Major Field Test Business Study Set with
complete solutions
Balance Sheet - Answer -Attempts to describe the financial condition of the firm at a
point in time.
Includes: Assets, Liabilities, & Equity - "net assets" what remains after deducting
liabilities from assets..
Income Statement - Answer -Presents the results of the operations of an entity over a
peroid of time.
Includes: Revenues, Expenses, Income, Gains & Losses
Statement of Equity or Statement of Retained Earnings (Capital) - Answer -Bridges the
gap between the income statement and the balance sheet.
Arrangement depends on type of organization:
Proprietorship: Statement of Owners Equity
Partnership: Statement of Partners Equity
Corporation: Statement of Stockholders Equity
In addition, it contains: Investments by Owners and Distribution to owners
Statement of Cash Flows - Answer -Provides information about a company's cash
receipts and cash payments during a specific period of time.
Includes all 10 elements of financial statements: assets, liabilities, equity, net income,
income, gains, losses, Statement of 'X' Equity, Investments by Owners, Distributions to
Owners.
Cash Basis Accounting - Answer -Revenue is recognized in the accounting period in
which the associated cash is received and Expenses are recognized in the accounting
period that the cash is paid.
Accrual Basis Accounting - Answer -Revenue is recognized in the accounting period in
which the revenue is earned, regardless of when the associated revenue is received.
(Recorded when the sale is made, not when it is paid for.)
,Depreciation - Answer -A method of allocating the cost of a tangible asset over its useful
life. Businesses depreciate long-term assets for both tax and accounting purposes.
Straight-Line Deprecation - Answer -Straight Line Depreciation - (estimated value/useful
life)
Equal amounts of depreciation expense are recorded in each period of the useful life of
the asset, if not disposed of prior to the end of estimated useful life.
The value is divided among estimated life of item.
Double Declining Balance Depreciation - Answer -Double Declining Balance
An "accelerated" depreciation method (more expense is recorded in the early periods of
useful life and less in the later periods.)
Basic Inventory Equation for Goods - Answer -Beginning Inventory + Purchases =
Goods
Basic Inventory Equation for Cost of Goods Sold (COGS) - Answer -Goods Available for
Sale - Ending Inventory = Cost of Goods Sold (COGS)
Basic Inventory Equation for Ending Inventory - Answer -Beginning Inventory +
Purchases = Goods Available for Sale - Cost of Goods Sold (COGS) = ending inventory
Periodic Inventory Accounting - Answer -No transactions are recorded in the inventory
account until the end of the accounting period. Merchandise purchases are recorded in
a purchases account.
Inventory is counted and costed at the end of each accounting period. The inventory
account beginning balance is adjusted to physical inventory amount and the difference
is added to or subtracted from periodic Cost of Goods Sold.
Perpetual Inventory Accounting - Answer -Merchandise purchases are added to the
inventory account when the merchandise is received.
Cost of Goods Sold is computed and subtracted from the inventory account as sales are
recorded.
FIFO (Inventory) - Answer -Inventory Oldest items inventory are sold first .(Example:
Fruit)
LIFO (Inventory) - Answer -Most recent items added to inventory are sold first.
(Example: Ore from Mining)
Average Cost (Inventory) - Answer -Ending inventory units are costed using an average
cost of goods available divided by the units available for sale. (Example: Rope)
, Specific Identification (Inventory) - Answer -Inventory items are tagged with their cost.
(Example: automobiles)
Generally Accepted Accounting Principles (GAAP) - Answer -A framework of accounting
standards, rules and procedures defined by the professional accounting industry, which
has been adopted by nearly all publicly traded U.S. companies.
Securities Act of 1935 - Answer -Established the SEC Securities and Exchange
Commission with the explicit authority to establish the rules, standards, and procedures
used to account for transactions and events. Also to establish the form and content of
published financial reporting.
Management Accounting - Answer -Concerned with identification, measurement,
accumulation, analysis, preparation, interpretation, and communication of financial
information used my management to plan and evaluate and control within an
organization to assure appropriate use of and accountability of resources.
Cost Accounting - Answer -Concerned only with the cost of a product or service.
Product Costs - Answer -Cost of the various products manufactured and sold by a
company. (Examples: Inventory Costs or Cost of Prodcution
Period Cost - Answer -ll costs incurred by a company that are not considered product
costs. (Examples: Administration Expenses or Selling Expenses)
Direct Costs - Answer -A cost that is easily traceable to the cost object and is a result
solely of the cost object. (Example: Lye used to make bars of soap.)
Indirect Cost - Answer -A cost that supports more than one cost objects, and must be
"allocated" to those various cost objects (Example: Electricity used at a plant.)
Direct Material - Answer -Cost of materials used in production. (Examples: sheet metal,
tires, fabric, etc.)
Direct Labor - Answer -Cost of Labor used in production. (Example: assembly line
workers)
Manufacturing Overhead - Answer -Indirect factory-related costs that are incurred when
a product is manufactured. (Examples: facility costs, indirect labor, machine set up
costs, quality control, etc.)
Variable Costs - Answer -Expenses that vary directly with changes in activity or
changes in volume.
Fixed Cost - Answer -Expenses that do not change as a function of the activity of a
business, within the relevant period. (Examples: Rent, Utilities, etc.)
complete solutions
Balance Sheet - Answer -Attempts to describe the financial condition of the firm at a
point in time.
