Chapter 1 -
Accounting and Business
Accounting and Business
How long is a fiscal period typically?
A fiscal period is usually one year.
What is the accounting principle that separates the accounting for a business from its owners?
Business entity concept.
What is on the right-hand side of a balance sheet?
Liabilities and Owner’s Equity.
What is the purpose of a trial balance?
To check the accuracy of the ledger.
Changes in what accounts affect equity in the expanded ledger?
Revenue, Expenses, and Drawings.
Name 2 of 4 of the big 4 accounting firms.
KPMG, PricewaterhouseCoopers, Ernst & Young, Deloitte.
When might a business's liabilities and owner’s equity outweigh its assets?
Never.
What is the amount remaining called after Assets-Liabilities?
The Owner’s Equity, Capital.
Define what receiving on account means.
Received the promise of money.
Give 2 examples of who might review an income statement.
Owner’s and Managers, Bankers, Government, Investors.
Usually, how many steps are there in the accounting cycle?
Eight.
What set of accounting principles do private businesses have to follow?
Private businesses are not forced to follow any particular set of accounting principles. They can follow any set of principles.
If a business closes, the claims of these individuals are settled first.
Creditors have the first claim.
When paying a creditor off, what accounts are affected and how?
Credit bank, Debit A/P.
How do you calculate the net income?
You take your revenue and subtract the expenses.
How many types of business ownerships are there (which we discussed in class)?
Three; sole-proprietorship, partnership, and corporation. Franchise is a hybrid of the three.
This accounting concept states that a business will continue to operate into the foreseeable future.
The continuing concern concept.
How are the appropriate accounts affected when recording a bank loan of $10 000?
Cash increases by $10 000, bank loan increases by $10 000.
What word is synonymous with the term ledger?
Account.
Why is expanded equity necessary?
Provide info on the business, allows managers and owners to make profitable decisions, allows for an insightful analysis of key revenue and expense accounts.
What does LLP stand for, and what does it mean?
Limited Liability Partnerships, a partnership agreement where the partner has limited liability but no say in the operations of the business.
What are the three financial statements and what do they represent?
Balance sheet, income statement, cash flow statement. Balance sheets represent the assets compared to the liabilities and owner's equity. Income statements represent the profit or loss of a business. Cash flow statements represent the flow of cash into and out from the business.
What individuals are interested in reviewing a business equation analysis sheet?
Equation analysis sheets are not used in the real world so nobody would be interested.
Are exceptional accounts permanent? Explain.
No, they are not because as a business continues its operations, they return back to normal.
What is the expanded accounting equation when R > E?
A = L + (C Beg. - Drawings + NI)