definitions

Question 1

Economic entity assumption

Answer 1

Financial records must be separately maintained for each economic entity.

Question 2

Monetary unit assumption.

Answer 2

An economic entity’s accounting records include only quantifiable transactions. Certain economic events that affect a company, such as hiring a new chief executive officer or introducing a new product, cannot be easily quantified in monetary units and, therefore, do not appear in the company’s accounting records.

Question 3

Full disclosure principle

Answer 3

Financial statements normally provide information about a company’s past performance. However, pending lawsuits, incomplete transactions, or other conditions may have imminent and significant effects on the company’s financial status. The full disclosure principle requires that financial statements include disclosure of such information.

Question 4

Time period assumption

Answer 4

Most businesses exist for long periods of time, so artificial time periods must be used to report the results of business activity. Depending on the type of report, the time period may be a day, a month, a year, or another arbitrary period.

Question 5

major types of business activities:

Answer 5

• financing: Financing activities provide the means organizations use to pay for resources such as land, buildings, and equipment to carry out plans. Owner financing refers to resources contributed by the owner. Nonowner(or creditor) financingrefers to resources contributed by creditors (lenders). **Financial management **is the task of planning how to obtain these resources and to set the right
  mix between owner and creditor financing.
• investing, and
• operating

Question 6

Accrual basis accounting

Answer 6

Accrual basis accounting captures the financial aspects of each economic event in the accounting period in which it occurs, regardless of when the cash changes hands

Question 7

Revenue recognition principle

Answer 7

Revenue is earned and recognized upon product delivery or service completion, without regard to the timing of cash flow.

Question 8

Matching principle

Answer 8

The costs of doing business are recorded in the same period as the revenue they help to generate.

Question 9

Cost principle

Answer 9

Assets are recorded at cost, which equals the value exchanged at the time of their acquisition.

Question 10

Going concern principle

Answer 10

Unless otherwise noted, financial statements are prepared under the assumption that the company will remain in business indefinitely.

Question 11

Relevance, reliability, and consistency

Answer 11

To be useful, financial information must be relevant, reliable, and prepared in a consistent manner.

Reliable information is verifiable and objective. Consistent information is prepared using the same methods each accounting period, which allows meaningful comparisons to be made

Question 12

Principle of conservatism

Answer 12

which requires that the less optimistic estimate be chosen when two estimates are judged to be equally likely

Question 13

Materiality principle

Answer 13

which states that the requirements of any accounting principle may be ignored when there is no effect on the users of financial information

Question 14

GAAP

Answer 14

generally accepted accounting principles

Question 15

account

Answer 15

An account is a record of increases and decreases in a specific asset, liability, equity, revenue, or expense item

Question 16

ledger

Answer 16

The general ledger,or simply ledger,is a record containing all accounts used by a company. The ledger is often in electronic form.

Question 17

account categories

Answer 17

three general categories based on the accounting equation:

asset accounts, liability accounts, or equity accounts

Question 18

debtor

Answer 18

Customers and others who owe
a company according to accounts recievables are called its debtors

Question 19

premium

Answer 19

an insurance fee, called a premium

Question 20

**Creditors **

Answer 20

Creditors are individuals and organizations that have rights to receive payments from a company

Question 21

Accrued liabilities

Answer 21

Accrued liabilities are amounts owed that are not yet paid. Examples are wages payable,
taxes payable, and interest payable.

Question 22

Unearned revenue

Answer 22

Unearned revenue refers to a liability that is settled in the future when a company delivers its products or services. When customers pay in advance for products or services (before revenue is earned), the revenue recognition principle requires that the seller consider this payment as
unearned revenue.

Question 23

contra equity account

Answer 23

The Owner’s Withdrawals account is a contra equity account because it reduces the normal balance
of equity.

Question 24

dividend

Answer 24

The withdrawal of assets by the owners of a corporation is called a dividend

Question 25

chart of accounts

Answer 25

The chart of accounts is a list of all
ledger accounts and includes an identification number assigned to each account

Question 26

Users of Accounting Information

Answer 26

• External users
• Internal users-of accounting information are those directly involved in managing and operating an organization.

