Chapter 1

Question 1

What is accounting?

Answer 1

The information system that identifies, records, and communicates the economic events of an organization to a wide variety of interested users. (such as shareholders, decision makers and people looking to invest their money.)

Question 2

How do companies decide which products to sell and in which market? (Give example)

Answer 2

They look at the data that they create through surveys of a specific demographic.

For example, When RBI (restaurant brands international) created a campaign with Justin beiber and new drink options they made that decision based on data from a survey and it led them to an increase in profits.

Question 3

What are the two types of accounting?

Answer 3

Financial accounting and Management accounting.

Question 4

What is Financial accounting?

Answer 4

Financial accounting provides information to people outside the company.

Question 5

What is Management accounting?

Answer 5

Management accounting is for people within a company, it helps them make decisions about the company.

Question 6

What is GAAP

Answer 6

GAAP stands for generally accepted accounting principles.

Question 7

When following GAAP, what standards do you have to adhere to?

Answer 7

International Financial Reporting Standards (IFRS) and Accounting Standards for Private Enterprises (aspe)

Question 8

Why do you have to adhere to the GAAP rules?

Answer 8

You must adhere to generally accepted accounting principles if you are on the stock exchange (public company) so that it’s consistent across the globe. This way everyone can compare “apples to apples.” And everyone can make an equal decision.

Question 9

What is economic entity concept?

Answer 9

Economic entity concept means that the activities of an organisation in society (like a business) are kept separate and distinct from other entities and the owner. This means that you can’t write off personal expenses against your business.

Question 10

What is going concern assumption?

Answer 10

A going concern assumption, is the assumption that an entity (like a business) will continue to “live” in the foreseeable future.

Question 11

What is a monetary unit?

Answer 11

A monetary unit is a currency.

Question 12

What is a historical cost principle? (Give example)

Answer 12

Historical cost principle is how much something costs, wether or not you get a loan. For example, If I buy a pet cow for 200 dollars, but I borrow 150 from the bank, the historical cost of the cow is still 200 dollars.

Question 13

What is an asset?

Answer 13

Assets have future economic benefit to the company or person. Basically assets are things that hold economic value. Assets can prove to banks, if you don’t pay back your loan you will have the money to give the bank what you owe them. This makes you a low risk customer and they are more likely to want to give the loan to you.

Question 14

What is a liability?

Answer 14

A liability is something you owe. This can be goods or services. It can also be money.

Question 15

What is owner’s equity?

Answer 15

Net residual value :Owner’s equity is the amount of assets you have after you have paid off all of your debts. It can also be thought of as how much you own of an asset.

Question 16

What is the accounting equation? Give me a acronym for it.

Answer 16

Assets = liabilities + owner’s equity (ALOE)

Question 17

What is revenue?

Answer 17

Revenue is money generated through goods or services.

Question 18

What is an expense?

Answer 18

An expense is something you pay for in order to make more money.

Question 19

What is a balance sheet?

Answer 19

A financial statement that reports the assets, liabilities, and owner’s equity at a specific date.

Question 20

What are important aspects of an ethical balance sheet?

Answer 20

Balance sheets have to be easily comparable and reliable.

Question 21

What does a statement of owner’s equity show?

Answer 21

A statement of owner’s equity shows the changes that occurred to the equity over a period of time.

Question 22

What are the three types of business?

Answer 22

Sole proprietorship
Partnerships
Corporations

Question 23

What are the advantages and disadvantages of a sole proprietorship?

Answer 23

Advantages:

Sole proprietorships have one single owner
The business is separate and distinct from personal taxes.
Their are tax advantages if the business has a loss (Under zero)

Disadvantages of a sole proprietorship

Limited life span (When you go down, so does your business as it’s not a separate entity from yourself.)
You have unlimited liability - meaning, if you are sued, you go down with your business because your business is not a separate entity.

Question 24

In what order do you prepare financial statements?

