Unit 2-Accounting

Question 1

What is accounting?

Answer 1

Looking at financial information to help make decisions.

Question 2

What are the five functions of accounting?

Answer 2

1. Gathering financial information
2. Preparing and collecting records
3. Summarizing and collecting records
4. Preparing reports.
5. Establishing controls.

Question 3

What are assets?

Answer 3

Items of value owned by a person or business (ex. cash, accounts receivable, supplies)

Question 4

What are liabilities?

Answer 4

Debts and obligations of a business (ex. accounts payable, bank loans, mortgages.)

Question 5

What is the owner’s equity?

Answer 5

How much of the company that the owner owns.

Question 6

What is the formula for finding liabilities, assets and owner’s equity?

Answer 6

Assets= Liability + Owner’s Equity

Question 7

If the assets of a company are $60,000 and the owner’s equity is $25,000 what are the company’s liabilities?

Answer 7

$35,000

Question 8

If a company’s liabilities are $25,000 and the owner’s equity is $15,000 then what are the company’s assets?

Answer 8

$40,000

Question 9

If a business’s assets are $45,000 and their liabilities are $15,000 what is the owner’s equity?

Answer 9

$25,000

Question 10

If a business has $50,000 of assets and $55,000 of liabilities what is the owner’s equity?

Answer 10

-$5,000

Question 11

What are the three Generally Accepted Accounting Principals (GAAP?)

Answer 11

Accounting Standards
Business Entity Principle
Cost Principle

Question 12

What are accounting standards?

Answer 12

Rules that must be followed when preparing and presenting information

Question 13

What is the cost principle?

Answer 13

Assets are shown on the balance sheet at the cost of their acquisition or construction (ex. If the value of land goes up, you cannot change the value on the balance sheet.)

Question 14

What is the business entity principle?

Answer 14

Financial data for a business is kept separate from the owner’s personal finances.

Question 15

What is a balance sheet?

Answer 15

A financial statement that lists assets, liabilities and owner’s equity at a specific date.

Question 16

What order should assets be in on a balance sheet?

Answer 16

They should be in order of liquidity (order in which assets can be converted into cash)

Question 17

What order should liabilities be in on a balance sheet?

Answer 17

They should be listed according to when they are due (shortest to longest.)

Question 18

What are accounts receivable (AIR)

Answer 18

The total amount due from debtors (usually 30 days.)

Question 19

What are accounts payable (AIP?)

Answer 19

Total amount owed to creditors for goods or services purchased.

Question 20

What three pieces of info should be in the statement heading of a balance sheet?

Answer 20

1. Business name
2. Statement name (balance sheet)
3. Statement due (date)

Question 21

If W. Potomoski has

• $7,000 in cash
• $3,000 in furniture
• $2,000 in office equipment
• $9,500 in capital

What are his liabilities?

Answer 21

$2,500

Question 22

What is D. Singh’s balance with the following info?

• $300 in cash
• $250 in office supplies
• $1,500 computer
• $8,000 truck
• $2,000 bank loan

Answer 22

$8,050

Question 23

Would J. Smith capital be an asset, liability, or owner’s equity?

Answer 23

Owner’s equity

Question 24

Would a mortgage be an asset, liability, or owner’s equity?

Answer 24

Liability

Question 25

Would accounts receivable be an asset, liability, or owner’s equity?

Answer 25

Asset