Major Field Test Business Study Set with
complete solutions
Balance Sheet - Correct Answers -Attempts to describe the financial condition of the
firm at a point in time.
Includes: Assets, Liabilities, & Equity - "net assets" what remains after deducting
liabilities from assets..
Income Statement - Correct Answers -Presents the results of the operations of an entity
over a peroid of time.
Includes: Revenues, Expenses, Income, Gains & Losses
Statement of Equity or Statement of Retained Earnings (Capital) - Correct Answers -
Bridges the gap between the income statement and the balance sheet.
Arrangement depends on type of organization:
Proprietorship: Statement of Owners Equity
Partnership: Statement of Partners Equity
Corporation: Statement of Stockholders Equity
In addition, it contains: Investments by Owners and Distribution to owners
Statement of Cash Flows - Correct Answers -Provides information about a company's
cash receipts and cash payments during a specific period of time.
Includes all 10 elements of financial statements: assets, liabilities, equity, net income,
income, gains, losses, Statement of 'X' Equity, Investments by Owners, Distributions to
Owners.
Cash Basis Accounting - Correct Answers -Revenue is recognized in the accounting
period in which the associated cash is received and Expenses are recognized in the
accounting period that the cash is paid.
Accrual Basis Accounting - Correct Answers -Revenue is recognized in the accounting
period in which the revenue is earned, regardless of when the associated revenue is
received. (Recorded when the sale is made, not when it is paid for.)
Depreciation - Correct Answers -A method of allocating the cost of a tangible asset over
its useful life. Businesses depreciate long-term assets for both tax and accounting
purposes.
,Straight-Line Deprecation - Correct Answers -Straight Line Depreciation - (estimated
value/useful life)
Equal amounts of depreciation expense are recorded in each period of the useful life of
the asset, if not disposed of prior to the end of estimated useful life.
The value is divided among estimated life of item.
Double Declining Balance Depreciation - Correct Answers -Double Declining Balance
An "accelerated" depreciation method (more expense is recorded in the early periods of
useful life and less in the later periods.)
Basic Inventory Equation for Goods - Correct Answers -Beginning Inventory +
Purchases = Goods
Basic Inventory Equation for Cost of Goods Sold (COGS) - Correct Answers -Goods
Available for Sale - Ending Inventory = Cost of Goods Sold (COGS)
Contract - Correct Answers -An agreement between two or more persons to do, or to
refrain from doing something in exchange for something of value.
Key Elements of a Binding Contract - Correct Answers -Competent Parties (not
drugged, mentally impared, etc.), excludes Minors (must be 18), Consideration (each
side must contribute something of value), and Mutual Assent (each side must be clear -
write it down).
Uniform Commercial Code (UCC) - Correct Answers -One uniform act that has been
promulgated in attempts to harmonize the law of sales and other commercial
transactions in all 50 states.
It covers things such as sale of goods, credit, and bank transactions. All states have
adopted the entire UCC except Louisiana that only adopted parts of it.
Forward Integration - Correct Answers -A vertical integration strategy that involves entry
into value chain system activities closer to the end user (distribution chain focused).
Backward Integration - Correct Answers -A vertical integration strategy that involves
entry into activities previously performed by suppliers or other enterprises positioned
along earlier stages of the industry value chain system (supply chain focused).
Basic Inventory Equation for Ending Inventory - Correct Answers -Beginning Inventory +
Purchases = Goods Available for Sale - Cost of Goods Sold (COGS) = ending inventory
Periodic Inventory Accounting - Correct Answers -No transactions are recorded in the
inventory account until the end of the accounting period. Merchandise purchases are
recorded in a purchases account.
, Inventory is counted and costed at the end of each accounting period. The inventory
account beginning balance is adjusted to physical inventory amount and the difference
is added to or subtracted from periodic Cost of Goods Sold.
Perpetual Inventory Accounting - Correct Answers -Merchandise purchases are added
to the inventory account when the merchandise is received.
Cost of Goods Sold is computed and subtracted from the inventory account as sales are
recorded.
FIFO (Inventory) - Correct Answers -Inventory Oldest items inventory are sold first .
(Example: Fruit)
LIFO (Inventory) - Correct Answers -Most recent items added to inventory are sold first.
(Example: Ore from Mining)
Average Cost (Inventory) - Correct Answers -Ending inventory units are costed using an
average cost of goods available divided by the units available for sale. (Example: Rope)
Specific Identification (Inventory) - Correct Answers -Inventory items are tagged with
their cost. (Example: automobiles)
Generally Accepted Accounting Principles (GAAP) - Correct Answers -A framework of
accounting standards, rules and procedures defined by the professional accounting
industry, which has been adopted by nearly all publicly traded U.S. companies.
Securities Act of 1935 - Correct Answers -Established the SEC Securities and
Exchange Commission with the explicit authority to establish the rules, standards, and
procedures used to account for transactions and events. Also to establish the form and
content of published financial reporting.
Management Accounting - Correct Answers -Concerned with identification,
measurement, accumulation, analysis, preparation, interpretation, and communication
of financial information used my management to plan and evaluate and control within an
organization to assure appropriate use of and accountability of resources.
Cost Accounting - Correct Answers -Concerned only with the cost of a product or
service.
Product Costs - Correct Answers -Cost of the various products manufactured and sold
by a company. (Examples: Inventory Costs or Cost of Prodcution
Period Cost - Correct Answers -ll costs incurred by a company that are not considered
product costs. (Examples: Administration Expenses or Selling Expenses)
complete solutions
Balance Sheet - Correct Answers -Attempts to describe the financial condition of the
firm at a point in time.
