MAJOR FIELD TEST BUSINESS EXAM SCRIPT
COMPREHENSIVE STUDY GUIDE
●● Income Statement
Answer: 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)
Answer: 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
Answer: 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
Answer: 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
Answer: 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
Answer: 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
Answer: 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
Answer: 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
Answer: Beginning Inventory + Purchases = Goods
●● Basic Inventory Equation for Cost of Goods Sold (COGS)
Answer: Goods Available for Sale - Ending Inventory = Cost of Goods
Sold (COGS)
●● Basic Inventory Equation for Ending Inventory
Answer: Beginning Inventory + Purchases = Goods Available for Sale -
Cost of Goods Sold (COGS) = ending inventory
●● Periodic Inventory Accounting
Answer: 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
Answer: 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)
Answer: Inventory Oldest items inventory are sold first .(Example:
Fruit)
●● LIFO (Inventory)
Answer: Most recent items added to inventory are sold first. (Example:
Ore from Mining)
●● Average Cost (Inventory)
Answer: Ending inventory units are costed using an average cost of
goods available divided by the units available for sale. (Example: Rope)
COMPREHENSIVE STUDY GUIDE
●● Income Statement
Answer: 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)
Answer: 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
Answer: 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
Answer: 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
Answer: 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
Answer: 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
Answer: 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
Answer: 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
Answer: Beginning Inventory + Purchases = Goods
●● Basic Inventory Equation for Cost of Goods Sold (COGS)
Answer: Goods Available for Sale - Ending Inventory = Cost of Goods
Sold (COGS)
●● Basic Inventory Equation for Ending Inventory
Answer: Beginning Inventory + Purchases = Goods Available for Sale -
Cost of Goods Sold (COGS) = ending inventory
●● Periodic Inventory Accounting
Answer: 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
Answer: 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)
Answer: Inventory Oldest items inventory are sold first .(Example:
Fruit)
●● LIFO (Inventory)
Answer: Most recent items added to inventory are sold first. (Example:
Ore from Mining)
●● Average Cost (Inventory)
Answer: Ending inventory units are costed using an average cost of
goods available divided by the units available for sale. (Example: Rope)
