Chapter 1
What is the three types of ownerships?
Sole proprietorship, partnership and corporations,
What is a source document? (Come up with examples)
Evidence to record a transaction. Could be receipts, invoices, time cards.
What is the profit margin? (Return on sales) And how do you calculate it?
An evaluation of the profitability of a company. (Net income divided by sales)
What is the two purposes of the closing process?
To return the balance to zero and to transfer the net income of the period to retained earnings.
What is GAAP?
The generally accepted accounting principles → The methods and rules, practices and other procedures that evolved over time due to changes in the business environment
What are the three types of activities?
Financing, investing and operating activities
What are intangible assets? What examples can you find?
A long term asset that provides benefits to the firm over the long term. Intangible assets lack physical substance and could be assets like patent, copyright and goodwill.
What is a general ledger?
A note that contains the accounts (Set of accounts).
What is the accounting cycle?
consists of all of the steps performed each period in order to prepare a set of financial statements (Collect source documents, journalize transactions, post transaction in the ledger, prepare worksheet, prepare financial statements, record adjusting entries, close the account.
What is FASB
The financial accounting standards board that is a group in the private sector with authority to set accounting standards.
How do you calculate retained earnings?
Retained earnings at the beginning of the year + Net income - Dividends
What are the qualitative characteristics of accounting?
Understandability, relevance, faithful representation, comparability and consistency, materiality and conservatism.
What is the difference between single-step income statements and multi-step income statements?
In a single-step income statement, all expenses and losses are added together and then deducted in a single step from all revenues and gains to arrive at net income whereas the purpose of the multiple-step income statement is to subdivide the income statement into specific sections and provide the reader with important subtotals. (Important to remember that the result remains the same)
What is the definitions of recognition and measurement?
Recognition is the process of recording items as an asset, a liability, revenue an expense or other whereas measurement is the process of choosing how to measure, such as the concern of cost or fair value.
What is AICPA
American Institute of Certified Public Accountants (AICPA) The professional organization of certified public accountants.
What are difference between internal and external users of business accounting? And which 2 different accounting forms exists to these users?
Internal are management → Management accounting.
External are outsiders such as IRS, future investors and the press → Financial accounting
What is the difference between auditing and accounting?
Accounting is the practice of prosecuting the financial statements whereas auditing is the process of examining the financial statements and the underlying records of a company to render an opinion as to whether the statements are fairly presented.
Are assets debited or credited in case of an increase?
debited
What is an interim statement?
Financial statements prepared monthly, quarterly, or at other intervals less than a year in duration.
What is PCAOB
Public Company Accounting Oversight Board --> A five-member body created by an act of Congress in 2002 to set auditing standards.
What is the concern of choosing a yardstick?
That any currency is susceptible to inflation/deflation and can vary throughout the years.
What is the working capital and how do you calculate it?
A method to evaluate a company’s ability to meet its obligations by looking at liquidation. (Current assets minus current liabilities)
Is revenues debited or credited in case of a decrease?
Debited
What are the different types of adjusting entries?
Cash Paid Before Expense Is Incurred (Deferred Expense), Cash Received Before Revenue Is Earned (Deferred Revenue), Expense Incurred Before Cash Is Paid (Accrued Liability) and Revenue Earned Before Cash Is Received (Accrued Asset)
What is IASB
The organization formed to develop worldwide accounting standards.