Question 27

Financial accountingis

Answer 27

Financial accountingis the area of accounting aimed at serving external users by providing
them with general-purpose financial statements.

Question 28

Managerial accountingis

Answer 28

Managerial accountingis the area of accounting
that serves the decision-making needs of internal users. Internal reports are not subject to the same
rules as external reports and instead are designed with the special needs of internal users in mind.

Question 29

IASB

Answer 29

International Accounting Standards Board

Question 30

IFRS

Answer 30

International Financial Reporting Standards

Question 31

SEC

Answer 31

Securities and Exchange Commission , a government
agency, has the legal authority to set GAAP

Question 32

3 basic types of
company operations

Answer 32

There are 3 basic types of
company operations: (1) Services —
providing customer services for profit,
(2) Merchandisers — buying products
and re-selling them for profit, and
(3) Manufacturers — creating products
and selling them for profit

Question 33

** 4 financial statements**

Answer 33

Financial statements and their purposes are (in right order):

• 1. Income statement — describes a company’s revenues and expenses along with the resulting net income or loss over a period of time due to earnings activities.
• 2. Statement of owner’s equity— explains changes in equity from net income (or loss) and from any owner investments and withdrawals over a period of time.
• 3. Balance sheet — describes a company’s financial position (types and amounts of assets, liabilities, and equity) at a point in time.
• 4. Statement of cash flows — identifies cash inflows (receipts) and cash outflows (payments) over a period of time.

Question 34

net income

net loss

Answer 34

revenues > expenses

revenues< expenses

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sometimes calles earnings or profit

Question 35

statement of cash flows

Answer 35

1. operating activities
2. investing activities
3. financing activities

Question 36

**financial statement analysis **

Answer 36

four areas:

(1) liquidity and efficiency,
(2) solvency,
(3) profitability
(4) market prospects

Question 37

Return on assets (ROA)

Answer 37

or Return on investment (ROI)

• profitability measure

Return on assets= Net income
Average total assets

Question 38

** Financial management**

Answer 38

** Financial management** is the task of planning how to obtain these resources and to set the right
mix between owner and creditor financing.

Question 39

asset management

Answer 39

Organizations differ on the amount and makeup of assets. Some require land and factories to operate. Others need only an office. Determining the amount and type of assets for operations is called asset management

Question 40

Strategic management

Answer 40

Strategic management is the process of determining the right mix of operating activities for the type of organization, its plans, and its market.

Question 41

Accounting Cycle

Answer 41

1. Source documents
2. Journals
3. Ledger (T-accounts)
4. Trial Balance
5. Financial Statements

Question 42

Source document

Answer 42

first document that exists relating to the transaction

Question 43

Types of source documents

Answer 43

• Invoices
• Receipts (ususally for payments by cash or debit/credit card)
• Deposit slips (proof that cash has been deposited ina bank account)
• Check (cheque) conterfoil - part of the check kept by drawer of the check as a record of the transaction.
• Statement - a report showing the amount owned by one business to another , as welle as details of transactions between the two businesses.
• Payment confirmation (electronic payment)

Question 44

Journal

Answer 44

The book of the first entry

Question 45

Folio number

Answer 45

Cross- referencing code for the source document, journals, accounts.

Question 46

7 types of accounting journals

Answer 46

• Cash Reciept Journal (CRJ)
• Cash Payment Journal (CPJ)
  
  • Can be replaces by one Cash Book
• Sales Journal (SJ) - for sales on credit
• Sales Returns Journal (SRJ)
• Purchases Journal (PJ) - purchases of inventory on credit
• Purchases Returns Journal (PRJ)
• General Journal (GJ) - all journal entries not mentoned above

Question 47

3 types of ledger

Answer 47

• the General ledger
• the Debtors ledger
• the Creditors Ledger

Question 48

Trial balance

Accounts order

Answer 48

1. Assets
2. Liabilities
3. Equity
4. Revenues
5. Expenses