Financial Accounting Final Exam with complete solutions.
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Course
Financial Accounting
Institution
Financial Accounting
GAAP
Generally Accepted Accounting Principles: Common set of standards that the accounting proessions has developed and generally accepted and universally praticed.
SEC
Securities and Exchange Commision: the agency of the U.S. Government that oversees U.S. financial markets and accounting st...
financial accounting final exam with complete solutions
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Financial Accounting Final Exam
GAAP - Answer Generally Accepted Accounting Principles: Common set of standards
that the accounting proessions has developed and generally accepted and universally
praticed.
SEC - Answer Securities and Exchange Commision: the agency of the U.S.
Government that oversees U.S. financial markets and accounting standard-setting
bodies
FASB - Answer Financial Accounting Standards Board: The rimary accounting
standard- setting body in the United States.
Cost Principle - Answer Dictates the companies record asset at their cost. This
information can be verified by documentation and is therfore reliable.
Monetary Unit - Answer An assumption that requires companies to include in the
accounting recrds only transaction data that can be epressed in terms of money. This
enable accounting to quantify (measure) economic events and is vital to applying the
cost principle.
Economic Entity - Answer Any organization or unit in society. It may be a company, a
governmental unit, a municipality, a schoo district or a church.
Economic Enity Assumption - Answer Requires activites of an entity be kept separate
and distinct from the activities of its owner and all other economic entities
Assets - Answer The resources a business owns. The business uses its assets in carry
out such activites as production and sales. Assets typically have capacity to provide
future services or benefits which can reslut in cash inflows.
Liabilites - Answer Claims aganist assets- That is existing debts and obligations.
Accounts payable, notes payable, wages payable, wages payable, sales and real estate
taxes payable, and unearned revenue are a few examples.
Stockholders Equity - Answer The ownership clain on total assets. Equal to total assets
minus total liabilites. The SHE section of corporations balanace sheet consits o 1) paid-
in capital 2)retained earnings
Revenues - Answer Gross increses in stockholders equity resulting from business
activities entered into for the purpose of earning income. Generally, revenue result from
selling merchandise, performing services, renting property and lending money.
Expenses - Answer the cost of assets consumed or services used in the process of
earning revenue. They are decreases in stocholders equity that result from operation
Sole Proprietorship - Answer A business owned by own person. Usally only a relatively
small amount of money is necessary to start in business. The owner receives any
profits, suffers any losses, and is personally liable for all debts of the business.
Partnerships - Answer A business owned by two or more persons associated as
partners. Typically a partnership agreement sets forth such terms as inital investment,
duties of each partner, divison of net income, and settlement upon death or withdrawl of
a partner
Corporations - Answer A business organized as a separate legal entity under state
corporation law and having ownership divided in transferable shares of stock.
Stockholders enjoy limited liability, may transfer all or part of their shares to ther
investers at any time. A corporation enjoys an unlimited life.
Corporation Advantages and Disadvantages - Answer Advantage: limited liability, ease
of transferring ownership, profession management, unlimited life
Disadvantage: government regulations, double taxation
Investment by stockholder - Answer Investment of cash in exchange for common stock.
Assets will increase and SHE will Increse.
Journal entry: Increase Cash & Incease Common Stock
Purchase of Equipment for Cash - Answer Changes the composition of Assets
Journal entry: Cash decreases and Equipment Increases
Purchase of Supplies on credit - Answer Supplies account under assets will increase
and liabilites (accounts payable) increases
Service Provided for cash - Answer cash under assets will increase and service
revenue account under SHE will increase
Purchase of advertising on credit - Answer result in a increase in liabilies (accounts
payable) and decrease in SHE (retained earnings) The advertising is an expenses for
your company (expenses increase, net income decreses retained earnings decreases,
and SHE decreases.
Service Rendered for Cash and Credit - Answer We receive cash and bill the balane
(grant the customer credit and permission to pay part of the invoice later). This will
increase Assets (cash and accounts receivabe) and SHE (service revenue)
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