Chapter 1- Accounting Fundamentals

Question 1

What does the ALOE acronym stand for?

Answer 1

The accounting equation

Assets = Liabilities + Owner’s Equity

Question 2

What are the four financial statements?

Answer 2

Income Statement
Statement of Retained Earnings
Balance Sheet
Statement of Cash Flows

Question 3

What does the incomes statement tell us?

Answer 3

How much money the company made

Question 4

What does the statement of retained earnings tell us?

Answer 4

How much of the money that was made was reinvested in the compnay

Question 5

What does the balance statement tell us?

Answer 5

It lists all assets, liabilities, and owner’s equity accounts and tells the balance of each account.

Question 6

What does the statement of cash flows tell us?

Answer 6

The inflow and outflow of a company’s cash for a given time period

Question 7

What are the steps of the accounting cycles?

Answer 7

Collection and Analysis
Journalizing the Transactions
Post to General Ledger
Unadjusted Trail Balance
Adjustments
Adjusted Trial Balance
Financial Statements
Close Accounts
Post-Closing Trial Balance

Question 8

What are assets?

Answer 8

What a company owns

Question 9

What are liablities

Answer 9

what a company owes

Question 10

What is Owner’s Equity

Answer 10

How much of a personal investment an owner has placed in something that he owns

Question 11

What is GAAP

Answer 11

Generally Accepted Accounting Principles

Question 12

What does GAAP do?

Answer 12

The standard by which items on the balance sheet must be reported.

Question 13

What is the net income equation?

Answer 13

Revenue - Expenses = Net Income

Question 14

What are revenues

Answer 14

the amount of money that a company brings in

Question 15

what are expenses

Answer 15

the amount of money that a company pays outs

Question 16

what is net income

Answer 16

the amount of revenue that came in once expenses have been taken out.

Question 17

What is the term used to define when the amount of expenses that were paid were more than the amount of revenue that came in

Answer 17

Net Loss

Question 18

What are activities that occur during the normal day-to-day operations of a company?

Answer 18

Operating Activites

Question 19

What are activities that involve the purchase and sale of long-term assets as well as making or giving loans

Answer 19

Investing Activities

Question 20

What are activities that involve cash receipts or cash payments that are a result of changes in long-term liabilities?

Answer 20

Financing Activities

Question 21

The major reasons that the statement of cash flows is important?

Answer 21

1. explains why changes in cash balances occurred.
2. helps users jude whether or not a company can pay the people that they owe money to.
3. it helps users see whether or not a company needs to borrow money to meet its debt obligation
4. It helps users see why there are any differences between a company’s net income and the actual cash receipts and cash payments that a company made during a specific accounting period.
5. it helps uses see why a company may experience changes in their financial position from one accounting period to the next.

Question 22

What is meant by an Arm’s Length Transaction?

Answer 22

those were the people involved in the transactions are not personally related.

Question 23

What is the term used that represented the amount of cash that you have to give up to acquire a specific item?

Answer 23

Cost

Question 24

What is a going-concern?

Answer 24

the belief that a company will keep on going and going into the future.

Question 25

What is the monetary measurement concept?

Answer 25

All accounting actions deal with money

Question 26

what is the revenue recognition principle?

Answer 26

lets you know that revenue is realized when it is earned, regardless of when they’re paid.

Question 27

What is the separate entity principle?

Answer 27

It means that no matter what you do as a business owner, be sure that you keep your dealings and the dealings of your company completely separate, especially if you want a clear picture of where you stand financially

Question 28

What is fiscal policy?

Answer 28

the use of government spending, taxation and transfer payments to influence aggregate demand and , therefore, real GDP.

Question 29

How does government spending affect GDP?

Answer 29

When the government increases or decreases it spending, for examples, when it purchases a fleet of new care for employee or missiles for national defense.

Question 30

How does taxation affect GDP?

Answer 30

taxes affect the average consumer’s income, and change in consumption lead to changes in real GDP.

Question 31

How do transfer payments affect GDP?

Answer 31

These include social security, welfare or unemployment checks. These lead to consumer income and when consumers spend more of their income, this influences economic output.

Question 32

What is expansionary fiscal policy?

Answer 32

when the government uses fiscal policy to stimulate aggregate demand during a recession.

Question 33

What is contractionary Fiscal Policy?

Answer 33

When the government uses fiscal policy to reduce aggregate demand during an inflationary economy.