FAC1502 Financial Accounting
Elementary Calculations
TEST Questions and Answers
Verified Solutions Latest Update
Question:
Accounting Equation
Answer:
Assets = Liabilities + Owners' Equity. This equation is fundamental and must always be
true in double entry accounting.
Question:
Accounting Period
Answer:
The period of time for which the financial results are reported; typically either a month
or a quarter or a year.
Question:
Accounts Payable
Answer:
Liability account used to show the obligation to pay suppliers who have provided goods
or services on credit terms.
,Question:
Accounts Payable Turnover
Answer:
Accounts Payable Turnover is a ratio that is used to measure how efficiently a business
is paying its vendors. It is calculated by dividing the credit purchases for the period by
the average accounts payable balance for the period. In the absence of credit
purchases information, we may use cost of goods sold as a substitute. The ratio
represents how many times the accounts payable turned over during the period. For
most ratios in this course, we use averages when calculating ratios with balance sheet
numbers, but this is not necessary and some may choose to use beginning or ending
balances.
Question:
Accounts Receivable
Answer:
Asset account used to show the claim to receive cash at some future date for goods or
services that have been supplied to a customer on credit terms.
Question:
Accounts Receivable Turnover
Answer:
Accounts Receivable Turnover is a ratio that is used to measure how efficiently a
business is collecting receivables from its customers. It is calculated by dividing the
credit sales for the period by the average accounts receivable balance for the period. In
the absence of credit sales information, we may use total sales as a substitute. The
ratio represents how many times the accounts receivable turned over during the
period. For most ratios in this course, we use averages when calculating ratios with
balance sheet numbers, but this is not necessary and some may choose to use
beginning or ending balances.
,Question:
Accrual
Answer:
A revenue amount that is recorded after the revenue is earned but before the payment
is received or an expense amount that is recorded after it has been incurred but before
the payment has been made. In either case, for an accrual the exchange of cash is
expected at some future point after the initial revenue or expense is recognized.
Question:
Accrual Accounting Method
Answer:
This is the accounting method taught in this course, followed by most companies, and
required under US GAAP and IFRS. The method follows the revenue recognition
principle, which says that revenue should be recognized in the period in which it is
earned and realizable, not necessarily when the cash is received and the matching
principle which says that expenses should be recognized in the period in which the
related revenue is recognized rather than when the related cash is paid.
Question:
Accrued Expenses
Answer:
Liability account used to record amounts at the end of an accounting period to
recognize expenses that were incurred in the period but for which no invoice has yet
been received nor payment has yet been made. Examples are salaries/wages payable,
accrued rent expense, accrued legal fees. When the accrual is made, the debit is to the
appropriate expense account (payroll expense, rent expense, legal expense) and the
credit is to the accrued expense account, which is a liability because it represents an
obligation which will need to be paid in the future. Remember accrued expenses are
NOT expenses.
Question:
Accrued Liability
Answer:
Liability accounts that record expenses that have been recognized on the income
statement but have not yet been paid. Similar to accrued expenses.
, Question:
Accrued Payroll
Answer:
An accrued expense recorded at the end of a financial period for amounts of payroll
that have been worked but not yet paid. It is a common type of accrued expense. See
also Salaries/Wages Payable.
Question:
Accrued Revenue
Answer:
An asset account that records revenue that has been earned and recognized on the
income statement but not yet paid for by the customer. At the time of the accrual, we
debit the receivable account and credit the appropriate accrued revenue account.
When the cash transfer ultimately occurs, we debit the cash account and credit the
receivable account.
Question:
Accumulated Depreciation
Answer:
A contra asset account that includes the cumulative total of all depreciation expenses
recorded to date for specific assets. The credit balance in this account offsets the debit
balance in the asset account which shows the original value of the asset. When the
original asset value is netted against the accumulated depreciation for the asset you
arrive at the net book value of the asset.
Question:
Accumulated other comprehensive income
Answer:
An equity account that consists of cumulative unrealized gains or losses on line items
classified under other comprehensive income. It includes items such as unrealized
gains or losses on investments available for sale, foreign currency gains or losses, and
pension plan gains or losses.
