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Bookkeeping/Accounting Terms Questions & Answers
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Bookkeeping/Accounting Terms Accounting - Answer- The process of recording and communicating financial information that is intended to be useful in making economic decisions. Entity assumption - Answer- A business is considered a separate entity distinguishable from its owners, creditors, emp...

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  • August 4, 2024
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  • 2024/2025
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Bookkeeping/Accounting Terms
Accounting - Answer- The process of recording and communicating financial
information that is intended to be useful in making economic decisions.

Entity assumption - Answer- A business is considered a separate entity
distinguishable from its owners, creditors, employees, and all other entities.

Asset - Answer- Resources owned by a business that have money value.

Cost principle - Answer- Business transactions are entered in the accounting system
at cost which includes purchase price, sales tax, freight, and any other cost needed
to prepare the asset for sale or for its intended use.

Liability - Answer- The debts owed by a business.

Creditors - Answer- The person or entity to whom the debt is owed.

Owners' equity - Answer- The owners' interest in the assets of the business (net
worth).

Capital stock - Answer- Refers to all classessof ownership, shares, both preferred an
common, issued by a corporation.

Accounting Equation - Answer- Assets = Liabilities + Owners' equity
Owners' equity = Paid-in capital + Retained earnings
Retained earnings = Beginning balance + Revenues - Expenses - Dividends

Financial statements - Answer- Final result of the accounting process that serve as
important communication devices---2 types (Internal and External statements).

Internal statements - Answer- Are prepared at the request of mangement for the sole
use of managers within the firm.

External statements - Answer- Are prepared specifically for use by outside parties
such as creditior and stocklholders--- 4 types (Income statement, Retained earnings
statement, Balance sheet, Statement of cash flow).

Fiscal year - Answer- The period (any 12 consecutive months) the firm selects for
reporting.

Calendar year - Answer- An accounting period that extends from January 1 to
December 31.

Natural business year - Answer- Twelve-month period that ends when a company's
sales activities are at their lowest point.

, Interim reports - Answer- Financial statements prepared for periods shorter than one
year, such as monthly or quarterly. (IMA)

Income statement - Answer- A summary of the revenue and expenses for a specific
period of time, such as a month,quarter, or year.

Revenues - Answer- Inflows of assets or settlements of liabilities from delivering or
producing goods, rendering services, or sales.

Expenses - Answer- Assets used up or services consumed in the process of
generating revenues during an accounting period.

Gains - Answer- Increases in net assets from incidental transactions that are not
revenues or investments by owners.

Losses - Answer- Decreases in net assets from incidental transactions that are not
expenses or distributions to owners.

Retained earnings statement - Answer- A financial statement that summarizes the
changes in retained earnings for a specific period of time. [Retained earnings at the
end of the accounting period = Retained earnings at the beginning of the period +
Net income (or minus net loss) - Dividends declared during the period]

Balance sheet - Answer- A financial statement that reports assets, liabilities, and
owner's equity on a specific date.

Current assets - Answer- Cash and other assets expected to be exchanged for cash
or consumed within a year.

Accounts receivable - Answer- Amounts customers owe on account.

Current Liabilities - Answer- Obligations that a company reasonably expects to pay
within the next year or operating cycle, whichever is longer.

Accounts payable - Answer- Money owed to others for merchandise or services
purchased on credit but not yet paid for.

Accounting data processing cycle or Accounting cycle - Answer- The various (8-9)
steps that relate to the processing of accounting data, that is, from the occurrence of
a transaction to the preparation of financial statements completed at least once a
year.

Accounting data processing cycle or Accounting cycle - Answer- Step 1=
Transactions occur
Step 2= Journalize transactions in General ledger or Special journals (determine
which accounts affected and $ involved).
Step 3= Post journal entries to ledger accounts.
Step 4= Prepare worksheet (an unadjusted trial balance is prepared as part of the
worksheet and completed).
Step 5= Journalize and post adjusting entries from worksheet to ledger.

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