Accounting 101 Test #1

Every business is accounted for separately from its owner or owners.

Business Entity Assumption

Time Period

Last day of accounting period or a set period of time (need to have a time frame)

An accounting area that includes planning future transactions to minimize taxes paid.

Tax Accounting

A business reports its own office stationary on the balance sheet at its $400 cost, although it cannot be sold for more than $10 as scrap paper. Which accounting principle and/or assumption justifies this treatment?

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Define "net income" and explain its computation.

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Describe the three basic forms of business organizations and their key attributes.

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How do ethics rules affect auditors' choice of clients?

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What does the concept of objectivity imply for information reported in financial statements? Why?

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Why is the revenue recognition principle needed? What does it demand?

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Draw

Always a debit for Normal

ASSETS = LIABILITY + EQUITY

Assets = Liability + Equity + Revenue - Expense

What info is reported on the balance sheet?

Assets, Liabilities, Equity

Assets, Liabilities, Equity, Revenues

Assets- Things you own Liabilities- Things you owe Equity- Your investment in the company Revenues- Income you earn

An examination of an organization's accounting system and records that adds credibility to financial statements

Audit

Information is based on actual costs incurred in transactions.

Cost Principle

GAAP Rules

Cost Principle Revenue Recognition Matching Full Disclosure Going Concern Monetary Unity Time Period Entity Pain

Debit entries increase debit balances and credits decrease them

Credit entries increase credit balances and debits decrease them

Principles that determine whether an action is right or wrong

Ethics

Cost Principle

Every transaction is reported at cost

Full Disclosure

Everything must be disclosed

Monetary Unit

FILL THIS ONE IN LATER

FASB

Financial Accounting Standards Board (group that makes the rules for accounting)

A company reports details behind financial statements that would impact users' decisions.

Full disclosure principle

GAAP

Generally Accepted Accounting Principles

Financial statements reflect the assumption that the business continues operating.

Going-Concern Assumption

Matching

If you report the revenue in an accounting period, you must report expense in the same period

Four Primary Financial Statements

Income Statement, Capital Statement, Balance Sheet, and Cash Flow

General Ledger

Main book for Accounting

Amount a business earns in excess of all expenses and costs associated with its sales and revenues

Net Income

Accounting professionals who provide services to many clients

Public Accountants

Give two examples of expenses a business might incur

Rent, utilities, advertising, labor

Revenue is recorded only when the earnings process. is complete.

Revenue Recognition Principle

What info is reported in an income statement?

Revenue, Expenses, Net Income

Identify three actual businesses that offer services and three actual businesses that offer products.

Services: Copper Cabin Kennel (Groomer), Car Wash, Lawn Mowing Products: Apple, Amazon, Lowes

3 Forms of Business

Sole Proprietorship, Partnerships, Corporations

A company records the expenses incurred to generate the revenue reported.

Specific Accounting Principle

Technology is increasingly used to process accounting date. Why then must we study and understand accounting?

We must understand the theory

Revenue Recognition

We recognize revenue when we earn it (not liabilities)

What is the purpose of the statement of owner's equity

We want to see what the owners did (they should never draw bigger than profit)

Going Concern

When we issue a financial statement, we expect the company to continue business

Entity Pain

You must identify who you're talking about

Trial Balance

a statement of all debits and credits in a double-entry account book, with any disagreement indicating an error. Each column with have the same total... because credits = debits

Why is accounting described as a service activity?

because a service, rather than a product, is being provided

Identify four kinds of external users and describe how they use accounting information.

lawyers, shareholders, lenders, labor unions, internal revenue service

Identify three types of services typically offered by accounting professionals.

taxes, auditing, management counseling, bookkeeping, accounting