Includes: Assets, Liabilities, & Equity - "net assets" what remains after deducting
liabilities from assets..
Income Statement - Answer -Presents the results of the operations of an entity over a
peroid of time.
Includes: Revenues, Expenses, Income, Gains & Losses
Statement of Equity or Statement of Retained Earnings (Capital) - Answer -Bridges the
gap between the income statement and the balance sheet.
Arrangement depends on type of organization:
Proprietorship: Statement of Owners Equity
Partnership: Statement of Partners Equity
Corporation: Statement of Stockholders Equity
In addition, it contains: Investments by Owners and Distribution to owners
Statement of Cash Flows - Answer -Provides information about a company's cash
receipts and cash payments during a specific period of time.
Includes all 10 elements of financial statements: assets, liabilities, equity, net income,
income, gains, losses, Statement of 'X' Equity, Investments by Owners, Distributions to
Owners.
Cash Basis Accounting - Answer -Revenue is recognized in the accounting period in
which the associated cash is received and Expenses are recognized in the accounting
period that the cash is paid.
Accrual Basis Accounting - Answer -Revenue is recognized in the accounting period in
which the revenue is earned, regardless of when the associated revenue is received.
(Recorded when the sale is made, not when it is paid for.)
,Depreciation - Answer -A method of allocating the cost of a tangible asset over its useful
life. Businesses depreciate long-term assets for both tax and accounting purposes.
Straight-Line Deprecation - Answer -Straight Line Depreciation - (estimated value/useful
life)
Equal amounts of depreciation expense are recorded in each period of the useful life of
the asset, if not disposed of prior to the end of estimated useful life.
The value is divided among estimated life of item.
Double Declining Balance Depreciation - Answer -Double Declining Balance
An "accelerated" depreciation method (more expense is recorded in the early periods of
useful life and less in the later periods.)
Basic Inventory Equation for Goods - Answer -Beginning Inventory + Purchases =
Goods
Basic Inventory Equation for Cost of Goods Sold (COGS) - Answer -Goods Available for
Sale - Ending Inventory = Cost of Goods Sold (COGS)
Basic Inventory Equation for Ending Inventory - Answer -Beginning Inventory +
Purchases = Goods Available for Sale - Cost of Goods Sold (COGS) = ending inventory
Periodic Inventory Accounting - Answer -No transactions are recorded in the inventory
account until the end of the accounting period. Merchandise purchases are recorded in
a purchases account.
Inventory is counted and costed at the end of each accounting period. The inventory
account beginning balance is adjusted to physical inventory amount and the difference
is added to or subtracted from periodic Cost of Goods Sold.
Perpetual Inventory Accounting - Answer -Merchandise purchases are added to the
inventory account when the merchandise is received.
Cost of Goods Sold is computed and subtracted from the inventory account as sales are
recorded.
FIFO (Inventory) - Answer -Inventory Oldest items inventory are sold first .(Example:
Fruit)
LIFO (Inventory) - Answer -Most recent items added to inventory are sold first.
(Example: Ore from Mining)
Average Cost (Inventory) - Answer -Ending inventory units are costed using an average
cost of goods available divided by the units available for sale. (Example: Rope)
, Specific Identification (Inventory) - Answer -Inventory items are tagged with their cost.
(Example: automobiles)
Generally Accepted Accounting Principles (GAAP) - Answer -A framework of accounting
standards, rules and procedures defined by the professional accounting industry, which
has been adopted by nearly all publicly traded U.S. companies.
Securities Act of 1935 - Answer -Established the SEC Securities and Exchange
Commission with the explicit authority to establish the rules, standards, and procedures
used to account for transactions and events. Also to establish the form and content of
published financial reporting.
Management Accounting - Answer -Concerned with identification, measurement,
accumulation, analysis, preparation, interpretation, and communication of financial
information used my management to plan and evaluate and control within an
organization to assure appropriate use of and accountability of resources.
Cost Accounting - Answer -Concerned only with the cost of a product or service.
Product Costs - Answer -Cost of the various products manufactured and sold by a
company. (Examples: Inventory Costs or Cost of Prodcution
Period Cost - Answer -ll costs incurred by a company that are not considered product
costs. (Examples: Administration Expenses or Selling Expenses)
Direct Costs - Answer -A cost that is easily traceable to the cost object and is a result
solely of the cost object. (Example: Lye used to make bars of soap.)
Indirect Cost - Answer -A cost that supports more than one cost objects, and must be
"allocated" to those various cost objects (Example: Electricity used at a plant.)
Direct Material - Answer -Cost of materials used in production. (Examples: sheet metal,
tires, fabric, etc.)
Direct Labor - Answer -Cost of Labor used in production. (Example: assembly line
workers)
Manufacturing Overhead - Answer -Indirect factory-related costs that are incurred when
a product is manufactured. (Examples: facility costs, indirect labor, machine set up
costs, quality control, etc.)
Variable Costs - Answer -Expenses that vary directly with changes in activity or
changes in volume.
Fixed Cost - Answer -Expenses that do not change as a function of the activity of a
business, within the relevant period. (Examples: Rent, Utilities, etc.)
