ACTG 1P91 INTRODUCTION TO FINANCIAL
ACCOUNTING (first year accounting
December final exam tips) questions and
answers
Transactions - - are events or activities that have a direct and measurable financial effect on the assets,
liabilities or shareholders' equity of a business
External exchanges - - involve assets, liabilities and shareholders' equity between the company and
someone else
Internal events - - occur within the company; for example using assets to create an inventory product
Duality of Effects - - means every transaction has at least two effects on the basic accounting equation
Journals - - are used to record the effects of each day's transactions; organized by date
Ledgers - - are used to summarize the effects of journal entries on each account; organized by account
Classified Balance Sheet - - shows subtotals for current assets and current liabilities
Current assets - - are assets that will be used up or converted into cash within 12 months
,Current liabilities - - are debts and obligations that will be paid, settled, fulfilled within 12 months
Noncurrent - - (or long term) assets with liabilities are assets and liabilities that do not meet the
definition of current
Operating activities - - are day-to-day functions involved in running a business and the primary source or
revenues and expenses
Time Period Assumption - - month, quarter, and years
Deferred (unearned) Revenue - - occurs when a business receives cash before goods or services are
provided
Expenses - - decrease Net Income, which decreases Retained Earnings, so expenses are recorded with
debits
Revenues - - increase Net Income, which increase Retained Earnings, so revenues are recorded with
credits. Must be recorded when earned
Trial Balance - - is an internal report that lists all accounts and their balances to check on the equality of
total recorded debits and total recorded credits
Unadjusted Trial Balance - - is a trial balance prepared before all final adjusting entries have been
entered
Net Profit Margin - - indicates how much profit is earned from each dollar of revenue
Adjusting Entries - - are made at the end of every accounting period to report revenues and expenses in
the proper period and assets and liabilities at appropriate amounts
, Adjusting Journal Entries - - record the effects of each period's adjustments in a debits-equal-credits
format
Assets - - must be reported at amounts that represent the economic benefits that remain at the end of
the current period
Liabilities - - must be reported at amounts owed at the end of the current period
Depreciation - - is the process of allocating the cost of buildings, vehicles, and equipment to the
accounting periods in which they are used
A Contra-Account - - is an account that is an offset to, or reduction, of another account
Income Tax - - is calculated by multiplying the company's adjusted income by the company's tax rate
An Adjusted Trial Balance - - is prepared to check that the accounting records are still in balance after all
adjusting entries have been posted (Accounts are listed in order they appear on the balance sheet,
statement of retained earnings and income statement)
Closing - - temporary accounts is the last step in the accounting process (It is done at the end of the
year)
Temporary Accounts - - track financial results for a limited period of time. Their balances are zeroed at
the end of each accounting year (Revenues, expense and dividends declared accounts are temporary
accounts)
Permanent Accounts - - track financial results from year to year. Their ending balances carry forward to
the following year (Balance sheet accounts are permanent accounts)
ACCOUNTING (first year accounting
December final exam tips) questions and
answers
Transactions - - are events or activities that have a direct and measurable financial effect on the assets,
liabilities or shareholders' equity of a business
External exchanges - - involve assets, liabilities and shareholders' equity between the company and
someone else
Internal events - - occur within the company; for example using assets to create an inventory product
Duality of Effects - - means every transaction has at least two effects on the basic accounting equation
Journals - - are used to record the effects of each day's transactions; organized by date
Ledgers - - are used to summarize the effects of journal entries on each account; organized by account
Classified Balance Sheet - - shows subtotals for current assets and current liabilities
Current assets - - are assets that will be used up or converted into cash within 12 months
,Current liabilities - - are debts and obligations that will be paid, settled, fulfilled within 12 months
Noncurrent - - (or long term) assets with liabilities are assets and liabilities that do not meet the
definition of current
Operating activities - - are day-to-day functions involved in running a business and the primary source or
revenues and expenses
Time Period Assumption - - month, quarter, and years
Deferred (unearned) Revenue - - occurs when a business receives cash before goods or services are
provided
Expenses - - decrease Net Income, which decreases Retained Earnings, so expenses are recorded with
debits
Revenues - - increase Net Income, which increase Retained Earnings, so revenues are recorded with
credits. Must be recorded when earned
Trial Balance - - is an internal report that lists all accounts and their balances to check on the equality of
total recorded debits and total recorded credits
Unadjusted Trial Balance - - is a trial balance prepared before all final adjusting entries have been
entered
Net Profit Margin - - indicates how much profit is earned from each dollar of revenue
Adjusting Entries - - are made at the end of every accounting period to report revenues and expenses in
the proper period and assets and liabilities at appropriate amounts
, Adjusting Journal Entries - - record the effects of each period's adjustments in a debits-equal-credits
format
Assets - - must be reported at amounts that represent the economic benefits that remain at the end of
the current period
Liabilities - - must be reported at amounts owed at the end of the current period
Depreciation - - is the process of allocating the cost of buildings, vehicles, and equipment to the
accounting periods in which they are used
A Contra-Account - - is an account that is an offset to, or reduction, of another account
Income Tax - - is calculated by multiplying the company's adjusted income by the company's tax rate
An Adjusted Trial Balance - - is prepared to check that the accounting records are still in balance after all
adjusting entries have been posted (Accounts are listed in order they appear on the balance sheet,
statement of retained earnings and income statement)
Closing - - temporary accounts is the last step in the accounting process (It is done at the end of the
year)
Temporary Accounts - - track financial results for a limited period of time. Their balances are zeroed at
the end of each accounting year (Revenues, expense and dividends declared accounts are temporary
accounts)
Permanent Accounts - - track financial results from year to year. Their ending balances carry forward to
the following year (Balance sheet accounts are permanent accounts)