Includes: Assets, Liabilities, & Equity - "net assets" what remains after deducting
liabilities from assets..
Income Statement - Correct Answers -Presents the results of the operations of an entity
over a peroid of time.
Includes: Revenues, Expenses, Income, Gains & Losses
Statement of Equity or Statement of Retained Earnings (Capital) - Correct Answers -
Bridges the gap between the income statement and the balance sheet.
Arrangement depends on type of organization:
Proprietorship: Statement of Owners Equity
Partnership: Statement of Partners Equity
Corporation: Statement of Stockholders Equity
In addition, it contains: Investments by Owners and Distribution to owners
Statement of Cash Flows - Correct Answers -Provides information about a company's
cash receipts and cash payments during a specific period of time.
Includes all 10 elements of financial statements: assets, liabilities, equity, net income,
income, gains, losses, Statement of 'X' Equity, Investments by Owners, Distributions to
Owners.
Cash Basis Accounting - Correct Answers -Revenue is recognized in the accounting
period in which the associated cash is received and Expenses are recognized in the
accounting period that the cash is paid.
Accrual Basis Accounting - Correct Answers -Revenue is recognized in the accounting
period in which the revenue is earned, regardless of when the associated revenue is
received. (Recorded when the sale is made, not when it is paid for.)
Depreciation - Correct Answers -A method of allocating the cost of a tangible asset over
its useful life. Businesses depreciate long-term assets for both tax and accounting
purposes.
,Straight-Line Deprecation - Correct Answers -Straight Line Depreciation - (estimated
value/useful life)
Equal amounts of depreciation expense are recorded in each period of the useful life of
the asset, if not disposed of prior to the end of estimated useful life.
The value is divided among estimated life of item.
Double Declining Balance Depreciation - Correct Answers -Double Declining Balance
An "accelerated" depreciation method (more expense is recorded in the early periods of
useful life and less in the later periods.)
Basic Inventory Equation for Goods - Correct Answers -Beginning Inventory +
Purchases = Goods
Basic Inventory Equation for Cost of Goods Sold (COGS) - Correct Answers -Goods
Available for Sale - Ending Inventory = Cost of Goods Sold (COGS)
Contract - Correct Answers -An agreement between two or more persons to do, or to
refrain from doing something in exchange for something of value.
Key Elements of a Binding Contract - Correct Answers -Competent Parties (not
drugged, mentally impared, etc.), excludes Minors (must be 18), Consideration (each
side must contribute something of value), and Mutual Assent (each side must be clear -
write it down).
Uniform Commercial Code (UCC) - Correct Answers -One uniform act that has been
promulgated in attempts to harmonize the law of sales and other commercial
transactions in all 50 states.
It covers things such as sale of goods, credit, and bank transactions. All states have
adopted the entire UCC except Louisiana that only adopted parts of it.
Forward Integration - Correct Answers -A vertical integration strategy that involves entry
into value chain system activities closer to the end user (distribution chain focused).
Backward Integration - Correct Answers -A vertical integration strategy that involves
entry into activities previously performed by suppliers or other enterprises positioned
along earlier stages of the industry value chain system (supply chain focused).
Basic Inventory Equation for Ending Inventory - Correct Answers -Beginning Inventory +
Purchases = Goods Available for Sale - Cost of Goods Sold (COGS) = ending inventory
Periodic Inventory Accounting - Correct Answers -No transactions are recorded in the
inventory account until the end of the accounting period. Merchandise purchases are
recorded in a purchases account.
, Inventory is counted and costed at the end of each accounting period. The inventory
account beginning balance is adjusted to physical inventory amount and the difference
is added to or subtracted from periodic Cost of Goods Sold.
Perpetual Inventory Accounting - Correct Answers -Merchandise purchases are added
to the inventory account when the merchandise is received.
Cost of Goods Sold is computed and subtracted from the inventory account as sales are
recorded.
FIFO (Inventory) - Correct Answers -Inventory Oldest items inventory are sold first .
(Example: Fruit)
LIFO (Inventory) - Correct Answers -Most recent items added to inventory are sold first.
(Example: Ore from Mining)
Average Cost (Inventory) - Correct Answers -Ending inventory units are costed using an
average cost of goods available divided by the units available for sale. (Example: Rope)
Specific Identification (Inventory) - Correct Answers -Inventory items are tagged with
their cost. (Example: automobiles)
Generally Accepted Accounting Principles (GAAP) - Correct Answers -A framework of
accounting standards, rules and procedures defined by the professional accounting
industry, which has been adopted by nearly all publicly traded U.S. companies.
Securities Act of 1935 - Correct Answers -Established the SEC Securities and
Exchange Commission with the explicit authority to establish the rules, standards, and
procedures used to account for transactions and events. Also to establish the form and
content of published financial reporting.
Management Accounting - Correct Answers -Concerned with identification,
measurement, accumulation, analysis, preparation, interpretation, and communication
of financial information used my management to plan and evaluate and control within an
organization to assure appropriate use of and accountability of resources.
Cost Accounting - Correct Answers -Concerned only with the cost of a product or
service.
Product Costs - Correct Answers -Cost of the various products manufactured and sold
by a company. (Examples: Inventory Costs or Cost of Prodcution
Period Cost - Correct Answers -ll costs incurred by a company that are not considered
product costs. (Examples: Administration Expenses or Selling Expenses)
