Accounting Equations Test Questions And Answers

Accounting Equations Test Questions And Answers Account - ANSWER- an accounting device used in summarizing the effects of transactions (increases/ decreases) on element of the financial statement. Chart of Accounts - ANSWER- a listing of all account titles used by an entity. Purpose of the Financial Statements? - ANSWER- to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions. Statement of Financial Position - ANSWER- summary statement of the firm's financial position at a given point in time. Income Statement (Statement of Financial Performance) - ANSWER- provides a financial summary of the firm's operating results during a specified period of time. Statement of Changes in Equity - ANSWER- show's all equity account transactions that occurred during a given period of time. Statement of Cash Flows - ANSWER- provides a summary of the firm's operating, investing and financing cash flows and reconciles them with changes in its cash and cash equivalent during a period of time. Notes to Financial Statements - ANSWER- explanatory notes keyed to relevant accounts in the statements; they provide detailed information on the accounting policies, procedures, calculations, and transactions underlying entries in the financial statements. Asset - ANSWER- A present economic resource controlled by the entity as a result of past events. Liability - ANSWER- A present obligation of the entity to transfer an economic resource as a result of past events. Equity - ANSWER- The residual interest in the assets of the entity after deducting all its liabilities. Income - ANSWER- Increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims. Expenses - ANSWER- Decreases in assets, or increases in liabilities, that result in decreases in equity, other than those relating to distributions to holders of equity claims. normal operating cycle - ANSWER- time between the acquisition of assets for processing and their realization in cash or cash equivalents. Cash - ANSWER- money which is available for immediately use in current operations such as for payment of operating expenses, for payment of current liability or for acquisition of current asset. (bills, coins, checks, money orders, bank drafts) Cash Equivalent - ANSWER- are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Investment in Trading Securities (Short-term Investments or Marketable Securities) - ANSWER- represents short-term ownership in shares or bonds of other corporations. Accounts Receivable - ANSWER- amounts owed to the entity by charge account customers. It represents the entity's oral right to receive payment. Allowance for Doubtful Accounts - ANSWER- amount estimated to be uncollectible on accounts receivable. (contra account) Notes Receivable - ANSWER- amounts collectible in the near future from customers which is based on a formal, written promise to pay at a specified date in the future. Advances to Employees - ANSWER- cash given to employees which are to be liquidated upon completion of a certain activity for which the advance was requested. Accrued Income - ANSWER- income already earned but not yet received. (e.g. Interest Receivable) Merchandise Inventory - ANSWER- goods for sale in the ordinary course of business. (applicable for merchandising and manufacturing business). Prepaid Expenses - ANSWER- represents certain assets that are to be used or consumed in operations (e.g. Supplies, Rent, Insurance, Advertising) Property, Plant and Equipment - ANSWER- are tangible items that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes and are expected to be used during more than one period. (e.g. Land, Building Machinery and Equipment, Furniture and Fixtures). Accumulated Depreciation - ANSWER- aggregate periodic costs of using a depreciable property. (contra asset) Investment Property - ANSWER- property (land or a building—or part of a building—or both) held (by the owner or by the lessee as a right-of-use asset) to earn rentals or for capital appreciation or both. Intangible Asset - ANSWER- identifiable non-monetary asset without physical substance. (e.g. Goodwill, Copyright, Patent, Trademark, Franchise) Long-term Investments - ANSWER- represents long-term ownership in shares or bonds of other corporations. Other Assets - ANSWER- assets that are not classified under the asset accounts mentioned above. Accounts Payable - ANSWER- amounts owed by the entity to its suppliers. It represents the entity's oral promise to pay a certain amount. Notes Payable - ANSWER- amounts owed/due to the creditors of the company that is evidenced by a written promise to pay. Accrued Expenses - ANSWER- expenses already incurred but not yet paid. (e.g. Salaries Payable, Utilities Payable, Interest Payable, Taxes Payable) Unearned Income/Advances from Customers - ANSWER- amounts received by an entity representing services to be rendered or goods to be delivered in the future. Provision/Estimated Liability - ANSWER- a liability of uncertain timing or amount (e.g. litigation, warranty) Loans Payable - ANSWER- is a liability to pay a bank or a financing institution for the amount of money borrowed by the business. Mortgage Payable - ANSWER- account used for the unpaid cost of real properties (like land and building) and is secured by such properties of the entity. Bonds Payable - ANSWER- long-term promise (usually from five to ten or twenty years) issued by corporations that are supported by a formal contract containing the face value of the bond, the interest rate, the interest payment date and the maturity date. Revenue - ANSWER- arises in the course of ordinary regular activities of an entity (entity's principal line of activity) Other income/gains - ANSWER- represents the revenue and gains from peripheral or incidental transactions of the entity Interest Income - ANSWER- derived by a payee from lending a principal amount of money or income earned from money deposited in a bank