FAC 1502 FINANCIAL ACCOUNTING ELEMENTARY CALCULATIONS UPDATED ACTUAL
EXAM QUESTIONS CORRECT ANSWERS GRADED A PLUS
Question:
● Accounting Equation
Answer:
Assets = Liabilities + Owners' Equity. This equation is fundamental and must always be true in
double entry accounting.
Question:
● Accounting Period
Answer:
The period of time for which the financial results are reported; typically either a month or a quarter
or a year.
Question:
● Accounts Payable
Answer:
Liability account used to show the obligation to pay suppliers who have provided goods or services
on credit terms.
Question:
● Accounts Payable Turnover
Answer:
Accounts Payable Turnover is a ratio that is used to measure how efficiently a business is paying its
vendors. It is calculated by dividing the credit purchases for the period by the average accounts
payable balance for the period. In the absence of credit purchases information, we may use cost of
,goods sold as a substitute. The ratio represents how many times the accounts payable turned over
during the period. For most ratios in this course, we use averages when calculating ratios with
balance sheet numbers, but this is not necessary and some may choose to use beginning or ending
balances.
Question:
● Accounts Receivable
Answer:
Asset account used to show the claim to receive cash at some future date for goods or services that
have been supplied to a customer on credit terms.
Question:
● Accounts Receivable Turnover
Answer:
Accounts Receivable Turnover is a ratio that is used to measure how efficiently a business is
collecting receivables from its customers. It is calculated by dividing the credit sales for the period
by the average accounts receivable balance for the period. In the absence of credit sales information,
we may use total sales as a substitute. The ratio represents how many times the accounts receivable
turned over during the period. For most ratios in this course, we use averages when calculating
ratios with balance sheet numbers, but this is not necessary and some may choose to use beginning
or ending balances.
Question:
● Accrual
Answer:
A revenue amount that is recorded after the revenue is earned but before the payment is received or
an expense amount that is recorded after it has been incurred but before the payment has been made.
In either case, for an accrual the exchange of cash is expected at some future point after the initial
revenue or expense is recognized.
Question:
,● Accrual Accounting Method
Answer:
This is the accounting method taught in this course, followed by most companies, and required
under US GAAP and IFRS. The method follows the revenue recognition principle, which says that
revenue should be recognized in the period in which it is earned and realizable, not necessarily when
the cash is received and the matching principle which says that expenses should be recognized in the
period in which the related revenue is recognized rather than when the related cash is paid.
Question:
● Accrued Expenses
Answer:
Liability account used to record amounts at the end of an accounting period to recognize expenses
that were incurred in the period but for which no invoice has yet been received nor payment has yet
been made. Examples are salaries/wages payable, accrued rent expense, accrued legal fees. When
the accrual is made, the debit is to the appropriate expense account (payroll expense, rent expense,
legal expense) and the credit is to the accrued expense account, which is a liability because it
represents an obligation which will need to be paid in the future. Remember accrued expenses are
NOT expenses.
Question:
● Accrued Liability
Answer:
Liability accounts that record expenses that have been recognized on the income statement but have
not yet been paid. Similar to accrued expenses.
Question:
● Accrued Payroll
Answer:
An accrued expense recorded at the end of a financial period for amounts of payroll that have been
worked but not yet paid. It is a common type of accrued expense. See also Salaries/Wages Payable.
, Question:
● Accrued Revenue
Answer:
An asset account that records revenue that has been earned and recognized on the income statement
but not yet paid for by the customer. At the time of the accrual, we debit the receivable account and
credit the appropriate accrued revenue account. When the cash transfer ultimately occurs, we debit
the cash account and credit the receivable account.
Question:
● Accumulated Depreciation
Answer:
A contra asset account that includes the cumulative total of all depreciation expenses recorded to
date for specific assets. The credit balance in this account offsets the debit balance in the asset
account which shows the original value of the asset. When the original asset value is netted against
the accumulated depreciation for the asset you arrive at the net book value of the asset.
Question:
● Accumulated other comprehensive income
Answer:
An equity account that consists of cumulative unrealized gains or losses on line items classified
under other comprehensive income. It includes items such as unrealized gains or losses on
investments available for sale, foreign currency gains or losses, and pension plan gains or losses.
Question:
● Adjusting (Journal) Entries
Answer:
Entries made to adjust the balances of asset and liability accounts to reflect changes in their values
due to the passage of time or another implicit transaction.
