PRAXIS 5105 EXAM QUESTIONS AND
ANSWERS 100% VERIFIED
Steps in the Accounting Cycle:
Identify Transactions - ANSWER Recognize financial transactions that need to be
recorded.
Example: A sale, purchase, or expense.
Steps in the Accounting Cycle:
Record Transactions in the Journal - ANSWER Use double-entry accounting to record
transactions in the general journal.
Format: Debit and credit entries.
Steps in the Accounting Cycle:
Post to the Ledger - ANSWER Transfer journal entries to the general ledger, which
categorizes transactions by account.
Steps in the Accounting Cycle:
Prepare an Unadjusted Trial Balance - ANSWER Summarize all ledger accounts to
check for errors (debits must equal credits).
Steps in the Accounting Cycle:
Adjust Entries - ANSWER Make adjustments for accruals, deferrals, and other
necessary corrections.
Example: Depreciation, prepaid expenses, or accrued revenues.
,Steps in the Accounting Cycle:
Prepare an Adjusted Trial Balance - ANSWER Ensure accuracy of accounts after
adjustments.
Steps in the Accounting Cycle:
Create Financial Statements - ANSWER Generate the income statement, balance sheet,
statement of retained earnings, and cash flow statement.
Steps in the Accounting Cycle:
Close Temporary Accounts - ANSWER Close revenue, expense, and dividend accounts
to retained earnings.
Steps in the Accounting Cycle:
Prepare a Post-Closing Trial Balance - ANSWER Confirm that only permanent accounts
remain open for the next period.
Income Statement Purpose/Usage - ANSWER Purpose: Shows profitability over a
specific period.
Usage: Evaluate operational performance and profitability.
Income Statement Key Elements - ANSWER Revenue: Sales revenue from selling
products or services.
Expenses: Rent, utilities, salaries, and cost of goods sold (COGS).
Net Income (Revenue - Expenses): If revenue is $100,000 and expenses are $70,000, the
net income is $30,000.
Balance Sheet Purpose/Usage - ANSWER Purpose: Displays the company's financial
position at a specific point in time.
Usage: Assess liquidity, solvency, and financial stability.
, Balance Sheet Key Elements - ANSWER Assets (e.g., cash, inventory, property): Cash in
a bank account, office equipment worth $5,000.
Liabilities (e.g., loans, accounts payable): A $20,000 bank loan or $5,000 owed to
suppliers.
Equity (e.g., retained earnings, capital stock): Retained earnings of $10,000 and capital
stock of $50,000.
Statement of Retained Earnings Purpose/Usage - ANSWER Purpose: Shows changes in
retained earnings during a period.
Usage: Understand how profits are reinvested in the business.
Statement of Retained Earnings Key Elements - ANSWER Beginning Retained Earnings:
Starting balance of $15,000.
Net Income: Profit of $30,000 during the period.
Dividends: $5,000 paid to shareholders.
Cash Flow Statement Purpose/Usage - ANSWER Purpose: Tracks cash inflows and
outflows in operating, investing, and financing activities.
Usage: Monitor liquidity and cash management.
Cash Flow Statement Key Elements - ANSWER Operating Activities: Cash received from
customers, cash paid for inventory.
Investing Activities: Purchase of equipment for $10,000, sale of old machinery for
$3,000.
Financing Activities: Issuance of shares worth $50,000, repayment of a $10,000 loan.
Commercial Banks - ANSWER Functions: Accept deposits, offer loans, provide
checking/savings accounts, and facilitate payments.
Credit Unions - ANSWER Functions: Member-owned institutions that provide similar
ANSWERS 100% VERIFIED
Steps in the Accounting Cycle:
Identify Transactions - ANSWER Recognize financial transactions that need to be
recorded.
Example: A sale, purchase, or expense.
Steps in the Accounting Cycle:
Record Transactions in the Journal - ANSWER Use double-entry accounting to record
transactions in the general journal.
Format: Debit and credit entries.
Steps in the Accounting Cycle:
Post to the Ledger - ANSWER Transfer journal entries to the general ledger, which
categorizes transactions by account.
Steps in the Accounting Cycle:
Prepare an Unadjusted Trial Balance - ANSWER Summarize all ledger accounts to
check for errors (debits must equal credits).
Steps in the Accounting Cycle:
Adjust Entries - ANSWER Make adjustments for accruals, deferrals, and other
necessary corrections.
Example: Depreciation, prepaid expenses, or accrued revenues.
,Steps in the Accounting Cycle:
Prepare an Adjusted Trial Balance - ANSWER Ensure accuracy of accounts after
adjustments.
Steps in the Accounting Cycle:
Create Financial Statements - ANSWER Generate the income statement, balance sheet,
statement of retained earnings, and cash flow statement.
Steps in the Accounting Cycle:
Close Temporary Accounts - ANSWER Close revenue, expense, and dividend accounts
to retained earnings.
Steps in the Accounting Cycle:
Prepare a Post-Closing Trial Balance - ANSWER Confirm that only permanent accounts
remain open for the next period.
Income Statement Purpose/Usage - ANSWER Purpose: Shows profitability over a
specific period.
Usage: Evaluate operational performance and profitability.
Income Statement Key Elements - ANSWER Revenue: Sales revenue from selling
products or services.
Expenses: Rent, utilities, salaries, and cost of goods sold (COGS).
Net Income (Revenue - Expenses): If revenue is $100,000 and expenses are $70,000, the
net income is $30,000.
Balance Sheet Purpose/Usage - ANSWER Purpose: Displays the company's financial
position at a specific point in time.
Usage: Assess liquidity, solvency, and financial stability.
, Balance Sheet Key Elements - ANSWER Assets (e.g., cash, inventory, property): Cash in
a bank account, office equipment worth $5,000.
Liabilities (e.g., loans, accounts payable): A $20,000 bank loan or $5,000 owed to
suppliers.
Equity (e.g., retained earnings, capital stock): Retained earnings of $10,000 and capital
stock of $50,000.
Statement of Retained Earnings Purpose/Usage - ANSWER Purpose: Shows changes in
retained earnings during a period.
Usage: Understand how profits are reinvested in the business.
Statement of Retained Earnings Key Elements - ANSWER Beginning Retained Earnings:
Starting balance of $15,000.
Net Income: Profit of $30,000 during the period.
Dividends: $5,000 paid to shareholders.
Cash Flow Statement Purpose/Usage - ANSWER Purpose: Tracks cash inflows and
outflows in operating, investing, and financing activities.
Usage: Monitor liquidity and cash management.
Cash Flow Statement Key Elements - ANSWER Operating Activities: Cash received from
customers, cash paid for inventory.
Investing Activities: Purchase of equipment for $10,000, sale of old machinery for
$3,000.
Financing Activities: Issuance of shares worth $50,000, repayment of a $10,000 loan.
Commercial Banks - ANSWER Functions: Accept deposits, offer loans, provide
checking/savings accounts, and facilitate payments.
Credit Unions - ANSWER Functions: Member-owned institutions that provide similar
