MAJOR FIELD TEST BUSINESS
STUDY SET EXAM QUESTIONS &
DETAILED CORRECT ANSWERS
PASSED ALREADY GRADED A+
Balance Sheet - correct answer ✔✔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 - correct answer ✔✔Presents the results of the operations of an entity over a
period of time.
Includes: Revenues, Expenses, Income, Gains & Losses
Statement of Equity or Statement of Retained Earnings (Capital) - correct 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 - correct 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 - correct 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 - correct 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 - correct 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 - correct 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 - correct 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 - correct answer ✔✔Beginning Inventory + Purchases =
Goods
Basic Inventory Equation for Cost of Goods Sold (COGS) - correct answer ✔✔Goods Available for
Sale - Ending Inventory = Cost of Goods Sold (COGS)
, Basic Inventory Equation for Ending Inventory - correct answer ✔✔Beginning Inventory +
Purchases = Goods Available for Sale - Cost of Goods Sold (COGS) = ending inventory
Periodic Inventory Accounting - correct 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 - correct 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) - correct answer ✔✔Inventory Oldest items inventory are sold first .(Example:
Fruit)
LIFO (Inventory) - correct answer ✔✔Most recent items added to inventory are sold first.
(Example: Ore from Mining)
Average Cost (Inventory) - correct answer ✔✔Ending inventory units are costed using an
average cost of goods available divided by the units available for sale. (Example: Rope)
Specific Identification (Inventory) - correct answer ✔✔Inventory items are tagged with their
cost. (Example: automobiles)
STUDY SET EXAM QUESTIONS &
DETAILED CORRECT ANSWERS
PASSED ALREADY GRADED A+
Balance Sheet - correct answer ✔✔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 - correct answer ✔✔Presents the results of the operations of an entity over a
period of time.
Includes: Revenues, Expenses, Income, Gains & Losses
Statement of Equity or Statement of Retained Earnings (Capital) - correct 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 - correct 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 - correct 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 - correct 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 - correct 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 - correct 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 - correct 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 - correct answer ✔✔Beginning Inventory + Purchases =
Goods
Basic Inventory Equation for Cost of Goods Sold (COGS) - correct answer ✔✔Goods Available for
Sale - Ending Inventory = Cost of Goods Sold (COGS)
, Basic Inventory Equation for Ending Inventory - correct answer ✔✔Beginning Inventory +
Purchases = Goods Available for Sale - Cost of Goods Sold (COGS) = ending inventory
Periodic Inventory Accounting - correct 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 - correct 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) - correct answer ✔✔Inventory Oldest items inventory are sold first .(Example:
Fruit)
LIFO (Inventory) - correct answer ✔✔Most recent items added to inventory are sold first.
(Example: Ore from Mining)
Average Cost (Inventory) - correct answer ✔✔Ending inventory units are costed using an
average cost of goods available divided by the units available for sale. (Example: Rope)
Specific Identification (Inventory) - correct answer ✔✔Inventory items are tagged with their
cost. (Example: automobiles)
