BPA FUNDAMENTAL ACCOUNTING QUESTIONS AND
ANSWERS
Assets = - Answers - Liabilities + Owner's Equity
Liabilities = - Answers - Assets - Owner's Equity
Owner's Equity = - Answers - Assets - Liabilities
Business Entity Concept - Answers - must keep personal records separate from
business records
Matching Concept - Answers - must record expenses as they are incurred and revenues
as they are earned
(you're matching your revenues with your expenses)
Going Concern Concept - Answers - assume your business will be in existence in the
future
Historical Cost Concept - Answers - you must record the actual (nominal) amount paid
for items (like supplies and equipment)
GAAP - Answers - Generally Accepted Accounting Principles - keeps accounting rules
consistent between
companies
Sole Proprietorship - Answers - A business that legally has no separate existence from
its owner. Income and losses are taxed on the individual's personal income tax return
Partnership - Answers - arrangement in which two or more individuals share the profits
and liabilities of a business venture
Corporation - Answers - legal entity that is separate and distinct from its owners
Income Statement (1. Financial Statement) - Answers - Revenues - Expenses = Net
Income
(for a specific time period)
TEMPORARY ACCOUNTS
Statement of OE (2. Financial Statement) - Answers - Beginning Capital Balance +
Investments - Withdrawals + Revenues - Expenses
, Balance Sheet (3. Financial Statement) - Answers - Assets = Liabilities + Owner's
Equity (financial position on a particular date)
PERMANENET ACCOUNTS
Statement of Cash Flows (4. Financial Statement) - Answers - 4th in Financial
Statements
Income Statement: Always DOUBLE underline - Answers - Net Income
Balance Sheet: Always DOUBLE underline - Answers - Total Assets
Total Liabilities
Total OE
Statement of Owner's Equity: Always DOUBLE underline - Answers - Ending Capital
ALWAYS ALPHABETIZE (Income Statement) - Answers - EXPENSES ON INCOME
STATEMENT
Assets in order of LIQUIDITY (Balance Sheet) - Answers - CASH
AR
SUPPLIES
EQUIP
LAND
Current Ratio - Answers - Current Assets/Current Liabilities
Working Capital - Answers - Current Assets - Current Liabilities
Quick Ratio - Answers - (Current Assets - Inventory)/Current Liabilities
Net Income Percentage (or Earnings Ratio or Profit Margin) - Answers - Net Income /
Revenues
General Ledger - Answers - Records balances of each account; organized by account
number
Subsidiary Ledgers - Answers - - separates AR and AP functions as well as cash
collection/dispersal
-acts as an internal control to limit the chance of somebody embezzling money from the
company
Subsidiary Ledgers (AR Ledger and AP Ledger) - Answers - used to keep track of WHO
owes you money and WHO you owe money to; just breaks down AR and AP by
individual customers and creditors.
General Journal - Answers - records transactions as they occur, in date order
ANSWERS
Assets = - Answers - Liabilities + Owner's Equity
Liabilities = - Answers - Assets - Owner's Equity
Owner's Equity = - Answers - Assets - Liabilities
Business Entity Concept - Answers - must keep personal records separate from
business records
Matching Concept - Answers - must record expenses as they are incurred and revenues
as they are earned
(you're matching your revenues with your expenses)
Going Concern Concept - Answers - assume your business will be in existence in the
future
Historical Cost Concept - Answers - you must record the actual (nominal) amount paid
for items (like supplies and equipment)
GAAP - Answers - Generally Accepted Accounting Principles - keeps accounting rules
consistent between
companies
Sole Proprietorship - Answers - A business that legally has no separate existence from
its owner. Income and losses are taxed on the individual's personal income tax return
Partnership - Answers - arrangement in which two or more individuals share the profits
and liabilities of a business venture
Corporation - Answers - legal entity that is separate and distinct from its owners
Income Statement (1. Financial Statement) - Answers - Revenues - Expenses = Net
Income
(for a specific time period)
TEMPORARY ACCOUNTS
Statement of OE (2. Financial Statement) - Answers - Beginning Capital Balance +
Investments - Withdrawals + Revenues - Expenses
, Balance Sheet (3. Financial Statement) - Answers - Assets = Liabilities + Owner's
Equity (financial position on a particular date)
PERMANENET ACCOUNTS
Statement of Cash Flows (4. Financial Statement) - Answers - 4th in Financial
Statements
Income Statement: Always DOUBLE underline - Answers - Net Income
Balance Sheet: Always DOUBLE underline - Answers - Total Assets
Total Liabilities
Total OE
Statement of Owner's Equity: Always DOUBLE underline - Answers - Ending Capital
ALWAYS ALPHABETIZE (Income Statement) - Answers - EXPENSES ON INCOME
STATEMENT
Assets in order of LIQUIDITY (Balance Sheet) - Answers - CASH
AR
SUPPLIES
EQUIP
LAND
Current Ratio - Answers - Current Assets/Current Liabilities
Working Capital - Answers - Current Assets - Current Liabilities
Quick Ratio - Answers - (Current Assets - Inventory)/Current Liabilities
Net Income Percentage (or Earnings Ratio or Profit Margin) - Answers - Net Income /
Revenues
General Ledger - Answers - Records balances of each account; organized by account
number
Subsidiary Ledgers - Answers - - separates AR and AP functions as well as cash
collection/dispersal
-acts as an internal control to limit the chance of somebody embezzling money from the
company
Subsidiary Ledgers (AR Ledger and AP Ledger) - Answers - used to keep track of WHO
owes you money and WHO you owe money to; just breaks down AR and AP by
individual customers and creditors.
General Journal - Answers - records transactions as they occur, in date order
