Office Accounting Exam 1

Question 1

Recording financial information in a prescribed manner

Answer 1

Bookkeeping

Question 2

Language of business / Used to communicate financial information

Answer 2

Accounting

Question 3

Accounting is based on six (6) functions related to financial data. What are they?

Answer 3

Analyzing Classifying Recording

Summarizing Reporting Interpreting

Question 4

Looking at business events - “Transactions” - Determining their effect on the business.

Answer 4

Analyzing

Question 5

Sorting and grouping similar items together. - Facilitates analysis and recording of financial information.

Answer 5

Classifying

Question 6

Entering financial information about business transactions in the accounting system.
Use of computers - makes work easier

Answer 6

Recording

Question 7

Bringing various items of information together. / Determining results

Answer 7

Summarizing

Question 8

Telling the results of the financial information. Using tables of numbers / Describing results obtained from summarizing

Answer 8

Reporting

Question 9

Deciding or Determining the meaning and importance of financial information.
What does the information say about the transactions which have occurred?
How will this information influence future business operations?

Answer 9

Interpreting

Question 10

Procedures and guidelines to be followed in the accounting and reporting process. Ensures continuity in accounting and reporting processes.

Answer 10

Generally accepted accounting principles (GAAP). Developed by the Financial Accounting Standards Board.

Question 11

THE ACCOUNTING ELEMENTS

Answer 11

Assets
Liabilities
Owner’s equity

Question 12

Property of monetary value owned by a business

Answer 12

Assets

Question 13

current asset; Unwritten promise by a customer to pay, at a later date, for goods sold or services rendered.

Answer 13

Accounts receivable

Question 14

current asset; Items considered assets when acquired. / Becomes expenses when consumed or expired
Example: Prepaid insuranceDeduct each month of insurance as it is used

Answer 14

Prepaid expenses

Question 15

Any debts that a business owes / Current liabilities / Fixed/long-term

Answer 15

Liabilities

Question 16

Debts generally paid within one year / Accounts payable / Taxes payable

Answer 16

Current liabilities

Question 17

Unwritten promise to pay creditors for property purchased on credit or for service received on credit

Answer 17

Accounts payable

Question 18

Amount by which assets exceed total liabilities of a business.
Owner’s financial interest in the business. / Net worth / Capital / Proprietorship

Answer 18

Owners Equity

Question 19

When owner puts money into business - When revenue (income) is generated from sale of goods and or services

Answer 19

Owner’s equity Increases

Question 20

When owner takes money out of business / Expenses that have been incurred.

Answer 20

Owner’s equity Decrease

Question 21

Process of recording equal debits and credits for a single business transaction.

Answer 21

Double entry accounting

Question 22

Any activity of a business enterprise that involves the exchange of values.

Answer 22

Transaction

Question 23

Device for recording changes in fundamental accounting elements

Answer 23

Account

Question 24

Increase Decrease Assets (A) Liabilities (L) Owner’s equity (OE)