Elementary Calculations
TEST Questions and Answers
Verified Solutions Latest Update
Question:
Accounting Equation
Answer:
Assets = Liabilities + Owners' Equity. This equation is fundamental and must always be
true in double entry accounting.
Question:
Accounting Period
Answer:
The period of time for which the financial results are reported; typically either a month
or a quarter or a year.
Question:
Accounts Payable
Answer:
Liability account used to show the obligation to pay suppliers who have provided goods
or services on credit terms.
,Question:
Accounts Payable Turnover
Answer:
Accounts Payable Turnover is a ratio that is used to measure how efficiently a business
is paying its vendors. It is calculated by dividing the credit purchases for the period by
the average accounts payable balance for the period. In the absence of credit
purchases information, we may use cost of goods sold as a substitute. The ratio
represents how many times the accounts payable turned over during the period. For
most ratios in this course, we use averages when calculating ratios with balance sheet
numbers, but this is not necessary and some may choose to use beginning or ending
balances.
Question:
Accounts Receivable
Answer:
Asset account used to show the claim to receive cash at some future date for goods or
services that have been supplied to a customer on credit terms.
Question:
Accounts Receivable Turnover
Answer:
Accounts Receivable Turnover is a ratio that is used to measure how efficiently a
business is collecting receivables from its customers. It is calculated by dividing the
credit sales for the period by the average accounts receivable balance for the period. In
the absence of credit sales information, we may use total sales as a substitute. The
ratio represents how many times the accounts receivable turned over during the
period. For most ratios in this course, we use averages when calculating ratios with
balance sheet numbers, but this is not necessary and some may choose to use
beginning or ending balances.
,Question:
Accrual
Answer:
A revenue amount that is recorded after the revenue is earned but before the payment
is received or an expense amount that is recorded after it has been incurred but before
the payment has been made. In either case, for an accrual the exchange of cash is
expected at some future point after the initial revenue or expense is recognized.
Question:
Accrual Accounting Method
Answer:
This is the accounting method taught in this course, followed by most companies, and
required under US GAAP and IFRS. The method follows the revenue recognition
principle, which says that revenue should be recognized in the period in which it is
earned and realizable, not necessarily when the cash is received and the matching
principle which says that expenses should be recognized in the period in which the
related revenue is recognized rather than when the related cash is paid.
Question:
Accrued Expenses
Answer:
Liability account used to record amounts at the end of an accounting period to
recognize expenses that were incurred in the period but for which no invoice has yet
been received nor payment has yet been made. Examples are salaries/wages payable,
accrued rent expense, accrued legal fees. When the accrual is made, the debit is to the
appropriate expense account (payroll expense, rent expense, legal expense) and the
credit is to the accrued expense account, which is a liability because it represents an
obligation which will need to be paid in the future. Remember accrued expenses are
NOT expenses.
Question:
Accrued Liability
Answer:
Liability accounts that record expenses that have been recognized on the income
statement but have not yet been paid. Similar to accrued expenses.
, Question:
Accrued Payroll
Answer:
An accrued expense recorded at the end of a financial period for amounts of payroll
that have been worked but not yet paid. It is a common type of accrued expense. See
also Salaries/Wages Payable.
Question:
Accrued Revenue
Answer:
An asset account that records revenue that has been earned and recognized on the
income statement but not yet paid for by the customer. At the time of the accrual, we
debit the receivable account and credit the appropriate accrued revenue account.
When the cash transfer ultimately occurs, we debit the cash account and credit the
receivable account.
Question:
Accumulated Depreciation
Answer:
A contra asset account that includes the cumulative total of all depreciation expenses
recorded to date for specific assets. The credit balance in this account offsets the debit
balance in the asset account which shows the original value of the asset. When the
original asset value is netted against the accumulated depreciation for the asset you
arrive at the net book value of the asset.
Question:
Accumulated other comprehensive income
Answer:
An equity account that consists of cumulative unrealized gains or losses on line items
classified under other comprehensive income. It includes items such as unrealized
gains or losses on investments available for sale, foreign currency gains or losses, and
pension plan gains or losses.
