Module 1

Question 1

What is formula for the Accounting Equation?

Answer 1

Assets = Liabilities + Owners’ Equity

Question 2

The accounting equation, like any mathematical equation, must always ______.

Answer 2

balance

Question 3

A _______ is really just an event that occurs during the course of starting a business or running a business.

Answer 3

transaction. Some examples of these events are making an equity investment, taking a loan, purchasing inventory, selling
goods, performing services, and ordering office supplies.

Question 4

When any transaction takes place, we can see its impact on the accounting equation as it _______ or _________
assets, liabilities, and/or owners’ equity.

Answer 4

increases; decreases

Question 5

Most companies use the ________ of accounting, which means that transactions are recorded in the period
to which they relate, regardless of when cash is exchanged.

Answer 5

accrual method

Question 6

This principle recognizes that there are some estimates involved in accounting and says that accounting should reflect the more cautious estimated valuation rather than the more optimistic one.

Answer 6

Conservatism

Question 7

This principle refers to the fact that transactions are recorded at the cost that existed at the time the transaction occurred.

Answer 7

Historical Cost

Question 8

This principle requires that the methods be consistently applied by the company over time in recording and reporting unless there is a sound reason to change them.

Answer 8

Consistency

Question 9

This principle states that something is considered to be material if it is reasonably likely to impact the decision-making of those who are using the accounting data or financial reports. Businesses are only required to do detailed record-keeping and reporting for items that are material.

Answer 9

Materiality

Question 10

This concept refers to the fact that a business is a separately identifiable entity. Thus, the accounts of a business should be separate and distinct from the accounts of the owners and managers of the business. In addition, financial records should be kept and reported for each separate entity, especially in the case of multi-national companies and large companies with subsidiaries.

Answer 10

Entity

Question 11

This principle refers to the fact that only values that can be measured in monetary terms should be recorded in the financial accounting records.

Answer 11

Money Measurement

Question 12

A company is considered to be a ________ if the entity is expected to remain in operation and be able to satisfy all commitments and obligations and realize the benefits and values of all assets for the indefinite future. If there is evidence to the contrary, the business may no longer be considered a __________.

Answer 12

going concern

Question 13

Resources owned or controlled by an entity that will produce benefits in the future?

Answer 13

Assets

Question 14

Obligations to pay a third party for resources provided to an entity?

Answer 14

Liabilities

Question 15

Consists of funds contributed by owners as well as profits generated by the business?

Answer 15

Owner’s Equity

Question 16

The money that a business receives from providing goods or services to a customer?

Answer 16

Revenue

Question 17

Costs associated with providing goods or services to a customer?

Answer 17

Expenses