Answer 24

**

Question 25

left side of a standard account | "T" account

Answer 25

debit

Question 26

right side of a standard account | "T" account

Answer 26

credit

Question 27

The accounting equation

Answer 27

``` Assets = liabilities + owner’s equity A = L + OE Use of “T” accounts Assets = liabilities + owner’s equity (+T-) (-T+) (-T+) ```

Question 28

users of the accounting information:Company’s profitability and current financial condition

Answer 28

Owner | may consider additional investments, or consider closing depending on which way

Question 29

users of the accounting information: Detailed measures of business performance

Answer 29

Managers | They make operating decisions, what type of inventory should be carried, can we hire more employees, etc.

Question 30

users of the accounting information: Company’s profitability, debt outstanding, and assets that could be used to secure debt

Answer 30

Creditors | Should a loan be granted, if so, what amount

Question 31

users of the accounting information: Company’s profitability, cash flows, and overall financial condition

Answer 31

Government agencies | How much income tax will the business pay

Question 32

classifications of businesses

Answer 32

service business merchandising manufacturing

Question 33

classifications of businesses: Travel agency Physician Computer consultant

Answer 33

service business

Question 34

classifications of businesses: a business that buys a product from another business to sell to customers Department store Pharmacy Jewelry store

Answer 34

merchandising business

Question 35

classifications of businesses: a business that makes a product to sell Automobile manufacturer Furniture maker Toy factory

Answer 35

manufacturing business

Question 36

an individual, association, or organization that engages in economic activities and controls specific economic resources

Answer 36

Business entity

Question 37

Business entity concept

Answer 37

 The business entity’s finances are kept separate from the owner’s nonbusiness assets and liabilities.  The owner of the business may have business assets and liabilities as well as nonbusiness assets and liabilities.  Nonbusiness assets and liabilities are not included in the entity’s accounting records

Question 38

If the owner invests money or other assets in the business, the item is now classified as a

Answer 38

business asset

Question 39

items owned by a business that will provide future benefits. Property of monetary value owned by a business

Answer 39

assets

Question 40

Assets must be owned and not rented, but doesn’t have to paid off. You could still be making payment on it.

Answer 40

***

Question 41

a probable future outflow of assets as a result of a past transaction or event. In other words, debts or obligations of the business that can be paid with cash, goods, or services. (Has already happened, I just haven’t paid for it.)

Answer 41

liabilities

Question 42

UNWRITTEN promise to pay a supplier for assets purchased or services rendered. Referred to as making a purchase “on account” or “on credit.”

Answer 42

accounts payable

Question 43

***

Answer 43

Be careful!!! Don’t confuse accounts receivable with accounts payable. Ask yourself, are we waiting to receive? Or waiting to pay?

Question 44

FORMAL WRITTEN promises to pay suppliers or lenders specified sums of money at definite future times. (I contracted myself in it.)

Answer 44

notes payable

Question 45

Amount by which the business assets exceed total liabilities of a business

Answer 45

Owner’s Equity

Question 46

Owner’s equity is also called

Answer 46

net worth or capital

Question 47

(income) is generated from sale of goods and or services

Answer 47

revenue

Question 48

Process of recording equal debits and credits for a single business transaction.

Answer 48

Double entry accounting

Question 49

Any activity of a business enterprise that involves the exchange of values

Answer 49

Transaction

Question 50

Left side of a standard account

Answer 50

debit

Question 51

right side of a standard account

Answer 51

credit

Question 52

standard account is known as

Answer 52

T account

Question 53

provide a description of the particular type of asset, liability, or owner’s equity affected by a transaction

Answer 53

account titles

Question 54

The accounting equation

Answer 54

Assets = liabilities + owner’s equity

Question 55

an economic event that has a direct impact on the business

Answer 55

business transaction

Question 56

3 rules for business transaction

Answer 56

 Usually requires an exchange with an outside entity  We must be able to measure this exchange in dollars  All business transactions affect the accounting equation through specific accounts

Question 57

separate record used to summarize changes in each asset, liability, owner’s equity of a business. Device for recording changes in fundamental accounting elements

Answer 57

Account

Question 58

Analyzing business transactions: Three questions

Answer 58

 What happened? Make certain you understand the event that has taken place.  Which accounts are affected? Identify the accounts that are affected Classify the accounts as assets, liabilities, or owner’s equity.  How is the accounting equation affected? Determine which accounts have increased or decreased Make certain that the accounting equation remains in balance after the transaction has been entered.

Question 59

Owner’s equity Transactions: | Four types:

Answer 59

decrease- expenses and draw | increase- revenues and investments

Question 60

represent the amount a business charges customers for products sold or services performed.

Answer 60

revenues

Question 61

3 key facts about revenue

Answer 61

 The amount a business charges customers for products sold or services performed  Recognized when earned (even if cash has not yet been received)  Increases both assets (cash or accounts receivable) and owner’s equity

Question 62

represent the decrease in assets (or increase in liabilities) as a result of a company’s efforts to produce revenues.

Answer 62

expenses

Question 63

 Either decrease assets or increase liabilities, but ALWAYS decrease owner’s equity

Answer 63

expenses

Question 64

 The concept that income determination can be made on a periodic basis (month, quarter, year, etc.)

Answer 64

accounting period concept

Question 65

 Any accounting period of 12 months is called a

Answer 65

fiscal year

Question 66

reduce owner’s equity as a result of the owner taking cash or other assets out the business for personal use

Answer 66

Withdrawals (drawings)

Question 67

Three commonly prepared financial statements:

Answer 67

income statement balance sheet statement of owner's equity

Question 68

Reports the profitability of business operations or a specified period of time Expenses are subtracted from revenues to determine net income/loss Also called the profit and loss statement or operating statement

Answer 68

income statement

Question 69

Report the activities that affected owner’s equity for a specific period of time Uses net income from the income statement

Answer 69

statement of owner's equity

Question 70

Confirms the accounting equation has remained in balance | Also referred to as a statement of financial position or statement of financial condition

Answer 70

balance sheet

Question 71

reports assets, liabilities, and owner’s equity on a SPECIFIC DATE, not a period of time

Answer 71

balance sheet

Question 72

three basic phases of the accounting process

Answer 72

input processing output

Question 73

debit =

Answer 73

credit

Question 74

left=

Answer 74

right

Question 75

dr =

Answer 75

cr

Question 76

A normal balance

Answer 76

is the side that increases

Question 77

 A listing of all accounts and their balances  A totaling of debits and credits  Is proof that debits equal credits and that the accounting equation has remained in balance  Used as an aid in preparing financial statements

Answer 77

trial balance