Financial Accounting Study Guide (Exam 1)
Questions With Solutions 100% Correct
What are retained earnings? Retained earnings is the percentage of net earnings not paid
out as dividends, but retained by the company to be reinvested in its core business, or to pay
debt. It is recorded under shareholders' equity on the balance sheet.
Difference between the BS and the IS accounts the balance sheet illustrates a company's
book value, and the income statement shows how assets and liabilities are used.
Difference between assets, liabilities, and owners equity accounts -Assets (what it owns)
-Liabilities (what it owes to others)
-Owner's Equity (the difference between assets and liabilities)
What is the proper dating and form for each of the financial statements? -The top of the
balance sheet has three items: (1) the legal name of the entity; (2) the title (i.e., balance sheet or
statement of financial position); and (3) the date of the statement.
-Income Statement: the top is the companies name and the second line is the term "consolidated
statements of income", third line is the date
, Financial Accounting Study Guide (Exam 1)
Questions With Solutions 100% Correct
What do we mean by the "cost principle"? The cost principle requires that assets be
recorded at the cash amount (or its equivalent) at the time that an asset is acquired.
What do we mean by the "entity principle"? The economic entity principle states that the
recorded activities of a business entity will be kept separate from the recorded activities of its
owner(s) and any other business entities. This means that you must maintain separate accounting
records and bank accounts for each entity, and not intermix with them the assets and liabilities of
its owners or business partners. Also, you must associate every business transaction with an
entity.
What do we mean by the "matching principle"? -The principle that requires a company to
match expenses with related revenues in order to report a company's profitability during a
specified time interval.
-Also known as the expense recognition principle
What is depreciation? a reduction in the value of an asset with the passage of time, due in
particular to wear and tear.
What is book value? the value of a security or asset as entered in a company's books.
Questions With Solutions 100% Correct
What are retained earnings? Retained earnings is the percentage of net earnings not paid
out as dividends, but retained by the company to be reinvested in its core business, or to pay
debt. It is recorded under shareholders' equity on the balance sheet.
Difference between the BS and the IS accounts the balance sheet illustrates a company's
book value, and the income statement shows how assets and liabilities are used.
Difference between assets, liabilities, and owners equity accounts -Assets (what it owns)
-Liabilities (what it owes to others)
-Owner's Equity (the difference between assets and liabilities)
What is the proper dating and form for each of the financial statements? -The top of the
balance sheet has three items: (1) the legal name of the entity; (2) the title (i.e., balance sheet or
statement of financial position); and (3) the date of the statement.
-Income Statement: the top is the companies name and the second line is the term "consolidated
statements of income", third line is the date
, Financial Accounting Study Guide (Exam 1)
Questions With Solutions 100% Correct
What do we mean by the "cost principle"? The cost principle requires that assets be
recorded at the cash amount (or its equivalent) at the time that an asset is acquired.
What do we mean by the "entity principle"? The economic entity principle states that the
recorded activities of a business entity will be kept separate from the recorded activities of its
owner(s) and any other business entities. This means that you must maintain separate accounting
records and bank accounts for each entity, and not intermix with them the assets and liabilities of
its owners or business partners. Also, you must associate every business transaction with an
entity.
What do we mean by the "matching principle"? -The principle that requires a company to
match expenses with related revenues in order to report a company's profitability during a
specified time interval.
-Also known as the expense recognition principle
What is depreciation? a reduction in the value of an asset with the passage of time, due in
particular to wear and tear.
What is book value? the value of a security or asset as entered in a company's books.
