financial accounting final

Question 1

Definition, example and explanation of an Asset

Answer 1

resources that a business owns. cash, is a financial benefit that a business currently owns that helps run the business.

Question 2

Definition, example and explanation of a liability

Answer 2

amounts that a business owes to creditors. notes payable, are money borrowings to be repaid that the business uses.

Question 3

Definition, example and explanation of equity

Answer 3

owners’ interest or claim on resources. retained earnings, is the amount of profit leftover which can be used to invest back in company or paid dividends to shareholders.

Question 4

Definition, example and explanation of revenue

Answer 4

sales from customers. service revenue, is the money the business got from providing services to customers.

Question 5

Definition, example and explanation of expenses

Answer 5

costs of doing business. salary expense, is the wage cost to pay employees who keep the business running.

Question 6

accounting equation

Answer 6

assets = liabilities + equity (⬆️revenue, ⬇️expenses)

Question 7

normal balance of assets

Answer 7

debit

Question 8

normal balance of liabilities

Answer 8

credit

Question 9

normal balance of equity

Answer 9

credit

Question 10

normal balance of revenue

Answer 10

credit

Question 11

normal balance of expenses

Answer 11

debit

Question 12

what is the purpose of an income statement and why is important?

Answer 12

shows the change in financial position over time (revenues - expenses = net income) its important because it is the best indicator of financial success and profitability

Question 13

what is the purpose of a statement of stockholder’s equity and why is important?

Answer 13

shows the changes in equity over a period of time and details about each equity account. its important because it is the only financial statement you can get this info

Question 14

what is the purpose of a balance sheet and why is important?

Answer 14

it shows the financial position at one time (assets=liabilities +equity) its important because you can tell from it if the company can pay what it owes (assets vs liabilities)

Question 15

what is the purpose of a statement of cash flows and why is important?

Answer 15

shows the changes in the cash balance over time (inflows vs outflows) its important because it shows the company’s ability to generate cash and pay for expenses

Question 16

net inflow/outflow

Answer 16

sum of all operating, investing and financing net cash flows

Question 17

operating cash flows

Answer 17

regular activities of a business, revenues/expenses (cash received from revenue, cash paid for taxes, cash received for interest)

Question 18

investing cash flows

Answer 18

purchase and sale of long term assets (cash received from selling property, cash paid for supplies)

Question 19

financing cash flows

Answer 19

long term changes in liabilities and equity (cash received for issuing stock, cash paid to repay principal of bonds)

Question 20

cash inflow

Answer 20

increases cash

Question 21

cash outflow

Answer 21

decreases cash

Question 22

COG available for sale

Answer 22

Beginning inventory + purchases =COG available for sale = COGS + ending inventory

Question 23

FIFO

Answer 23

oldest items are the first sold

Question 24

inventory purchase journal entry

Answer 24

inventory (debit) cash (credit)

Question 25

inventory sale journal entry

Answer 25

cash (debit) sales revenue (credit), COGS (debit) inventory (credit)

Question 26

straight line depreciation

Answer 26

equal depreciation taken each year

Question 27

depreciable cost

Answer 27

capitalized cost - salvaged cost (40000 - 5000 = 35000)

Question 28

depreciation per year

Answer 28

depreciable cost / useful years ($35000 / 5 years = 7000)