Financial Accounting Final Exam Separate
Entity
Assumption -(correct answer)the financial reports of a business are assumed to include the results of only the
business's activities Cost -(correct answer)the amount of resources that a company sacrifices to obtain goods or
services; often said to be incurred when the company pays cash or uses credit to acquire the item Revenue
Recognition Principle -(correct answer)revenues are reported when goods or services are delivered, there is evidence
of an arrangement for customer payment, the price is fixed or determinable, and collection is reasonably assured
Expense Recognition Principle -(correct answer)expenses are recorded when incurred in earning revenue; also called
"matching" Accrual Basis Accounting -(correct answer)records revenues when they are earned and expenses in the
same period as the revenues to which they relate, regardless of the timing of cash receipts or payments Adjusting
Journal Entries -(correct answer)entries necessary at the end of each accounting period to measure all revenues and
expenses of that period Contra Account -(correct answer)an account that is an offset to, or reduction of, another
account Carrying Value -(correct answer)the amount at which an asset or liability is reported ("carried") in the financial
statements; also known as "net book value" or "book value" Dividends -(correct answer)the distribution of a company's
earnings to its stockholders' as a return on their investment; not an expense! Permanent Accounts -(correct
answer)accounts that track financial results from year to year by carrying their ending balances into the next year
Temporary Accounts -(correct answer)accounts that track financial results for a limited period of time by having their
balances zeroed out at the end of each accounting year T-accounts -(correct answer)a simplified version of a ledger
account used for summarizing the effects of journal entries Closing Entries -(correct answer)made at the end of the
accounting period to transfer balances in temporary accounts to Retained Earnings and to establish a zero balance in
each of the temporary accounts Income Statement -(correct answer)R-E=NI; revenues-expenses=net income
Balance Sheet -(correct answer)A=L+SE; assets=liabilities+stockholders' equity Statement of Retained Earnings
-(correct answer)BRE+NI-DIV=ERE Internal Controls -(correct answer)Processes by which a company provides
reasonable assurance regarding the reliability of the company's financial reporting, the effectiveness and efficiency of
its operations, and its compliance with applicable laws and regulations Segregation of Duties -(correct answer)an
internal control that involves separating employees' duties so that the work of one person can be used to check the
work of another person Cash Basis Accounting -(correct answer)recording revenues when cash is received and
expenses when cash is paid Bank Reconciliation -(correct answer)process of using both the bank statement and the
cash accounts of a business to determine the appropriate amount of cash in a bank account, after taking into
consideration delays or errors in processing cash transactions Perpetual Inventory System -(correct answer)a system
in which a delayed inventory record is maintained by recording each purchase and sale of inventory during the
accounting period Discount -(correct answer)for bonds, occurs when the issue price is less than the face value Net
Sales -(correct answer)total sales revenue minus sales returns and allowances and sales discounts Inventory
-(correct answer)tangible property held for sale in the normal course of business or used in producing goods or
services for sale Cost of Goods Sold -(correct answer)expresses the relationship between inventory on hand,
purchases, and sold LIFO -(correct answer)last in first out method; assumes the most recently purchased units (the
last in) are sold first FIFO -(correct answer)first in first out method; assumes that the first goods purchased (the first in)
are the first goods sold Weighted Average -(correct answer)uses the weighted average unit cost of goods available for
sale for calculations of both the cost of goods sold and ending inventory Specific Identification Method -(correct
answer)a method of assigning costs to inventory, which identifies the cost of each specific item purchased and sold
Lower of Cost or Market (LCM) -(correct answer)valuation method departing from the cost principle; recognizes a loss
when asset value drops below cost FOB Shipping Point -(correct answer)Term of sale indicating that goods are
owned by the customer the moment they leave the seller's premises Accounts Receivable -(correct answer)amounts
owed to the business by customers for past transactions Bad Debt Expense -(correct answer)doubtful accounts
expenses; expense associated with estimated uncollectible accounts receivable Allowance for Doubtful Accounts
-(correct answer)allowance for bad debts; contra-asset account containing the estimated dollar value of uncollectible
accounts receivable Write-off -(correct answer)the removal from an uncollectible account and its corresponding
allowance from the accounting records Interest Formula -(correct answer)principal x annual interest rate x time period
