction has at least two accounts, at least one debit and one credit, and total debits equal total credits.

Question 35

"General journal"

Answer 35

Used to record any transaction that the company makes to change the balance in at least two accounts. This includes the date, accounts, and amounts of all transactions.

Question 36

"General ledger"

Answer 36

A record of all accounts used by a company and shows the beginning balance, increases, decreases, and ending balance in each of the accounts.

Question 37

"Journalizing"

Answer 37

Recording transactions in the records of the company.

Question 38

"Normal balance"

Answer 38

The side that increases the balance of an account.

Question 39

"Payable"

Answer 39

Promises to pay an amount to an entity in the future for products or services that have been provided.

Question 40

"Posting"

Answer 40

Transferring journal entry information to the ledger.

Question 41

"Prepaid expense"

Answer 41

When a company pays for a product or service prior to the product being used or the service being provided to the company.

Question 42

"Receivable"

Answer 42

Represents an amount owed to the company for products or services that the company has already provided.

Question 43

"Supplies"

Answer 43

Tangible resources owned by a company that will be used by the company within a year.

Question 44

"Trial balance"

Answer 44

A list of all ledger accounts and their balances at a point in time. This is NOT a financial statement.

Question 45

"Unearned revenue"

Answer 45

Recorded when customers pay in advance for products or services that the company will provide in the future.

Question 46

"Accounting cycle"

Answer 46

Recurring steps performed each accounting period, starting with analyzing transactions and continuing through the post-closing trial balance (or optional reversing entries).

Question 47

"Accrual basis accounting"

Answer 47

Accounting system that recognizes revenues when goods or services are provided and expenses when incurred; the basis for GAAP.

Question 48

"Accrued expenses"

Answer 48

Costs incurred in a period that are both unpaid and unrecorded; adjusting entries for these transactions involve increasing expenses and increasing liabilities.

Question 49

"Accrued revenues"

Answer 49

Revenues earned in a period that are both unrecorded and not yet received in cash (or other assets); adjusting entries for these transactions involve increasing assets and increasing revenues.

Question 50

"Accumulated depreciation"

Answer 50

Cumulative sum of all expense recorded for a plant asset. This is a contra asset account.

Question 51

"Adjusted trial balance"

Answer 51

List of accounts and balances prepared after period-end adjustments are recorded and posted.

Question 52

"Adjusting entry"

Answer 52

Journal entry at the end of an accounting period to bring an asset or liability account to its proper amount and update the related expense or revenue account.

Question 53

"Book value"

Answer 53

Asset’s acquisition costs less its accumulated depreciation (or depletion, or amortization); also sometimes used synonymously as the carrying value of an account.

Question 54

"Closing entries"

Answer 54

Entries recorded at the end of each accounting period to transfer end-of-period balances in revenue, gain, expense, loss, and withdrawals (dividends for a corporation) accounts to the capital account (or retained earnings for a corporation).

Question 55

"Contra account"

Answer 55

Account linked with another account and having an opposite normal balance; reported as a subtraction from the other account’s balance.

Question 56

"Current assets"

Answer 56

Cash and other resources of a business expected to be sold, collected, or used within one year or the company’s operating cycle, whichever is longer.

Question 57

"Current liabilities"

Answer 57

Obligations due to be paid or settled within one year or the company’s operating cycle, whichever is longer.

Question 58

"Depreciation"

Answer 58

Expense created by allocating the cost of plant and equipment to periods in which they are used; represents the expense of using the asset.

Question 59

"Intangible assets"

Answer 59

Noncurrent resources used to produce or sell products or services; usually lack physical form and have uncertain benefits.

Question 60

"Long-term liabilities"

Answer 60

Obligations not due to be paid within one year or the operating cycle, whichever is longer.

Question 61

"Permanent accounts"

Answer 61

Accounts that reflect activities related to one or more future periods; balance sheet accounts whose balances are not closed.

Question 62

"Plant assets"

Answer 62

Tangible long-lived assets used to produce or sell products and services; also called fixed assets.

Question 63

"Post-closing trial balance"

Answer 63

List of permanent accounts and their balances from the ledger after all closing entries are journalized and posted.

Question 64

"Profit margin"

Answer 64

Ratio of a company’s net income to its net sales; the percent of income in each dollar of revenue.

Question 65

"Straight-line depreciation"

Answer 65

Method that allocates an equal portion of the depreciable cost of plant asset (cost minus salvage) to each accounting period in its useful life.

Question 66

"Temporary accounts"

Answer 66

Accounts used to record revenues, expenses, and withdrawals (dividends for a corporation); they are closed at the end of each period.

Question 67

"Unadjusted trial balance"

Answer 67

List of accounts and balances prepared before accounting adjustments are recorded and posted.

