Principles of Accounting Exam 1|| Latest Update
Principles of Accounting Exam 1
Financial Accounting - ANS-the system of processing financial data for a company with
the purpose of producing a set of financial statements which investors and creditors can
use to make financial decisions.
Financial Statements - ANS-relatively short reports that disclose information about
various aspects of a company (including the balance sheet, income statement, cash
flow statement and statement of retained earnings)
Balance Sheet (include purpose in definition) - ANS-a report which portrays the financial
position of a company as of a particular point in time by listing both all of a company's
assets and liabilities at a particular point in time and showing the difference between the
two as owners' equity.
Step 7: Classify!
Asset - ANS-anything of value owned by a company.
Liability - ANS-any obligation of a company to either pay out assets or perform services
in the future.
Owners' Equity - ANS-residual ownership of a company's assets (that is, after factoring
out the company's liabilities)
B/S: common stock
residual earnings
Income Statement (include purpose in definition) - ANS-a report which measures a
company's performance over a specified period of time.
Step 7: Enhance predictive capacity!
Accrual Accounting - ANS-the method chosen in financial accounting by which a
company's performance is measured by first recognizing revenue for the value of goods
sold or services performed followed by matching against the revenues all of the costs
incurred in producing the revenues.
Revenue - ANS-the value of goods sold or services performed during a given time
period.
Expense - ANS-the cost of goods sold or services performed during a given time period.
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, Principles of Accounting Exam 1|| Latest Update
Accounting Cycle - ANS-a series of bookkeeping steps undertaken to produce a
balance sheet and income statement for a given company
Transaction - ANS-any (1)economic event that is both (2)external and (3)reasonably
quantifiable.
General Journal - ANS-the place of original entry for all transactions, adjusting entries
and closing entries.
Posting - ANS-the step in the accounting cycle in which debits/credits in journal entries
are transferred to applicable account ledgers
Ledger - ANS-a file used to keep track of the balance of each of a company's active
accounts.
Unadjusted Trial Balance - ANS-a list of a company's active accounts as of the end of
the accounting period based upon all transactions that were recorded and posted during
the accounting period (not intended as a complete list of accounts)
Periodic versus Perpetual Approaches - ANS-a perpetual approach involves updating
an account immediately every time it's balance changes (such as Cash) whereas a
periodic approach involves letting accounts "slide" as it were during the period and
adjusting them to their correct balances only as of the end of the accounting period.
Importantly, note that the only justification for using a periodic approach is to save
money.
Adjusting Entries - ANS-year-end journal entries made to correct accounts on the
unadjusted trial balance that are not yet where they should be as of the end of the
accounting period (because of the use of a periodic approach to account for the
accounts).
Prepaid Expense - ANS-an asset representing items paid for prior to their use in
producing revenues.
Unearned Revenue - ANS-a liability resulting from a company having been paid in
advance of the performance of services.
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Principles of Accounting Exam 1
Financial Accounting - ANS-the system of processing financial data for a company with
the purpose of producing a set of financial statements which investors and creditors can
use to make financial decisions.
Financial Statements - ANS-relatively short reports that disclose information about
various aspects of a company (including the balance sheet, income statement, cash
flow statement and statement of retained earnings)
Balance Sheet (include purpose in definition) - ANS-a report which portrays the financial
position of a company as of a particular point in time by listing both all of a company's
assets and liabilities at a particular point in time and showing the difference between the
two as owners' equity.
Step 7: Classify!
Asset - ANS-anything of value owned by a company.
Liability - ANS-any obligation of a company to either pay out assets or perform services
in the future.
Owners' Equity - ANS-residual ownership of a company's assets (that is, after factoring
out the company's liabilities)
B/S: common stock
residual earnings
Income Statement (include purpose in definition) - ANS-a report which measures a
company's performance over a specified period of time.
Step 7: Enhance predictive capacity!
Accrual Accounting - ANS-the method chosen in financial accounting by which a
company's performance is measured by first recognizing revenue for the value of goods
sold or services performed followed by matching against the revenues all of the costs
incurred in producing the revenues.
Revenue - ANS-the value of goods sold or services performed during a given time
period.
Expense - ANS-the cost of goods sold or services performed during a given time period.
Page 1
, Principles of Accounting Exam 1|| Latest Update
Accounting Cycle - ANS-a series of bookkeeping steps undertaken to produce a
balance sheet and income statement for a given company
Transaction - ANS-any (1)economic event that is both (2)external and (3)reasonably
quantifiable.
General Journal - ANS-the place of original entry for all transactions, adjusting entries
and closing entries.
Posting - ANS-the step in the accounting cycle in which debits/credits in journal entries
are transferred to applicable account ledgers
Ledger - ANS-a file used to keep track of the balance of each of a company's active
accounts.
Unadjusted Trial Balance - ANS-a list of a company's active accounts as of the end of
the accounting period based upon all transactions that were recorded and posted during
the accounting period (not intended as a complete list of accounts)
Periodic versus Perpetual Approaches - ANS-a perpetual approach involves updating
an account immediately every time it's balance changes (such as Cash) whereas a
periodic approach involves letting accounts "slide" as it were during the period and
adjusting them to their correct balances only as of the end of the accounting period.
Importantly, note that the only justification for using a periodic approach is to save
money.
Adjusting Entries - ANS-year-end journal entries made to correct accounts on the
unadjusted trial balance that are not yet where they should be as of the end of the
accounting period (because of the use of a periodic approach to account for the
accounts).
Prepaid Expense - ANS-an asset representing items paid for prior to their use in
producing revenues.
Unearned Revenue - ANS-a liability resulting from a company having been paid in
advance of the performance of services.
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