Chapter 3 Exam Study

Which of the following options are false about parallel accounting? (2 answers) Question options: -An organization can implement multiple ledgers for different purposes. -In Parallel accounting there is a leading ledger and nonleading ledgers for each company. -Nonleading ledgers for each company are based on international accounting practices. -An organization can implement only one ledger.

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Which of the following options are false about subledger and reconciliation account? (2 answers) Question options: -When a company sells product to a customer on credit, the amount owed is noted in the customers subledger account and is also posted to the accounts receivable. -The reconciliation account data indicates which subledger each reconciliation account is associated with. -Customer accounts track purchases from and payments made to each vendor. -The general ledger can include one reconciliation account, but multiple subledger accounts.

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Which of the following options are true about Accounts Receivable Accounting? (2 answers) Question options: 1) It involves sub-ledgers to track money owed to individual Customers via the Customer master. 2) A payment from a customer will impact as a debit in the bank account. 3) The customer subledger account and the customer master record can not share the same account number. 4) A payment from a customer will impact as a debit in the sales revenue account.

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Which of the following options are true about Asset Accounting? (2 answers) Question options: -When a company incurs a depreciation expense, it must allocate that expense to a cost center. -Two or more asset classes can be associated with the same reconciliation account. -Assets are assigned to multiple company codes depending on the usage. -All computing equipment such as computers, printers, and monitors can be included in one asset class.

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Which of the following options are true about Organizational data in Accounting? (2 answers) Question options: -Financial statements are generated for each business area within the enterprise. -The Business Area provides the capability of creating financial statements across multiple company codes. -The relation Client to Company code is N:1. -The Enterprise is the highest level for financial reporting.

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Which of the following options are true about the Chart of Accounts Segment? (2 answers) Question options: -Balance Sheet and Income Statement accounts are carried forward into different accounts. -The account group groups together accounts with similar characteristics. -The data contained in account groups can be designated as either suppress, display, required, and optional. -The account number is a unique number for a group of accounts in the Chart of Accounts.

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Which of the following options are true about the transaction type: Acquisition? (2 answers) Question options: 1) An asset can be acquired through internal processes. 2) A purchase of an asset will impact as a debit in a corresponded reconciliation account. 3) The invoice receipt of the purchase of an asset will impact as a debit in Account payable. 4) For assets acquired externaly, a vendor subledger account must always exist.

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Which of the following options is false about Accounts Payable Accounting? Question options: -In accounts payable accounting, the accounts payable subledger consists of individual vendor accounts. -The subledger account number is created when the vendor master record is created. -A payment to a vendor will impact as a credit in the Bank account of the General Ledger. -A purchase from a vendor for the marketing area will impact as a credit in the marketing expenses account.

-A purchase from a vendor for the marketing area will impact as a credit in the marketing expenses account.

Within general ledger accounts the COA segment client includes the following data:

-Account Number -Long Text (description) -Short text (description) -Account group (groups accounts with similar characteristics) -Balance sheet or income statement account.

Within general ledger accounts the Company code segment includes the following data:

-Account currency (determines the currency in which all the transactions are recorded) -Tax related data (each country has to comply with distinctive tax laws that require it to include different tax-related data in its general ledger accounts) -Field status group (determines both the screen layout for document entry and the status of each field on the screen) -Open item management -Line item display -Reconciliation account for account type

Which of the following options are true about Asset Accounting? (2 answers) Question options: -Accounting data about each asset are maintained in asset subledger accounts. -The most common transactions types regarding asset accounting are acquisition, depreciation, and retirement. -Accounting data about each asset does not include acquisition costs, but depreciation costs. -Assets are not assigned to a business area, but to a company code.

-Accounting data about each asset are maintained in asset subledger accounts. -The most common transactions types regarding asset accounting are acquisition, depreciation, and retirement.

