Financial Entities and Accounting Principles

Question 1

Define accounting.

Answer 1

The system of recording and summarizing business transactions. Analyzing, verifying and reporting the results.

Question 2

What are some uses of accounting information?

Answer 2

To decide whether to extend credit, invest, tax the organization or monitor the organization’s performance.

Question 3

What is managerial accounting and how does it use information?

Answer 3

Managerial accounting provides information needed inside the organization. The information assists the organization in making financial decisions that affect their future.

Question 4

Define the term business entity.

Answer 4

A business organization that exists as an economic unit.

Question 5

What is a single proprietor?

Answer 5

Someone who is in business for themselves and the business is unincorporated.

Question 6

Define the term partnership.

Answer 6

A business owned by two or more people and the business is unincorporated. Usually an agreement between the owners that states the terms of partnership.

Question 7

What is a corporation?

Answer 7

A business that is incorporated and is owned by stakeholders. It is a separate legal entity.

Question 8

Why is it important for a Fleet Manager to have a firm grasp of accounting?

Answer 8

external reporting may affect how decisions are made inside an organization.

Question 9

What is an audit?

Answer 9

An examination and verification of a company’s financial records by a professional. Can be done internally or externally.

Question 10

What information can be used to help in the vehicle acquisition decision?

Answer 10

Information from both external and internal management systems.

Question 11

What does a cost accounting system track and what information can it provide?

Answer 11

tracks vehicle operating expenses like fuel, maintenance, administration and fixed costs like depreciation.

Question 12

What information does the Fleet Manager need to make the lease vs. own decision?

Answer 12

Track all direct and indirect costs of fleet operations

Question 13

What is a chart of accounts?

Answer 13

Established within an organization to define how money is spent or received. Used to organize the finances and to segregate expenses, revenue, assets and liabilities.

Question 14

Define the term asset.

Answer 14

Anything tangible or intangible that is owned or controlled to produce value.

Ex. Cash, land, buildings, equipment, AR, inventory

Question 15

What are the three categories of assets?

Answer 15

Short term assets – Cash or other assets that can be easily liquidated or consumed in a short period of time.

Long term assets – usually held for many years.

Intangible assets – have value but lack physical substance.

Question 16

Define the term liability.

Answer 16

Liability is a debt and obligation of an organization.

Question 17

What are the two categories of liabilities?

Answer 17

Short term liabilities – liabilities usually settled within one year or less.

Long term liabilities – not expected to be settled under a year.

Question 18

Define the terms income/revenue.

Answer 18

Revenue is the amount of money brought into an organization by its activities.

Question 19

Define the term expense.

Answer 19

A decrease in economic benefit in the form of cash outflow or depletions of assets. Results in decrease in equity.

Question 20

What is depreciation and what methods can be used to calculate it?

Answer 20

Depreciation is the transfer of the value of an asset on the balance sheet to the income statement in form of an expense.

Question 21

How do you calculate straight line depreciation?

Answer 21

Know the number of years the asset is expected to last and the expected value at its end of useful life. Value before the end of useful life is depreciated over each month in its useful life.

Question 22

How would you calculate depreciation using the Double Declining Balance Method?

Answer 22

accelerated depreciation that lowers the value of the asset more in the beginning.