Entity
Assumption -(correct answer)the financial reports of a business are assumed to include the results of only the
business's activities Cost -(correct answer)the amount of resources that a company sacrifices to obtain goods or
services; often said to be incurred when the company pays cash or uses credit to acquire the item Revenue
Recognition Principle -(correct answer)revenues are reported when goods or services are delivered, there is evidence
of an arrangement for customer payment, the price is fixed or determinable, and collection is reasonably assured
Expense Recognition Principle -(correct answer)expenses are recorded when incurred in earning revenue; also called
"matching" Accrual Basis Accounting -(correct answer)records revenues when they are earned and expenses in the
same period as the revenues to which they relate, regardless of the timing of cash receipts or payments Adjusting
Journal Entries -(correct answer)entries necessary at the end of each accounting period to measure all revenues and
expenses of that period Contra Account -(correct answer)an account that is an offset to, or reduction of, another
account Carrying Value -(correct answer)the amount at which an asset or liability is reported ("carried") in the financial
statements; also known as "net book value" or "book value" Dividends -(correct answer)the distribution of a company's
earnings to its stockholders' as a return on their investment; not an expense! Permanent Accounts -(correct
answer)accounts that track financial results from year to year by carrying their ending balances into the next year
Temporary Accounts -(correct answer)accounts that track financial results for a limited period of time by having their
balances zeroed out at the end of each accounting year T-accounts -(correct answer)a simplified version of a ledger
account used for summarizing the effects of journal entries Closing Entries -(correct answer)made at the end of the
accounting period to transfer balances in temporary accounts to Retained Earnings and to establish a zero balance in
each of the temporary accounts Income Statement -(correct answer)R-E=NI; revenues-expenses=net income
Balance Sheet -(correct answer)A=L+SE; assets=liabilities+stockholders' equity Statement of Retained Earnings
-(correct answer)BRE+NI-DIV=ERE Internal Controls -(correct answer)Processes by which a company provides
reasonable assurance regarding the reliability of the company's financial reporting, the effectiveness and efficiency of
its operations, and its compliance with applicable laws and regulations Segregation of Duties -(correct answer)an
internal control that involves separating employees' duties so that the work of one person can be used to check the
work of another person Cash Basis Accounting -(correct answer)recording revenues when cash is received and
expenses when cash is paid Bank Reconciliation -(correct answer)process of using both the bank statement and the
cash accounts of a business to determine the appropriate amount of cash in a bank account, after taking into
consideration delays or errors in processing cash transactions Perpetual Inventory System -(correct answer)a system
in which a delayed inventory record is maintained by recording each purchase and sale of inventory during the
accounting period Discount -(correct answer)for bonds, occurs when the issue price is less than the face value Net
Sales -(correct answer)total sales revenue minus sales returns and allowances and sales discounts Inventory
-(correct answer)tangible property held for sale in the normal course of business or used in producing goods or
services for sale Cost of Goods Sold -(correct answer)expresses the relationship between inventory on hand,
purchases, and sold LIFO -(correct answer)last in first out method; assumes the most recently purchased units (the
last in) are sold first FIFO -(correct answer)first in first out method; assumes that the first goods purchased (the first in)
are the first goods sold Weighted Average -(correct answer)uses the weighted average unit cost of goods available for
sale for calculations of both the cost of goods sold and ending inventory Specific Identification Method -(correct
answer)a method of assigning costs to inventory, which identifies the cost of each specific item purchased and sold
Lower of Cost or Market (LCM) -(correct answer)valuation method departing from the cost principle; recognizes a loss
when asset value drops below cost FOB Shipping Point -(correct answer)Term of sale indicating that goods are
owned by the customer the moment they leave the seller's premises Accounts Receivable -(correct answer)amounts
owed to the business by customers for past transactions Bad Debt Expense -(correct answer)doubtful accounts
expenses; expense associated with estimated uncollectible accounts receivable Allowance for Doubtful Accounts
-(correct answer)allowance for bad debts; contra-asset account containing the estimated dollar value of uncollectible
accounts receivable Write-off -(correct answer)the removal from an uncollectible account and its corresponding
allowance from the accounting records Interest Formula -(correct answer)principal x annual interest rate x time period