Which of the following options are true about financial accounting documents? (2 answers) Question options: -An FI document consists of a header section and a detail or line item section. -In the detail section, each line item includes a description of the account. -The FI document records the financial impact of a transaction step on management accounting. -In the detail section, each line item includes the currency.

-An FI document consists of a header section and a detail or line item section. -In the detail section, each line item includes a description of the account.

Which of the following options is false about General Ledger Accounting? Question options: -General ledger accounting is based on the double entry accounting system, where every transaction has both a debit entry and a credit entry. -An decrease in an asset account results in a credit posting. -An increase in an expense account results in a debit posting. -Balance sheet accounts are divided into revenue and expenses.

-Balance sheet accounts are divided into revenue and expenses.

Which of the following options are false about subledger and reconciliation account? (2 answers) Question options: -It is not possible to post data directly into reconciliation accounts. -The balance in the reconciliation account is the sum of the postings in the related subledger accounts. -Data posted into sub-ledger accounts are manually posted to a reconciliation account. -The balance in the subledger account is the sum of the postings in the related reconciliation accounts.

-Data posted into sub-ledger accounts are manually posted to a reconciliation account. -The balance in the subledger account is the sum of the postings in the related reconciliation accounts.

The header section of an FI documents includes includes data that apply to the entire document. What is the data the header section includes?

-Document number -Document type -Various dates -Company code -Currency used -Reference number.

Which of the following options is true about the General Ledger? Question options: -The accounts in the Chart of Accounts are defined based on a General Ledger. -General ledger accounts, which do not include the Subledger accounts, are used to prepare Financial Statements. -Some accounts in the General Ledger are not part of the Chart of Accounts. -General ledger account data include a General Ledger segment and a Company code segment.

-General ledger accounts, which do not include the Subledger accounts, are used to prepare Financial Statements.

Which of the following options are true about the Company Code Segment? (2 answers) Question options: -If open item management is enabled, then each item in the account is marked as either open or cleared. -"Line item display" allows the company to include the specific debit and credit entries in reports. -If open item management is enabled, then each item in the account is marked as either open or close. -When line Open item management is enabled, a link to the line items that are included in account balances is maintained.

-If open item management is enabled, then each item in the account is marked as either open or cleared. -"Line item display" allows the company to include the specific debit and credit entries in reports.

Which of the following options are true about the Chart of Accounts Segment? (2 answers) Question options: -It includes the account number and account group. -It indicates if the account is a balance sheet account. -It includes a long text of each account and field status group. -Accounts in the same account groups require different types of data.

-It includes the account number and account group. -It indicates if the account is a balance sheet account.

Which of the following options are true about the Company Code Segment? (2 answers) Question options: -It is helpful for companies using the same Chart of Accounts, so that each company can use the accounts differently. -The general ledger account requires company code-specific data in addition to the Chart of Accounts data. -It includes the Open item management and Balance sheet account. -The field status group determines the screen layout for document entry, but not the status of each field on the screen.

-It is helpful for companies using the same Chart of Accounts, so that each company can use the accounts differently. -The general ledger account requires company code-specific data in addition to the Chart of Accounts data.

Name the 3 the types of assets and provide examples

-Liquid Assets (cash/bank, receivables (money owed the company by its customers), prepaid expenses) -Material Accounts (Inventory- Raw materials, Finished goods, Semifinished goods, Trading goods) - Fixed assets (land, building) *NOTE: These are account groups

Which of the following options are true about management accounting? (2 answers) Question options: -Most of the data used in management accounting are derived from financial accounting. -Companies use cost objects to accumulate costs as they execute these processes -A key function of management accounting is to supervise costs. -Collectively, production orders, internal orders, and cost centers are called controlling objects.

-Most of the data used in management accounting are derived from financial accounting. -Companies use cost objects to accumulate costs as they execute these processes

What are some types equity?

-Retained earnings -Shareholders equity

Profit and loss accounts include the following data:

-Revenue (monies the company earns by selling its products and services e.g.- sales) - Expenses (the costs associated with creating and selling those products and services *e.g. - cost of goods sold, payroll, expenses, utilities, taxes)

Which of the following options are false about Organizational data in Accounting? (2 answers) -Segments are internal divisions of an enterprise that could be used to define areas of responsibility. -An enterprise can have multiple clients. -The various companies within an enterprise are represented by a company code. -A segment of an enterprise allows management to monitor revenue, costs, profitability, etc. separately from other segments.

-Segments are internal divisions of an enterprise that could be used to define areas of responsibility. -An enterprise can have multiple clients.

Name the 2 the types of liabilities and provide examples

-Short term (Payables) -Long term (Loans)

Which of the following options are true about Depreciation? (2 answers) Question options: -The actual amount of asset depreciation could depend on the type of depreciation method the company employs. -One asset can be depreciated using different depreciation methods. -The actual amount of assets useful life depends on its residual value. -In parallel accounting, the different depreciation calculations of an asset are maintained in the same depreciation area.

-The actual amount of asset depreciation could depend on the type of depreciation method the company employs. -One asset can be depreciated using different depreciation methods.

Which of the following options are true about financial accounting documents? (2 answers) Question options: -The header includes document date and reference number. -A posting key identifies the account type such as customer (D) or vendor (K). -Commonly used posting key include customer invoice (DR) and customer payment (DZ). -A document type identifies the account type such as asset (A), material (M), and general ledger accounts (S).

-The header includes document date and reference number. -A posting key identifies the account type such as customer (D) or vendor (K).

Which of the following options are true about Depreciation? (2 answers) Question options: -The value of an asset is equal to its acquisition value less accumulated depreciation -The Generally Accepted Accounting Principles is one of the reasons that define a depreciation method a company selects for an asset. -Depreciation can be planned or ordinary. -One asset can be depreciated using one depreciation method

-The value of an asset is equal to its acquisition value less accumulated depreciation -The Generally Accepted Accounting Principles is one of the reasons that define a depreciation method a company selects for an asset.

General ledger account data include the following:

A COA or client segment and a company code segment.

What are segments?

A division of an enterprise for which management monitors performance (revenue, costs, profitability, etc.) separately from other segments.

What is a document type? And what does it determine?

A two-character code that identifies the specific business process step that generated the document. Commonly used document types include customer invoice (DR), customer payment (DZ), goods issue (WA), and goods receipt (WE). A document type determines the document number range and the account type (explained below) associated with the posting.

The vendor master record and the vendor subledger account share the same _______________ ________________. The associated reconciliation account is a general ledger account that is designated as the ___________________ account. (Accounts Payable Accounting)

Account Number, Reconciliation

What is the reconciliation accounts for vendors?

Accounts payable

What is the reconciliation accounts for customers?

Accounts receivable

Which of the following options is true about Chart of Accounts (COA)? Question options: 1) The COA is an listing of accounts that comprise a clients general ledger 2) All enterprises must maintain an operative COA in order to record financial data. 3) The Group COA contains the operational accounts that are used to record the financial impact of an organizations day-to-day transactions. 4) The operational and country specific COAs are the primary COAs maintained by an organization.

All enterprises must maintain an operative COA in order to record financial data.

What is a chart of accounts?

An ordered listing of accounts that comprise a company's general ledger

What are the three types of assets mentioned in asset accounting?

An organization may possess a variety of assets, including tangible, intangible, and financial assets. -Tangible assets have a physical form. Examples of tangible assets are computers, machinery, and buildings -Intangible assets are nonphysical. Examples of intangible assets are intellectual property, patents, and trademarks. -Financial assets include a variety of financial instruments such as securities, long-term notes (debts), and mortgages.

In the GBI general ledger, account #300700, accounts payable reconciliation, is the designated account. Let's consider a scenario in which GBI purchases office supplies from three vendors. Each vendor has a designated vendor account number that is also the subledger account number. The purchases are as follows: $2,000 from Vendor 1, $1,000 from Vendor 2, and $4,000 from Vendor 3. Further, GBI makes these purchases on credit and then pays the vendors at a later date via a check.

