Terms

Question 1

Sole Proprietorship

Answer 1

One owner

Question 2

Partnership

Answer 2

At least two owners

Question 3

Corporation

Answer 3

Owned by shareholders

Question 4

Service

Answer 4

Businesses where actual services are provided for clients, i.e. consulting firms

Question 5

Merchandising

Answer 5

Businesses that either make their own products or sell products made by another supplier, Sears, TjX, Hudson Bay

Question 6

Manufacturing

Answer 6

Companies that make their own products, i.e. Ford Motors Co. IKEA

Question 7

GAAP

Answer 7

Generally Accepted Accounting Principles

Procedures and guidelines that must be followed during the accounting process

Used to ensure everyone prepares and interprets financial reports the same way

Question 8

IFRS

Answer 8

International Financial Reporting Standards

(for financial years beginning in 2010)

A set of international accounting rules for companies that have their shares listed on stock exchanges

Canada and a large number of countries have adopted the rules

Question 9

Capital

Answer 9

The owner’s investment in a company

Not just cash
All assets the owner puts into the business

Question 10

Assets

Answer 10

Properties of value owned by the business

Cash, supplies, accounts receivable, equipment

often assets are financed

Question 11

Owner’s Equity

Answer 11

Includes all accounts that track the owners of the company and their claims against the company’s assets

Includes money invested in the company, any money taken out of the company, any earnings that have been reinvested in the company

Question 12

Liabilities

Answer 12

Obligations that come due in the future

In accounting terms, a liability is a debt or obligation that the company must pay.

Liabilities can include accounts payable, taxes, wages, accrued expenses, and deferred revenues.

They are recorded in a company’s balance sheet

Example:
Assets (Equipment) 50,000= Liabilities (Obligation) 50,000 + Owner’s Equity 0

Companies that allow are owed money are called creditors. They have a claim to assets.

Question 13

Accounting Equation

Answer 13

Assets = Equities

Assets: Properties of value owned by a firm

Equity: Financial claims against the assets

Assets = Liabilities + Owner’s Equity

Liabilities: Rights of Creditors

Owner’s Equity: Rights of owner

Question 14

Shift in Assets

Answer 14

Indicates that the make-up of assets has changed, but the total of assets remains the same.

Example:
Company buys a piece of equipment with cash, equipment would increase and cash would decrease.

Total of assets would not change

Question 15

Revenue

Answer 15

Amount earned by performing services to customers or selling goods to customers

Increases owner’s equity

Recorded when earned

Question 16

Expense

Answer 16

Cost incurred in running a business by consuming goods or services in producing revenue

Decreases owner’s equity

Recorded when incurred

Question 17

Net Income

Answer 17

Revenues > Expenses

Question 18

Net Loss

Answer 18

Revenue < Expenses

Question 19

Withdrawals

Answer 19

Money or other assets an owner withdraws from a business for personal use

Decreases owner’s equity

NOT an expense

Question 20

Financial Statements

Answer 20

Financial statements MUST be done in correct order

1. Income Statement
2. Statement of Owner’s Equity
3. Balance Sheet

Question 21

Income Statement

Answer 21

Shows business results:

Revenues
Expenses
Net Income / Loss

Covers a certain period of time

Question 22

Statement of Owner’s Equity

Answer 22

Reports changes to owner’s equity for a certain period of time

Beginning Capital Balance
\+ Owner’s investment 
\+ Net Income
- Owner’s withdrawals
- Net Loss
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Ending Capital Balance

Question 23

What is s the difference between Bookkeeping and Accounting?

Answer 23

Bookkeeping:

Analyzing what transactions occurred on a daily basis, and recording the transactions.

Accounting:

Classifying the transactions in order to prepare the monthly summary reports

Income Statement
Statement of owner’s equity
Balance sheet
Interpreting the statements and communicating the bottom line / meaning