Chapter 8 - Financial Statements

Question 1

What are the three most common types of businesses?

Answer 1

Sole Proprietorships, partnerships, and corporations

Question 2

What is the main difference between Limited Partnerships and General Partnerships

Answer 2

Limited partners cannot work in the business

Question 3

Which business type acts as “Legal fictional person”

Answer 3

Corporation

Question 4

What company type operates on a venture with another person or company only for that venture Ex. Building a house to sell

Answer 4

Joint Venture

Question 5

Name the following principle as per GAAP

“When a company acquires an asset, the historical cost (amount paid) is the amount recorded in the books”.

Answer 5

Cost Principle

Question 6

As per GAAP name the following principle

“The amount of $ received when it is earned (accrual basis) and not when it is received”

Answer 6

Revenue Recognition Principle

Question 7

As per GAAP name the following principle

“Expenses associated with a particular revenue flow should be recognized together”

Answer 7

Matching Principle

Example - Meals and Ent

Question 8

As per GAAP name the following principle

“Small purchases such as stationary should be accounted for when purchased and not spread out over a period in which they will be used”

Answer 8

Materiality Principle

Example- Purchasing a handful of small office supplies from staples and recording the payment as a full and not per item

Question 9

As per GAAP name the following principle

“All accounting information should be based on verifiable information & one must have receipts, it is not possible to estimate”

Answer 9

Objective Principle

Question 10

As per GAAP name the following principle

“There are several ways to record financial information - Once a business chooses a bookkeeping method it is unwise to change it”

Answer 10

Consistency Principle

Question 11

As per GAAP name the following principle

“The end of the year for the business can be any date in the year”

Answer 11

Fiscal Year End

Question 12

What connects the Balance Sheet & Income Report

Answer 12

Net Income

Question 13

What is the link between the Balance Sheet and the Income Report

Answer 13

Retained Earnings

Question 14

True of False - Land depreciates in vale over time

Answer 14

False

Question 15

As per the CCA (Capital Cost Allowance) what is the 1st year rule

Answer 15

Only one-half of the maximum CCA can be claimed in 1 year

Question 16

The book value of an asset can best be described as?

Answer 16

The purchase price of that asset less any depreciating values

Question 17

Which organization type has does not pay income tax, rather the profits accrue to the owner and taxes are paid as part of the owners personal income tax?

Answer 17

Sole Proprietorship

Question 18

What is the formula for calculating Depreciation Expense

Answer 18

Cost - Salvage Value (if any) / estimated life (years)

Question 19

A sheet listing all assets, liabilities, and owners equity in a business enterprise at a specific point in time is known as

Answer 19

A Balance Sheet

Question 20

A document listing revenue and expenses of a business enterprise for a particular period of time is known as?

Answer 20

Income statement (Profit and Loss)

Question 21

What is the standard formula used to establish Net income?

Answer 21

Revenue - expenses = Net Income

Question 22

What is the balance sheet equation

Answer 22

Assets = Liabilities + Owners Equity