As illustrated in Figure 3-15, Steps 1-3 record the purchases from each vendor. Each purchase results in a debit to the supplies expense account and a credit to the appropriate vendor account. Postings to the vendor accounts are automatically posted to the reconciliation account, accounts payable reconciliation, as indicated by the arrows. Note that the AP reconciliation account does not track the details of each transaction; rather, it maintains only the total values. Payments, recorded in Steps 4-6, result in a credit posting to the bank account and a debit posting to the appropriate vendor account. Again, these debit postings are also automatically made to the reconciliation account, accounts payable reconciliation.

Balance sheet accounts include the following:

Assets (what the company owns), Liabilities (what the companies owes to to others) and (Owner's) equity (refers to the owner's share of the company assets)

Balance sheet accounts are grouped into ______________, ________________, and ___________________.

Assets, Liabilities, Accounting

What's the formula for calculating assets?

Assets= Liabilities + equities

In regard to the COA segment of general ledger data, what implications occur for the ways the balances in the accounts are treated at the end of the year when designating an account as either a balance sheet to profit and loss account?

Balances in balance sheet accounts are carried forward into the same account, whereas balances in the profit and loss accounts are carried forward into different, specified accounts.

To properly allocate and track costs, the organization is divided into _________ ________________.

Cost centers

Like cost centers, costs incurred during processes can be allocated to or absorbed by these orders. Collectively, these orders and cost centers are called ____________ _______________.

Cost objects

The customer subledger account is created when the _______________ ________________ record is created, and they share the same account number. The association between the customer account and the reconciliation account is established in the ______________ of the customer master record. (Accounts Receivable Accounting)

Customer Master, Definition

How are postings debited and credit to these (balance sheet and profit and lose) accounts using a "T" account?

Debits are displayed on the left side of the T account, and credits on the right side. An increase in an asset account or an expense account results in a debit posting, whereas a decrease results in a credit posting. Conversely, an increase in revenue or liability results in a credit posting, whereas a decrease generates a debit posting.

General ledger accounting is based on the _____________ entry accounting system, where every transaction has both a debit and ____________ entry.

Double, credit

Most of the data used in management accounting are NOT derived from financial accounting.

False

When an enterprise includes several companies, then, in addition to creating financial statements for each company (company code), it does not need to create financial statements for the enterprise as a whole.

False. *NOTE: This consolidation is necessary because the enterprise, which is itself a separate legal entity (e.g., parent or holding company), has reporting requirements.

What does the open item management do? In regard to the company code segment of general ledger accounts.

If open item management is enabled, then each item in the account is marked as either "open" or "cleared." An item is designated as open until an offsetting (debit or credit) entry is posted to the account. At that point its status is changed to cleared. NOTE: For example, when a company ships a product to a customer, the amount owed is recorded in a specific account. This item remains open until the company receives a payment. The payment offsets the open item, which is then marked as cleared. Typically, the open item management indicator is set for clearing accounts

Consider another example. GBI purchases office supplies for $500 with a check. Office supplies are expensed; that is, they are defined as money spent rather than treated as an asset upon purchase, even if some of the supplies remain unused. (General Ledger Accounting)

In this case, the relevant accounts are bank and supplies expense

In accounts payable accounting, the accounts payable subledger consists of _____________________ vendor accounts. The subledger account number is created when the ___________________ master record is created.

Individual, Vendor

What is a special characteristic of reconciliation accounts?

It is not possible to post data directly into them. Data must be posted to sub-ledger accounts, at which point they are automatically posted to the corresponding reconciliation account as well. (For example, when a company sells products or services to a customer on credit, the amount owed is noted in the customer's subledger account and is also posted to the corresponding reconciliation account (accounts receivable).)

Why do companies use asset account?