Question 68

"Cash discount"

Answer 68

Reduction in the price of merchandise granted by a seller to a buyer when payment is made within the discount period.

Question 69

"Cost of goods sold"

Answer 69

Value of inventory sold to customers during a period. Not the price the buyer pays for the inventory.

Question 70

"Gross profit"

Answer 70

Net sales minus cost of goods sold.

Question 71

"Merchandise inventory" "Merchandise inventory"

Answer 71

Goods that a company owns and expects to sell to customers.

Question 72

"Perpetual inventory system"

Answer 72

Method that maintains continuous ­records of the cost of inventory available and the cost of goods sold.

Question 73

"Purchases discount"

Answer 73

Term used by a purchaser to describe a cash discount granted to the purchaser for paying within the discount period.

Question 74

"Sales returns and allowances"

Answer 74

Refunds or credits given to customers by the seller for unsatisfactory merchandise. Sometimes the product is sent back to the seller and sometimes the customer keeps the product.

Question 75

"Bank reconciliation"

Answer 75

Report that explains the difference between the book (company) balance of cash and the cash balance reported on the bank statement, for purposes of computing the adjusted cash balance.

Question 76

"Cash equivalents"

Answer 76

Short-term investment assets that are readily convertible to a known cash amount or sufficiently close to their maturity date (usually within 90 days) so that market value is not sensitive to interest rate changes.

Question 77

"Fraud triangle"

Answer 77

Highlights three factors that push a person to commit illegal acts: opportunity, pressure (incentive), and rationalization (attitude).

Question 78

"Liquidity"

Answer 78

Availability of resources to meet short-term cash ­requirements.

Question 79

"Accounts receivable"

Answer 79

Amounts due from customers for credit sales; backed by the customer’s general credit standing.

Question 80

"Aging of accounts receivable"

Answer 80

Process of classifying accounts receivable by how long they are past due for purposes of estimating uncollectible accounts.

Question 81

"Allowance for doubtful accounts"

Answer 81

Contra asset account with a balance approximating uncollectible accounts receivable.

Question 82

"Allowance method"

Answer 82

Procedure that (a) estimates and matches bad debts expense with sales for the period and/or (b) reports accounts receivable at estimated realizable value.

Question 83

"Direct write-off method"

Answer 83

Method that records the loss from an uncollectible account receivable at the time it is determined to be uncollectible; no attempt is made to estimate bad debts.

Question 84

"Notes receivable"

Answer 84

Written promise to obtain a specific sum of money on a specified future date; recorded by the holder of the agreement.

Question 85

"Principal of a note"

Answer 85

Amount that the signer of a note agrees to pay back when it matures, not including interest.

Question 86

"Amortization"

Answer 86

Process of allocating the cost of an intangible asset to expense over its estimated useful life.

Question 87

"Capital expenditures"

Answer 87

Additional costs of plant assets that provide material benefits extending beyond the current period.

Question 88

"Salvage value"

Answer 88

Estimate of amount to be recovered at the end of an asset’s useful life; also called residual or scrap.

Question 89

"Useful life"

Answer 89

Length of time an asset will be productively used in the operations of a business.

Question 90

"Federal Insurance Contributions Act (FICA) taxes"

Answer 90

Taxes assessed on both employers and employees; for Social Security and Medicare programs.

Question 91

"Gross pay"

Answer 91

Total compensation earned by an employee.

Question 92

"Net pay"

Answer 92

Total compensation earned by an employee less all deductions; also called take-home pay.

Question 93

"Bond"

Answer 93

Written promise to pay the par (or face) value and interest at a stated contract rate; often issued in denominations of $1,000.

Question 94

"Mortgage"

Answer 94

Legal loan agreement that protects a lender by giving the lender the right to be paid from the cash proceeds from the sale of a borrower’s assets identified in the agreement.

Question 95

"Market value per share"

Answer 95

Price at which stock is bought or sold at a given point in time.

Question 96

"Paid-in capital"

Answer 96

Total amount of cash and other assets received from stockholders in exchange for stock.

Question 97

"Par value of stock"

Answer 97

Value assigned a share of stock by the corporate charter when the stock is authorized.

Question 98

"Financing activities"

Answer 98

Transactions with owners and creditors that include obtaining cash from issuing debt, repaying amounts borrowed, and obtaining cash from or distributing cash to owners.

Question 99

"Investing activities"

Answer 99

Transactions that involve purchasing and selling long-term assets; includes making and collecting notes receivable and investments in other than cash equivalents.

Question 100

"Operating activities"

Answer 100

Activities that involve the production or purchase of merchandise and the sale of goods or services to customers, including expenditures related to administering the business.