CPCM 5.5 Accounting Exam Questions and Answers
Debits - Answer-At least one component of every accounting transactions (journal entry) is a debit. Debits increase assets and decrease liabilities and equity.
Depreciation - Answer-An annual write-off of a portion of the cost of fixed assets, such...
Debits - Answer-At least one component of every accounting transactions (journal entry)
is a debit. Debits increase assets and decrease liabilities and equity.
Depreciation - Answer-An annual write-off of a portion of the cost of fixed assets, such
as vehicles and equipment. Depreciation is listed among the expenses on the income
statement.
Double-entry accounting - Answer-In double-entry accounting, every transaction has
two journal entries: a debit and a credit. Debits must always equal credits. Double-entry
accounting is the basis of a true accounting system.
Drawing account - Answer-A general ledger account used by some sole proprietorships
and partnerships to keep track of amounts drawing out of the business by an owner.
Equity - Answer-The net worth of your company. Also called owner's equity or capital.
Equity comes from the owners' investment in the business, plus the business'
accumulated net profits that have not been paid out to the owners. Equity accounts are
balance sheet accounts.
Expense accounts - Answer-Accounts a business uses to keep track of the costs of
doing business - where its money goes. Examples are advertising, payroll taxes, and
wages. Expenses are income statement accounts.
Fixed assets - Answer-Assets that are generally not converted to cash within one year.
Examples are equipment and vehicles.
Foot - Answer-To total the amounts in a column, such as a column in a journal or a
ledger.
General ledger - Answer-A general ledger is the collection of all balance sheet, income,
and expense accounts used to keep the accounting records of a business.
Income accounts - Answer-The accounts a business uses to keep track of its sources of
income. Examples are merchandise sales, consulting revenue, and interest income.
Income statement - Answer-Also called a profit and loss statement (P&L). It lists
income, expenses, and net profits (or loss). The net profit (or loss) is equal to the
income minus expenses.
, Inventory - Answer-Goods held for sale to customers. Inventory can be merchandise
bought for resale, or it can be merchandise manufactured or processed, selling the end
product to the customer.
Journal - Answer-The chronological, day-to-day transactions of a business are recorded
in sales, cash receipts, and cash disbursements journals. A general journal is used to
enter period end adjusting and closing entries and other special transactions not
entered in the other journals. In a traditional, manual accounting system, each of these
journals is a collection of multicolumn spreadsheets usually contained in a hard-cover
binder.
Accounting equation - Answer-Assets = liabilities + owner's equity. The accounting
equation is the basis for the financial statement called the balance sheet.
Accounts payable (A/P) - Answer-Bills a business owes to its suppliers.
Accounts receivable (A/R) - Answer-Amounts owed to a business by its customers
Accrual method of accounting - Answer-With the accrual method, a business records
income when the sale occurs, not necessarily when the business receives payment.
The business records an expense when it received goods or services, even thought it
may not pay for them until later.
Adjusting entries - Answer-Special accounting entries that must be made when you
close the books at the end of an accounting period. Adjusting entries are necessary to
update your accounts for items that are not recorded in your daily transactions.
Aging Report - Answer-An aging report is a list of customers' accounts receivable
amounts and their due dates. It alerts you to any slow-paying customers. You can also
prepare an aging report for your accounts payable, which will help you manage your
outstanding bills.
Allowance for bad debts - Answer-Also called reserve for bad debts, it is an estimate of
uncollectable customer accounts. It is known as a contra account because it is listed
with the assets, but it will have a credit balance instead of a debit balance. For balance
sheet purposes, it is a reduction of accounts receivable.
Assets - Answer-Things of value held by the business. Assets are balance sheet
accounts. Examples of assets include cash, accounts receivable, and furniture and
fixtures.
Balance sheet - Answer-Also called a statement of financial position, it is a financial
snapshot of your business at a given date in time. It lists your assets, your liabilities, and
the difference between the two, which is your equity, or net worth.
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