Answer 24

1) The income statement
2) The statement of owner’s equity
3) The balance sheet

Question 25

What increases owner’s equity?

Answer 25

owner’s investments in the business
Revenues

Question 26

What decreases owner’s equity?

Answer 26

Withdrawals (From owner(s))
Expenses

Question 27

Why if I purchase something “on account” why is it not an expense?

Answer 27

It’s not an expense because we have not used it yet. It’s only an expense once you’ve used it. Instead it’s supply (an asset)

Question 28

What is “supply” Within a business?

Answer 28

Supplies is an asset, expenses are “used up”

Question 29

When is revenue recorded? What’s irrelevant?

Answer 29

Revenue is recorded when it’s earned, cash or not is irrelevant

Question 30

What are <>?

Answer 30

Negative numbers

Question 31

What is capital drawings?

Answer 31

Capital drawings is money that the owner takes out of the company

Question 32

What are double lines for?

Answer 32

The end of the statement (it’s complete)

Question 33

What does Account mean?

Answer 33

A record of increases and decreases in a specific asset, liability, or owner’s equity item.

Question 34

What are Accounting Standards for Private Enterprises (ASPE)

Answer 34

Accounting Standards for Private Enterprises (ASPE)

Question 35

What is an Accounting transaction?

Answer 35

An economic event that is recorded in the accounting records because it changes the assets, liabilities, or owner’s equity items of the organization.

Question 36

What does Accounts payable mean?

Answer 36

A liability created by buying services or products on credit. It is an obligation to pay cash to a supplier in the future.

Question 37

What does Accounts receivable mean?

Answer 37

An asset created when selling services or products to customers who promise to pay cash in the future.

Question 38

What is an Annual report?

Answer 38

Information that a company gives each year to its shareholders and other interested parties about its operations and financial position. It includes the financial statements and auditors’ report, in addition to information and reports by management.

Question 39

What is a Cash flow statement?

Answer 39

A financial statement that provides information about the cash receipts and cash payments for a specific period of time.

Question 40

What does Comparability mean in terms of accounting?

Answer 40

An enhancing qualitative characteristic that accounting information has if it can be compared with the accounting information of other companies because the companies all use the same accounting principles.

Question 41

What is a Conceptual framework of accounting?

Answer 41

A coherent system that guides the development and application of accounting principles.

Question 42

What does consistency mean in terms of accounting?

Answer 42

The use of the same accounting policies from year to year. Consistency is part of the comparability enhancing qualitative characteristic of accounting information.

Question 43

What is a Corporation?

Answer 43

A business organized as a separate legal entity under corporation law, with ownership divided into transferable shares.

Question 44

Who are Creditors?

Answer 44

All of the persons or entities that a company owes money to.

Question 45

What are Drawings in terms of accounting?

Answer 45

Withdrawals of cash or other assets from an unincorporated business for the owner’s personal use. Drawings result in a decrease in an asset and a decrease in owner’s equity.

Question 46

What are the Elements of the financial statements?

Answer 46

The components in the financial statements: assets, liabilities, owner’s equity, revenues, and expenses.

Question 47

What does Fair value mean in terms of accounting?

Answer 47

Generally the amount the asset could be sold for in the market assuming the company is a going concern, not the amount that a company would receive in an involuntary liquidation or distress sale.

Question 48

What is a ( single step) Income statement?

Answer 48

A financial statement that presents the revenues and expenses and resulting profit (or loss) for a specific period of time.

Question 49

What is a Limited liability?

Answer 49

The legal principle that the owners’ liability for the debts of the business is limited to the amount they invested in the business.

Question 50

What is Matching concept?

Answer 50

The accounting concept that prescribes when a cost incurred by a business should be recognized as an expense. The general concept states that, if a direct association exists between a cost incurred and a revenue recognized, the cost should be recognized as an expense in the same period as the revenue is recognized.