Chapter 1

Question 1

What is bookkeeping?

Answer 1

Keeping track of money-related activities for an individual or a business

Question 2

What kinds of money related activities does bookkeeping cover?

Answer 2

• cash received
• cash paid out
• sales
• purchases
• other activities

Question 3

What is personal bookkeeping?

Answer 3

– Cash received
– Cash paid out
– Things owned
– Debts owed

Question 4

What does bookkeeping for business entail?

Answer 4

– Cash received
– Cash paid out
– Sales
– Purchases
– Things owned
– Debts owed

Question 5

What is a Balance Sheet?

Answer 5

shows you what you own (assets) and the debts you own (liabilities)

Question 6

What is owners equity?

Answer 6

the difference between assets and liabilities

Question 7

What is an Income Statement?

Answer 7

Shows the revenue (income) earned and the operating costs incurred.

Question 8

What is net income?

Answer 8

The difference between revenue and costs

Question 9

What are the three forms of business organization?

Answer 9

– Proprietorship
– Partnership
– Corporation

Question 10

What is a Proprietorship?

Answer 10

– Business with only one owner

– Owner is manager, makes all business decisions, responsible for all liabilities

Question 11

What is a Partnership?

Answer 11

– Business owned by two or more persons (called partners)
– Partners share management and decision-making
– Each partner responsible for debts of business

Question 12

What is a Corporation?

Answer 12

– Business operates under government charter

– Owners called shareholders or stockholders

Question 13

What are the five classes every business divides it’s accounts into?

Answer 13

– Assets
– Liabilities
– Owners Equity
– Revenues
– Expenses

Question 14

What are assets?

Answer 14

– Things of value, owned by the business

– Ex. cash, buildings, equipment, merchandise for sale (inventory)

Question 15

What are liabilities?

Answer 15

– Debts owing to others (accounts payable)

– Ex. credit cards, bank loans, mortgages

Question 16

What is Owners Equity?

Answer 16

Value of assets that remain after all debts have been paid off

Question 17

What are Revenues?

Answer 17

– Earnings from sales of goods and/or services to customers

– A business can have more than one kind of revenue

Question 18

What are Expenses?

Answer 18

– Costs of operating business

– Ex. rent, salaries, electricity, water, advertising, etc.

Question 19

What is the difference between an Asset vs. an Expense?

Answer 19

Assets – contribute to the current operating year and to the following year (or years)
Expenses - Contribute only to the current operating year

Question 20

What are the practices and procedures (rules) accountants follow in how they record accounting activities and report accounting information?

Answer 20

Generally Accepted Accounting Principles (“GAAP”)

Question 21

What do the Generally Accepted Accounting Principles (GAAP) ensure?

Answer 21

That all accounting information is fair, free from bias, and reliable

Question 22

What are the three concepts of Generally Accepted Accounting Principles?

Answer 22

– Business Entity Concept
– Continuing-Concern Concept
– Conservativism Principal
– Objectivity Principal
– Time-Period Concept
– Recognition Principal

Question 23

What is Business Entity Concept?

Answer 23

Accounting for the business must be kept separate from the affairs of the owner

Question 24

What is Continuing Concern-Concept?

Answer 24

Assumes the business will continue operations without interruption (carry over debts, expenses, etc.)

Question 25

What is Conservativism Principal?

Answer 25

– Information must be fair and reasonable

– Values must not be overstated or understated

Question 26

What is Objectivity Principal?

Answer 26

• Transactions