Principles of Accounting Exam #1 Ch 1-4 || Questions & Answers (100% Correct)

Principles of Accounting Exam #1 Ch 1-4 || Questions & Answers (100% Correct) Principles of Accounting Exam #1 Ch 1-4 || Questions & Answers (100% Correct) What is the definition of GAAP? - ANSWER - Accounting guidelines are called GAAP. Generally Accepted Accounting Principles. They are authoritative standards that aim to improve faithful representation. GAAP - ANSWER - Generally Accepted Accounting Principles. Accounting guidelines, currently formulated by the Financial Accounting Standards Board (FASB); the main U.S. accounting rule book. The owner of a business purchased something for his daughter, who does not work for company. Which accounting concepts or principles would this violate? - ANSWER - Economic Entity The owner of a business purchased a building and paid a specific amount. They believe that the value of the building is a different amount after talking with their realtor. In their books, they list the price they believe the building is worth, rather than what they actually paid. Which accounting concept or principle does this violate? - ANSWER - The cost principle What is the accounting equation? - ANSWER - Assets = Liabilities + Equity What are the categories of economic resources? - ANSWER - Assets- expected to benefit the business in the future Liabilities- debts that are owed to creditors (payable) Equity- The owner's claims to the assets of the business (the 2 components are contributed capital/common stock and retained earnings) Define what a debt is. The debt that a business owes is ______ - ANSWER - liabilities Define retained earnings - ANSWER - equity earned from profitable operations that is not distributed to shareholders What order MUST the financial statements be prepared in? - ANSWER - First- Income Statement Second- Statement of Retained Earnings Third- Balance Sheet Fourth- Statement of Cash Flows Sunlight Company has assets and equity that amount to $280,000 and $80,000, respectively. Liabilities total ________. - ANSWER - $200,000 Explanation: Liabilities = Assets - Equity Liabilities = 280,000 - 80,000 = 200,000 Gatto Production Services started the year with total assets of $110,000 and total liabilities of $50,000. The revenues and the expenses for the year amounted to $130,000 and $70,000, respectively. During the year, the company did not issue any common stock, but it distributed dividends of $60,000. Calculate Gatto's net income for the year. - ANSWER - $60,000 Explanation: Net income = Revenues - Expenses Net income = $130,000 - $70,000 = $60,000