Business Accounting Exam 1
Questions with Complete Answers
Asset Use Transaction - Answer-A transaction that decreases both an asset and a
claim on assets; 3 types are distributions, liability payments, or expenses
Asset - Answer-Economic resource used to produce revenue which is expected to
provide future benefit to the business
Audits - Answer-the verifying of facts or procedures
Balance Sheet - Answer-A financial statement that summarizes a company's assets,
liabilities and shareholders' equity at a specific point in time.
Books of original entry - Answer-A journal in which a transaction is first recorded.
Book Value - Answer-the asset's cost minus accumulated depreciation; carrying
amount; net amount of a plant asset
Claims - Answer-Owners' and creditors' interests in a business's assets
Claims Exchange Transaction - Answer-A transaction that decreases one claim and
increases another claim; total claims remain unchanged. for example, accruing
interest expense is a claims exchange transaction; liabilities increase, and the
expense recognition decreases retained earnings.
Code of Professional Conduct - Answer-Rules established by the American Institute
of Certified Public Accountants to govern the ethical performance of professional
services by CPAs
Closing Entries - Answer-Journal entries used to prepare temporary accounts for a
new fiscal period
Closing Process - Answer-The transfer process of converting temporary account
balances to zero by transferring the revenue and expense account balances to
income summary, transferring the income summary account balance to the retained
earnings account, and transferring the dividends account to the retained earnings
account.
Common Stock - Answer-Represents ownership in a publicly held company which
entitles owners to dividends (if declared by the company's Board of Directors), voting
rights on matters affecting the company, and in the elections of Boards members.
Conservatism - Answer-A principle of guides accountants in uncertain circumstances
to select the alternative that produces the lowest amount of net income
, Contra Asset Account - Answer-An account offset against an asset account on the
balance sheet.
Cost - Answer-The amount paid to acquire a resource (asset) or to pay for a
resource that has been consumed.
Credit - Answer-Entry on the right side of an account; increases liability and equity
accounts or decreases asset accounts
Debt to Asset Ratio - Answer-Financial measure of a company's level of risk,
calculated as total debt divided by total assets
Deferrals - Answer-accounting recognition of revenue or expense in a period after
cash is exchanged
Disclaimer of Audit Opinion - Answer-Report on financial statements issued when
the auditor is unable to obtain enough information to determine if the statements
conform to GAAP; is neither positive nor negative
Double Entry Accounting - Answer-Accounting system in which each transaction
affects at least two accounts and has at least one debit and one credit.
Equity - Answer-the ownership interest of shareholders in a corporation
Expenses - Answer-economic sacrifice that is incurred in the process of generating
revenue
Financial Accounting - Answer-Accounting information and analyses prepared for
people outside the organization.
Financing Activities - Answer-activities related to cash inflows and outflows from
transactions with owners and creditors who supply funds to operate the firm and
return to the owners; dividends paid, borrowing money, etc.
Generally Accepted Accounting Principles - Answer-A set of rules used by
accountants to prepare financial reports
General Ledger - Answer-a ledger that contains all accounts needed to prepare
financial statements
General Journal - Answer-All-purpose journal for recording the debits and credits of
transactions and events.
Historical Cost - Answer-This is the idea that we record the value of assets at their
purchase (or original cost).
Income Statement - Answer-a financial document that shows how much money
(revenues) came in and how much money (expenses) was paid out
Liabilities - Answer-Organization's debts and other financial obligations.
Questions with Complete Answers
Asset Use Transaction - Answer-A transaction that decreases both an asset and a
claim on assets; 3 types are distributions, liability payments, or expenses
Asset - Answer-Economic resource used to produce revenue which is expected to
provide future benefit to the business
Audits - Answer-the verifying of facts or procedures
Balance Sheet - Answer-A financial statement that summarizes a company's assets,
liabilities and shareholders' equity at a specific point in time.
Books of original entry - Answer-A journal in which a transaction is first recorded.
Book Value - Answer-the asset's cost minus accumulated depreciation; carrying
amount; net amount of a plant asset
Claims - Answer-Owners' and creditors' interests in a business's assets
Claims Exchange Transaction - Answer-A transaction that decreases one claim and
increases another claim; total claims remain unchanged. for example, accruing
interest expense is a claims exchange transaction; liabilities increase, and the
expense recognition decreases retained earnings.
Code of Professional Conduct - Answer-Rules established by the American Institute
of Certified Public Accountants to govern the ethical performance of professional
services by CPAs
Closing Entries - Answer-Journal entries used to prepare temporary accounts for a
new fiscal period
Closing Process - Answer-The transfer process of converting temporary account
balances to zero by transferring the revenue and expense account balances to
income summary, transferring the income summary account balance to the retained
earnings account, and transferring the dividends account to the retained earnings
account.
Common Stock - Answer-Represents ownership in a publicly held company which
entitles owners to dividends (if declared by the company's Board of Directors), voting
rights on matters affecting the company, and in the elections of Boards members.
Conservatism - Answer-A principle of guides accountants in uncertain circumstances
to select the alternative that produces the lowest amount of net income
, Contra Asset Account - Answer-An account offset against an asset account on the
balance sheet.
Cost - Answer-The amount paid to acquire a resource (asset) or to pay for a
resource that has been consumed.
Credit - Answer-Entry on the right side of an account; increases liability and equity
accounts or decreases asset accounts
Debt to Asset Ratio - Answer-Financial measure of a company's level of risk,
calculated as total debt divided by total assets
Deferrals - Answer-accounting recognition of revenue or expense in a period after
cash is exchanged
Disclaimer of Audit Opinion - Answer-Report on financial statements issued when
the auditor is unable to obtain enough information to determine if the statements
conform to GAAP; is neither positive nor negative
Double Entry Accounting - Answer-Accounting system in which each transaction
affects at least two accounts and has at least one debit and one credit.
Equity - Answer-the ownership interest of shareholders in a corporation
Expenses - Answer-economic sacrifice that is incurred in the process of generating
revenue
Financial Accounting - Answer-Accounting information and analyses prepared for
people outside the organization.
Financing Activities - Answer-activities related to cash inflows and outflows from
transactions with owners and creditors who supply funds to operate the firm and
return to the owners; dividends paid, borrowing money, etc.
Generally Accepted Accounting Principles - Answer-A set of rules used by
accountants to prepare financial reports
General Ledger - Answer-a ledger that contains all accounts needed to prepare
financial statements
General Journal - Answer-All-purpose journal for recording the debits and credits of
transactions and events.
Historical Cost - Answer-This is the idea that we record the value of assets at their
purchase (or original cost).
Income Statement - Answer-a financial document that shows how much money
(revenues) came in and how much money (expenses) was paid out
Liabilities - Answer-Organization's debts and other financial obligations.
