Accounting Questions and Graded Answers.
Assets - Things company owns & uses to generate revenue
Liabilities - Amount that company owes
Equity - Amount invested in company by owners; owners claim no assets
Accounting equation - Assets = liabilities + equity
Truism in business - Company never receives greater than it gives & never gives greater
than it receives
4 Rules of debits & credits - 1. Debit amount received; credit amount given up
2. Debuts on left; credits on the right
3. In each transactions; list debits first (good) & credits last (bad)
4. Total debits = total credits
Making an ethical decision - 1. Identify ethical concerns- use personal ethics to recognize
concern
2. Analyze options- consider all good & bad consequences
3. Make ethical decision- choose best option given circumstances
Fraud - Intentional manipulation- focus on prevention. Once fraud is committed, loses are
rarely retrieved.
Fraud Triangle - Opportunity (low risk of being caught), Financial Pressure (incentive),
Rationalization (making situation justifiable)
, GAAP (generally accepted accounting principles) - Financial accounting is governed by
concepts & rules.
1. Relevant info affects decision of user
2. Reliable info trusted by users
3. Comparable info aids in contrasting organizations
SEC- Securities and Exchange Commission - Federal agency congress has charged to set
reporting rules for org that sell ownership shares to public
FASB (Financial Accounting Standards Board) - Independent group of full-time members
responsible for setting accounting rules
IASB (international accounting standards board) - Group that identifies preferred
accounting practices & encourages global acceptance; issues IFRS
Measurement/cost principle - Accounting info based on actual cost.
-if cash is given for a service, cost is measured by cash paid
-if other is exchanged (car traded for truck), cost is measured as cash value of what is given up or
received
This ensure reliability, verifiability
Revenue Recognition Principle - Recognition = recording
-happens when goods or services are provided to customers
-is recorded at the amount received
Expense Recognition Principle - A company records the expenses it incurred to generate
revenue reported
Assets - Things company owns & uses to generate revenue
Liabilities - Amount that company owes
Equity - Amount invested in company by owners; owners claim no assets
Accounting equation - Assets = liabilities + equity
Truism in business - Company never receives greater than it gives & never gives greater
than it receives
4 Rules of debits & credits - 1. Debit amount received; credit amount given up
2. Debuts on left; credits on the right
3. In each transactions; list debits first (good) & credits last (bad)
4. Total debits = total credits
Making an ethical decision - 1. Identify ethical concerns- use personal ethics to recognize
concern
2. Analyze options- consider all good & bad consequences
3. Make ethical decision- choose best option given circumstances
Fraud - Intentional manipulation- focus on prevention. Once fraud is committed, loses are
rarely retrieved.
Fraud Triangle - Opportunity (low risk of being caught), Financial Pressure (incentive),
Rationalization (making situation justifiable)
, GAAP (generally accepted accounting principles) - Financial accounting is governed by
concepts & rules.
1. Relevant info affects decision of user
2. Reliable info trusted by users
3. Comparable info aids in contrasting organizations
SEC- Securities and Exchange Commission - Federal agency congress has charged to set
reporting rules for org that sell ownership shares to public
FASB (Financial Accounting Standards Board) - Independent group of full-time members
responsible for setting accounting rules
IASB (international accounting standards board) - Group that identifies preferred
accounting practices & encourages global acceptance; issues IFRS
Measurement/cost principle - Accounting info based on actual cost.
-if cash is given for a service, cost is measured by cash paid
-if other is exchanged (car traded for truck), cost is measured as cash value of what is given up or
received
This ensure reliability, verifiability
Revenue Recognition Principle - Recognition = recording
-happens when goods or services are provided to customers
-is recorded at the amount received
Expense Recognition Principle - A company records the expenses it incurred to generate
revenue reported