Question:
EXAM QUESTIONS CORRECT ANSWERS GRADED A PLUS
Question:
● Accounting Equation
Answer:
Assets = Liabilities + Owners' Equity. This equation is fundamental and must always be true in
double entry accounting.
Question:
● Accounting Period
Answer:
The period of time for which the financial results are reported; typically either a month or a quarter
or a year.
Question:
● Accounts Payable
Answer:
Liability account used to show the obligation to pay suppliers who have provided goods or services
on credit terms.
Question:
● Accounts Payable Turnover
Answer:
Accounts Payable Turnover is a ratio that is used to measure how efficiently a business is paying its
vendors. It is calculated by dividing the credit purchases for the period by the average accounts
payable balance for the period. In the absence of credit purchases information, we may use cost of
,goods sold as a substitute. The ratio represents how many times the accounts payable turned over
during the period. For most ratios in this course, we use averages when calculating ratios with
balance sheet numbers, but this is not necessary and some may choose to use beginning or ending
balances.
Question:
● Accounts Receivable
Answer:
Asset account used to show the claim to receive cash at some future date for goods or services that
have been supplied to a customer on credit terms.
Question:
● Accounts Receivable Turnover
Answer:
Accounts Receivable Turnover is a ratio that is used to measure how efficiently a business is
collecting receivables from its customers. It is calculated by dividing the credit sales for the period
by the average accounts receivable balance for the period. In the absence of credit sales information,
we may use total sales as a substitute. The ratio represents how many times the accounts receivable
turned over during the period. For most ratios in this course, we use averages when calculating
ratios with balance sheet numbers, but this is not necessary and some may choose to use beginning
or ending balances.
Question:
● Accrual
Answer:
A revenue amount that is recorded after the revenue is earned but before the payment is received or
an expense amount that is recorded after it has been incurred but before the payment has been made.
In either case, for an accrual the exchange of cash is expected at some future point after the initial
revenue or expense is recognized.
Question:
,● Accrual Accounting Method
Answer:
This is the accounting method taught in this course, followed by most companies, and required
under US GAAP and IFRS. The method follows the revenue recognition principle, which says that
revenue should be recognized in the period in which it is earned and realizable, not necessarily when
the cash is received and the matching principle which says that expenses should be recognized in the
period in which the related revenue is recognized rather than when the related cash is paid.
Question:
● Accrued Expenses
Answer:
Liability account used to record amounts at the end of an accounting period to recognize expenses
that were incurred in the period but for which no invoice has yet been received nor payment has yet
been made. Examples are salaries/wages payable, accrued rent expense, accrued legal fees. When
the accrual is made, the debit is to the appropriate expense account (payroll expense, rent expense,
legal expense) and the credit is to the accrued expense account, which is a liability because it
represents an obligation which will need to be paid in the future. Remember accrued expenses are
NOT expenses.
Question:
● Accrued Liability
Answer:
Liability accounts that record expenses that have been recognized on the income statement but have
not yet been paid. Similar to accrued expenses.
Question:
● Accrued Payroll
Answer:
An accrued expense recorded at the end of a financial period for amounts of payroll that have been
worked but not yet paid. It is a common type of accrued expense. See also Salaries/Wages Payable.
, Question:
● Accrued Revenue
Answer:
An asset account that records revenue that has been earned and recognized on the income statement
but not yet paid for by the customer. At the time of the accrual, we debit the receivable account and
credit the appropriate accrued revenue account. When the cash transfer ultimately occurs, we debit
the cash account and credit the receivable account.
Question:
● Accumulated Depreciation
Answer:
A contra asset account that includes the cumulative total of all depreciation expenses recorded to
date for specific assets. The credit balance in this account offsets the debit balance in the asset
account which shows the original value of the asset. When the original asset value is netted against
the accumulated depreciation for the asset you arrive at the net book value of the asset.
Question:
● Accumulated other comprehensive income
Answer:
An equity account that consists of cumulative unrealized gains or losses on line items classified
under other comprehensive income. It includes items such as unrealized gains or losses on
investments available for sale, foreign currency gains or losses, and pension plan gains or losses.
Question:
● Adjusting (Journal) Entries
Answer:
Entries made to adjust the balances of asset and liability accounts to reflect changes in their values
due to the passage of time or another implicit transaction.
Question:
