Exam 1 Chap 1-3 Review

Question 1

Chapter 1

3 organizational forms

Answer 1

Corporation
Partnership
Sole proprietorship

Question 2

Accounting is the ______ of _______

Answer 2

Accounting is the language of business

Question 3

Chap 1

Identify 2 accounting reports

Answer 3

Managerial reports (internal)
Financial reports (external)

Question 4

Chap 1

Who uses financial reports?

Answer 4

Investors, customers, government, creditors

Question 5

What is the accounting equation?

Answer 5

Assets = liabilities + stockholders equity

Question 6

Define assets

Answer 6

Something the company has or controls that can have future benefits

Question 7

Chap 1

Identify 4 financial statements

Answer 7

• Income statement: revs & exp > net income
• Statement of retained earnings: net income or loss
• Balance sheet: acct equation
• Statement of cash flows: cash in and out, not net income

Question 8

Chap 1

What is GAAP

Answer 8

Generally accepted accounting principles

Question 9

Chap 1

GAAP is created by who?

Answer 9

FASB Financial accounting standards board

Question 10

Chap 2

Identify 2 types of financing

Answer 10

Equity: sell stock
Debt: barrow money

Question 11

Chap 2

What is cost principle?

Answer 11

Record assets and liabilities at the amount they cost us

Question 12

Chap 2

Define transaction

Answer 12

A measurable effect on the accounting equation

Question 13

Chap 2

Define external transaction

Answer 13

You and somebody outside the firm affect the accounting equation

Question 14

Chap 2

Define internal transaction

Answer 14

No outsiders involved in the transaction

Question 15

Chap 2

Define duality of effects

Answer 15

Every transaction has an effect in at least two accounts of the accounting equation

Question 16

Chap 2

Define the chart of accounts

Answer 16

A list of all accounts arranged by anoint number and arranged by assets liabilities and stockholders equity

Question 17

Chap 2

The journal is organized by and summarizes what?

Answer 17

Journal is organized by date and summarizes all transactions for the day

Question 18

Chap 2

Ledger is organized by and summarizes what?

Answer 18

Ledger is organized by account number and summarizes activity (journal entry) in each account

Question 19

Chap 2
Debit
•definition
•increases
•decreases

Answer 19

Debit is left
Debit increases assets
Debit decreases liabilities and stockholders equity

Question 20

Chap 2
credit
•definition
•increases
•decreases

Answer 20

Credit is right
Credit increases liabilities and stockholders equity
Credit decreases assets

Question 21

Chap 2 define classified balance sheet

Answer 21

Organize assets and liabilities into two categories
•current- can be used, settled, or fulfilled within one year
Long term- can be used, settled, or fulfilled in longer than one year

Question 22

Chap 2

What is the current ratio

Answer 22

Current assets
Current ratio = ———————
Current liabilities

Question 23

Chap 2

What does the current ratio tell us

Answer 23

The companies ability to pay off short term liabilities

Question 24

Chap 3

Identify 3 revenue transactions

Answer 24

• Standard revenue transaction
• Cash paid before goods or service received
• Cash is paid after good or service is received

Question 25

Chap 3

Identify three types of expense transactions

Answer 25

• Standard expense transaction
• Cash paid before goods or service is received
• Cash is paid after good or service is received