Accounting Principles – 1 exam questions with verified correct answers

What is the accounting Cycle? Analyzing, recording, classifying, summarizing, and reporting External Users of accounting info: Investors, Lenders, very strict regulation Internal users of accounting info: Management, not as strict Balance Sheet Reports financial information at a given moment in time. Mimics the accounting equation. A=L+OE Income Statement Reports financial activity for a given time period Statement of cash flows Tells reviewer of info where the assets came from What is a CPA? Certified Public Accountant. How do you become a CPA? You must either have 150 hours in credit, or have a masters in accounting. Big 4 in accounting: 1. PWC 2. Deloitte 3. Ernstons Young 4. KPMG What is debit and credit? Debit left, Credit Right Revenue vs. Equity Revenue increase equity, expenses decrease equity What does Ownsers Equity include? Common stock, Paid in Capital (capital surplus), Retained Earnings Treasury stock is stock that a company buys back that negatively effects OE. Gross Profit Component of an income statement of a company that makes sales. EPS Net Income/Number of Shares Outstanding Statement of Retained Earnings Report that shows the changes in retained earnings during a period of time. What is responsible for the financial statements? Management is responsible for the financial statements What is sampling? When the auditor checks certain financial statements, or physically inspects supposed assets. Internal Control Company should have a strong internal control. The stronger the internal control, the easier it is to perform an audit. Unqualified Opinion Says that they have audited and are sure that financial statements are accurate. They basically are giving their seal of approval that everything checks out. Separate Entity Businesses must have records that are separate from the records of the owners. Historical Cost Items are valued at the purchase price Going Concern Assumption that the business will continue to operate Matching Principle Debits must equal credit. Conservatism Don't be unreasonably optimistic. Be more conservative. What does a T account do? It represents an individual account. What is a temporary account? Exemplified by expenses and revenues. Shut down and transferred to Retained Earnings. What is Accounting? A system for providing quantitative, financial information about economic entities that is useful for making sound economic deci- sions. Accounting provides the means of recording and communicating business activities and the results of those activities. FASB Federal Accounting Standards Board Mission of FASB is to establish and improve the standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors, and users of financial info. IASB International Accounting Standards Board AICPA American Institute of Certified Public Accountants - its the government body; requires continuing education; give the CPA exam Classified and Comparative Assets and liabilities are subdivided into current and long term. Comparative checks two or more years of data. Side by Side. What order is the Balance Sheet in? Order of liquidity. What are the three categories of cash flows? 1. Cash flows from Operating Activities 2. Cash flows from Investing Activities 3. Cash flows from Financing Activities T accounts in academia Assets: increased with debit Liabilities: increased with credit Equity: increased with credit Revenue: increased with credit Expenses: increased with debit Cash is King Cash is a debit, work your way on from there What is Posting? Transferring entries in the general journal to individual accounts. What is the Ledger? Where all the documents are maintained. What is the trial balance? It's adding up all of the accounts to make sure that the debits equal the credits. What is the process for adjusting entries? 1. Always made on the last day of fiscal period. 2. NEVER involve cash. Unrecorded Receivables Revenues earned during a period that have n