It is used to track the financial consequences associated with the entire lifecycle of an asset, from acquisition to disposal.

What does a financial accounting document do?

It records the impact (financial data) of a transaction step on financial accounting.

In regard to parallel accounting- global principles are consolidated in a single ledger known as a:

Leading ledger *NOTE: A leading ledger is required, and all transaction data are posted to it.

Vendor and asset accounts are examples of subsidiary ledges (sub ledgers) Are sub ledger accounts part of the general ledger?

No they are not apart of the general ledger.

The enterprise will define ledgers for each company (company code) based on local accounting practices.

Non-leading

Consider a scenario in which GBI purchases $1,000 of office supplies, but on credit rather than with cash. In this case the purchase and payment are recorded separately. (General Ledger Accounting)

One account is supplies expense, which is debited by $1,000. The offsetting account is payables-miscellaneous, which is credited by $1,000. Payment is made using the bank account ($1,000 credit). Finally, the payables-miscellaneous account is cleared ($1,000 debit).

What are the three types of chart of accounts?

Operative COA, Country-specific COA, and Group COA

What is the primary COA maintained by an organization?

Operative or operational COA

Like most master data, the data in general ledger accounts are segmented by ____________________ level.

Organizational

If a company purchases supplies from multiple sources or vendors, it records all the payable data in one account, _____________________-______________________. One problem with this arrangement is that the company cannot determine how much money it owes to each vendor. If the company needs to track the money it owes to individual vendors, then it uses a separate process known as _______________ _____________________ accounting, which utilizes subledger accounts.

Payables- Miscellaneous, Accounts Payable

Asset accounts are used to track:

Purchase price as well as increases and decreases in the asset's value over time.

Vendor accounts track:

Purchases from and payments made to vendors.

Although customer and vendor accounts are not part of the general ledger, the data in these accounts must be reflected in the general ledger. Companies accomplish this task by posting the data from subledger accounts into special accounts in the general ledger called ___________________ accounts.

Reconciliation

Profit and loss accounts are divided into _________________ and _________________________.

Revenue, Expenses

What is a cost center?

Something that absorbs costs that are generated when companies execute processes. It is associated with a location where costs are incurred. Cost centers can be associated with departments, such as marketing and finance; with locations, such as plants; and with individuals. *NOTE: Think of a cost center as a container or bucket that accumulates costs.

The balance in the reconciliation account (e.g., accounts receivable and accounts payable) is the _______ of the postings in the related subledger accounts (e.g., customers and vendors, respectively).

Sum

What are clearing accounts?

Temporary accounts that hold data until these data are moved to another account.

What is a posting key?

The debit or credit is indicated by a posting key, which is a two-digit code that determines how a line item is posted. Specifically it identifies the account type, indicates whether the line item is a debit or credit posting, and specifies the field status of additional data needed to post the item. Examples of account types are customer (D), vendor (K), asset (A), material (M), and general ledger accounts (S). Examples of additional data are cost centers and business areas

What are business areas based on?

The enterprise's product line or its geographic division, across company codes.

A venture capitalist invests $50,000 in GBI US on January 10, 2010, which GBI deposits into its bank account. In exchange, the investor receives GBI common stock at $1 per share. How is this transaction recorded in the general ledger? (General Ledger Accounting)

The first step is to identify the relevant accounts. For this transaction the appropriate accounts are bank (#100000) and common stock (#329000). The transaction will generate an increase in both accounts. Because the bank account is considered an asset, there will be a debit posting, while common stock, a liability, will receive a credit posting.

What are the available field status options? In regard to the company code segment of general ledger accounts.

The options are suppress, display, required, and optional. If a field is suppressed, then it is hidden; that is, it is not displayed on the screen. NOTE: Different field status groups can be defined for different types of accounts such as liquid asset accounts and expense accounts.

What is parallel accounting?

The practice when an organization can implement multiple ledgers in parallel and use each ledger for different purposes.

Why do companies create alternative accounts that map operative COA's to country-specific COA's?

These alternative accounts are created to meet special country-specific reporting requirements.

What are line items? What do line item displays do? In regard to the company code segment of general ledger accounts.

These are the specific debit and credit entries in the account.When line item display is enabled, a link to the line items that are included in account balances is maintained. NOTE: Maintaining links to the line items is necessary when the company wants to include the specific debit and credit entries in reports.

What does a group of chart of accounts contain?

These contain group accounts that multiple companies within an enterprise use to consolidate their financial reporting.

Let's consider a scenario in which GBI sells bicycles to two customers on credit for $5,000 and $3,000, respectively, and then receives payment at a later date.

These purchases are Steps 1 and 2 in Figure 3-16. The relevant accounts are sales revenue and the individual customer accounts. Sales revenue is credited by the amount of the sale, and a corresponding debit is made to the appropriate customer account. This debit is also automatically posted to the accounts receivable reconciliation account as indicated by the arrows in Figure 3-16. As in the case of the AP reconciliation account, the AR reconciliation account does not track the details of the transactions. When payment is made (Steps 3 & 4), the bank account is debited, and the appropriate customeraccount is credited. At the same time, a corresponding automatic credit is posted to the reconciliation account, accounts receivable reconciliation.

What are reconciliation accounts?

They are general ledger accounts that consolidate data from a group of related subledger accounts, such as customers and vendors.

What are business areas?

They are internal divisions of an enterprise that are used to define areas of responsibility or to meet the external reporting requirements of an enterprise segment.

What do operative COA's contain?

They contain the operational accounts that are used to record the financial impact of an organization's day-to-day transactions.

What is the data the items (details) section includes of a FI document?

This section typically consists of at least two line items: one or more debit items and one or more credit items. Each line item includes the account number from the general ledger, a description of the account, an indication of whether the account is debited or credited (with the posting key), and the amount.

What is a key function of management accounting?

To manage and allocate costs used to carry out various business processes

What is the goal of financial accounting?

To record the financial impact of business activities. These data are recorded in the company's general ledger.

A client is the highest organizational level in the system; it represents an enterprise that consists of multiple companies

True

All enterprises must maintain an operative COA in order to record financial data. In contrast, group and country-specific COAs are optional.

True

Although the accounts in a COA can be used by more than one company, each company uses the account in different ways.

True

Financial statements are generated for each business area within the enterprise.

True

In a typical parallel accounting arrangement an enterprise will implement one set of accounting principles for all companies (company code) in the enterprise (client).

True

The accounts in the operative COA are mapped to alternative accounts in country-specific charts of account.

True

The organizational data associated with financial accounting are client, company code, and business area.

True

True or False: Sub-ledgers are not part of the general ledger but instead are associated with special accounts in the general ledger known as reconciliation accounts.

True

The general ledger includes many accounts that companies use to record financial data.

True *NOTE: Each account tracks different types of financial data. (Ex: Revenue sales, costs associated with procurement)

Because the general ledger can include multiple reconciliation accounts, it is necessary to indicate which subledger each reconciliation account is associated with.

True. NOTE: This information appears in the reconciliation account for account type field in the general ledger account master data.

Some financial data are not directly maintained in the general ledger.

True. For example, customer accounts, which track the amounts customers owe and the payments they have made, are maintained separately for each customer.

The association between the vendor account and the reconciliation account is established in the definition of the _______________ __________________ record. (Accounts Payable Accounting)

Vendor Master

Whereas accounts payable accounting is concerned with __________________, accounts receivable accounting is concerned with _____________________.

Vendors, Customers

How do businesses track money owed by each customer? (Accounts Receivable Accounting)

When businesses need to track money owed by each customer separately, they create an account in the accounts receivable subledger for each customer with a corresponding designated general ledger account (the reconciliation account)

Is the general ledger an instantiation of the COA for a particular company and can it include some or all of the accounts in the COA?

Yes