Exam (elaborations)
Accounting Exam 1 KU Questions and Answers
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Accounting Exam 1 KU Questions and Answers
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Accounting Exam 1 KU Questions andAnswers
state the fundamental accounting equation - Answer-Assets= Liabilities + Owners
Equity
what are the two components of equity - Answer-common stock and retained earnings
What is the purpose of and formula for current ratio, debt ratio, and working capital -
Answer-current ratio: current assets/ current liabilities. Shows if the company has assets
to cover short-term liabilities. The larger the current ratio, the better the company is
doing.
Debt ratio: total liabilities/ total assets. Measures the long term capabilities of the
company. The smaller the debt ratio, the better the company is doing.
Working capital: total current assets- total current liabilities. Shows how much extra
current resources a company has. The bigger the working capital, the better the
company is doing.
What is the group that creates the U.S. accounting standards - Answer-FASB
What gives the board of directors the right to change a company's CEO - Answer-
Stockholders elects the board of directors, which is what gives them the right to make
changes within the company. The electives hire employees and do other day to day
operations.
What does a company need to do in order to recognize revenue according to the
revenue recognition concept - Answer-The company must record transactions when
they have provided their goods or services. They must meet their performance
obligation in order to record revenue. Accrual accounting
what is the purpose of adjusting entries - Answer-to keep the revenues and expenses in
the correct period. even if there is no tigger event to cause a change in transactions.
Deferral: cash is paid/ received before the action is completed
Accrual: cash is paid/ received after the action/ the action is recognized before the cash
is paid.
What is the matching principle concept - Answer-expenses recorded in the same period
have to have all revenues associated with those expenses generated in the same
period. this helps companies not to say they got a bunch of revenue in one period and
had no expenses so that stock is sold.
when do companies recognize revenues and expenses under cash and accrual
accounting - Answer-Cash: when actual cash is exchanged
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