Financial Accounting 207 University of Dayton Final Exam test (Questions + Answers) Solved

assets - resources owned by the business (things of value) liabilities - creditors claims on total assets (obligations or debts of the business) stockholders equity - ownership claims on total assets basic accounting equation - assests= liabilities + stockholders equity generally accepted accounting principles - set of rules and practices that provide answers to the followong questions - How does a company decide on the type of financial info to disclose? - What format should a company use? - How should a company measure assests, liabilities, revenues, and expenses? monetary unit assumption - states that only transactions expressed in money are included in accounting records economic entity assumption - -every economic entity can be separtely identified and accounted for -economic events can be identified w/ a particular unit of accountabilty periodicity assumption - allows the business to be divided into artifical time periods that are useful for reporting going concern assumption - assumes the business will remain in operations for the forseeable futurecost principle - requires assets to be recorded at original cost becasue the amount is verifiable fair value principle - requires that assets & liabilites should be reported at fair value ( the price recieved to sell an asset or settle a liability) full disclosure principle - requires that all circumstances and events that would make a difference to financial statement users should be disclosed historical cost principle - states that companies should record an asset at their cost debit - -increase in assets dividends and expenses -decrease in common stock retained earnings and revenues credit - - increase in liabilities common stock, and revenues -decrease in assets dividends and expenses prepaid expenses - assets that are paid in cash and recorded as assets until they are used unearned revenues - cash received and recorded as liabilities before services are preformed revenue recogniton principle - requires that revenue be recognized in the accounting period in which the performance obligation is satisfied accural basis of accounting - means that transactions that change a firms financial statements are recorded in the periods in which events occur, even when cash is not exchanged FIFO - -parallels the actual physical cost of goods - records highest net income in periods with increasing prices-lowest net income in periods w/ decreasing prices w/ inflation will apporiximate costs most dont use bc of high income tax LIFO - -seldom coicides with physical flow of goods -in periods of increasing prices records lowest net income -oppisite for decreasing prices -w/ inflation it is understated most companies use for low income tax have to disclose average cost method - assumes all goods available for sale are similar in nature and allocates the cost of goods sold available for sale on the basis of weighted average unit cost incurred