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Principles of Financial Accounting Exam 1 Questions with Complete Solutions
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- Accounting
Principles of Financial Accounting Exam 1 Questions with Complete Solutions
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Principles of Financial Accounting Exam1 Questions with Complete Solutions
What is Accounting? - Answer-Accounting is the process of identifying, measuring,
recording, and communicating financial information.
Why accounting useful? - Answer-It help people answer questions and make better
decisions.
List the three forms of business. - Answer-Sole proprietorship, partnership, and
corporation.
List the three types of business activity. - Answer-Financing Activities, Investing
Activities, and Operating Activities.
What do financing activities include? - Answer-A company's financing activities include
obtaining the funds necessary to begin and operate a business.
Where do financing funds come from? - Answer-Either issuing (selling) stock of
borrowing money.
Creditor - Answer-The person to whom the corporation owes money.
Liability - Answer-The obligation to repay a creditor.
Stockholders' Equity - Answer-Claims of the stockholders.
Investing Activites - Answer-The purchase (and sale) of the assets that are used in
operations (commonly referred to as property,plant, and equipment) are a corporation's
investing activities.
Operating Activities - Answer-Operating through use of goods or services that generate
revenue and expenses.
Revenue - Answer-the increase in assets (cash or receivable) that results from the sale
of products or services.
Expenses - Answer-the cost of assets used or the liabilities created, in the operation of
the business
Net income - Answer-revenues are greater than expenses
Net loss - Answer-expenses are greater than revenues
, List the four types of financial statements - Answer-Balance sheet, retained earnings,
income statement, cash flow
Balance sheet - Answer-Reports the resources owned by a company (assets) and the
claims against those resources (liabilities and stockholders' equity) at a specific point in
time.
Income statement - Answer-Reports how well a company has performed its operations
(revenues, expenses, and net income/loss) over a period of time
Retained earnings statement - Answer-Reports how much of the company's income
was retained in the business and how much was distributed to owners over a period of
time
Statement of cash flows - Answer-Reports the sources and uses of a company's cash
over a period of time.
Generally accepted accounting principles (GAAP) - Answer-common set of rules and
conventions developed to guide the preparation of financial statements; developed by
several different organizations over a number of years.
Securities and Exchange Commission (SEC) - Answer-In the U.S., has the power to set
accounting rules for publicly traded companies.
Financial Accounting Standards Board (FASB) - Answer-SEC has delegated authority to
FASB; primary accounting standard setter in the U.S., but working closely with
International Accounting Standards Board (IASB) to develop the international financial
reporting standards (IFRS)
Fundamental Accounting Equation - Answer-Assets = Liabilities + Stockholders' Equity
Operating Cycle - Answer-The average time that it takes a company to purchase goods,
resell the goods, and collect the cash from customers.
Current Assets - Answer-Cash and other assets that are reasonably expected to be
converted into cash within one year or one operating cycle, whichever is longer.
Noncurrent Assets - Answer-Long-term investments; property, plant, and equipment;
and intangible assets
Current liabilities - Answer-Obligations that will be satisfied, through the payment of
cash or by providing goods or services, within one year or the operating cycle
Long-term liabilities - Answer-Obligations of the company that will require payment
beyond one year or the operating cycle.
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