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Major Field Test Business Study Set
Questions and Answers
Balance Sheet
Ans: 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
Ans: 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)
Ans: 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
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Ans: 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
Ans: 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
Ans: 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
Ans: 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
Ans: 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
Ans: 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
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Ans: Beginning Inventory + Purchases = Goods
Basic Inventory Equation for Cost of Goods Sold (COGS)
Ans: Goods Available for Sale - Ending Inventory = Cost of Goods Sold
(COGS)
Basic Inventory Equation for Ending Inventory
Ans: Beginning Inventory + Purchases = Goods Available for Sale - Cost
of Goods Sold (COGS) = ending inventory
Periodic Inventory Accounting
Ans: 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
Ans: 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)
Ans: Inventory Oldest items inventory are sold first .(Example: Fruit)
LIFO (Inventory)
Ans: Most recent items added to inventory are sold first. (Example: Ore
from Mining)
Average Cost (Inventory)
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Ans: Ending inventory units are costed using an average cost of goods
available divided by the units available for sale. (Example: Rope)
Specific Identification (Inventory)
Ans: Inventory items are tagged with their cost. (Example: automobiles)
Generally Accepted Accounting Principles (GAAP)
Ans: 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
Ans: 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
Ans: 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
Ans: Concerned only with the cost of a product or service.
Product Costs
Ans: Cost of the various products manufactured and sold by a company.
(Examples: Inventory Costs or Cost of Prodcution
Period Cost
Ans: ll costs incurred by a company that are not considered product
costs. (Examples: Administration Expenses or Selling Expenses)
Direct Costs
© 2025 All rights reserved
Major Field Test Business Study Set
Questions and Answers
Balance Sheet
Ans: 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
Ans: 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)
Ans: 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
© 2025 All rights reserved
, 2 | Page
Ans: 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
Ans: 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
Ans: 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
Ans: 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
Ans: 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
Ans: 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
© 2025 All rights reserved
, 3 | Page
Ans: Beginning Inventory + Purchases = Goods
Basic Inventory Equation for Cost of Goods Sold (COGS)
Ans: Goods Available for Sale - Ending Inventory = Cost of Goods Sold
(COGS)
Basic Inventory Equation for Ending Inventory
Ans: Beginning Inventory + Purchases = Goods Available for Sale - Cost
of Goods Sold (COGS) = ending inventory
Periodic Inventory Accounting
Ans: 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
Ans: 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)
Ans: Inventory Oldest items inventory are sold first .(Example: Fruit)
LIFO (Inventory)
Ans: Most recent items added to inventory are sold first. (Example: Ore
from Mining)
Average Cost (Inventory)
© 2025 All rights reserved
, 4 | Page
Ans: Ending inventory units are costed using an average cost of goods
available divided by the units available for sale. (Example: Rope)
Specific Identification (Inventory)
Ans: Inventory items are tagged with their cost. (Example: automobiles)
Generally Accepted Accounting Principles (GAAP)
Ans: 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
Ans: 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
Ans: 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
Ans: Concerned only with the cost of a product or service.
Product Costs
Ans: Cost of the various products manufactured and sold by a company.
(Examples: Inventory Costs or Cost of Prodcution
Period Cost
Ans: ll costs incurred by a company that are not considered product
costs. (Examples: Administration Expenses or Selling Expenses)
Direct Costs
© 2025 All rights reserved
