Question 1

The primary objective of financial accounting is to:

Accepted Answer

Provide accounting information that serves external users.

Question 2

External users of accounting information include all of the following except:

Accepted Answer

Purchasing managers.

Question 3

Ethical behavior requires that:

Accepted Answer

Auditor's may not depend on the success of the client's business.

Question 4

The private-sector group that currently has the authority to establish generally accepted accounting principles in the United States is the:

Accepted Answer

FASB

Question 5

Net income:

Accepted Answer

is the excess of revenues over expenses

Question 6

The description of the relation between a company's assets, liabilities, and equity, which is expressed as Assets=Liabilities+Equity is known as the:

Accepted Answer

Accounting Equation

Question 7

Assets created by selling goods and services on credit are:

Accepted Answer

accounts receivable

Question 8

Risk is:

Accepted Answer

The uncertainty about the return expected to be earned.

Question 9

The accounting process begins with:

Accepted Answer

Analysis of business transactions and source documents.

Question 10

An account used to record the owner's investments in a business is called a(n):

Accepted Answer

Capital account.

Question 11

The right side of the T-account is a(n):

Accepted Answer

Credit.

Question 12

A debit is used to record the owner's investments in a business is called a(n):

Accepted Answer

Wages Expense

Question 13

A credit is used to record an increase in which of the following accounts?

Accepted Answer

Accounts Payable

Question 14

The recurring steps preformed each reporting period in preparing financial statements, starting with analyzing and recording transactions in the journal and continuing through the post-closing trail balance, is referred to as the:

Accepted Answer

Accounting cycle.

Question 15

Which of the following is the usual final step in the accounting cycle?

Accepted Answer

Preparing a post-closing trial balance.

Question 16

A classified balance sheet:

Accepted Answer

Organizes assets and liabilities into important subgroups to provide more information.

Question 17

Statements that show the financial statements as if proposed transactions had already occurred are called:

Accepted Answer

Pro Forma Statements.

Question 18

Business entry assumption:

Accepted Answer

The principle that requires a business to be accounted for separately from its owner.

Question 19

Expense recognition (matching) principle:

Accepted Answer

States expenses are recorded in the same accounting period as revenues earned because of those expenses.

Question 20

Full disclosure principle:

Accepted Answer

Prescribes that a company report the details behind financial statements that would impact user decisions.

Question 21

Going concern assumption:

Accepted Answer

Means that accounting information reflects a presumption that the business will continue and not close.

Question 22

Materiality constraint:

Accepted Answer

Prescribes the only information that would influence that decisions of a reasonable person need be disclosed.

Question 23

Measurement (Cost) principle:

Accepted Answer

Prescribes that assets and services to be recorded initially on a cash or equal-to-cash basis.

Question 24

Monetary unit assumption:

Accepted Answer

The principle that assumes transactions and events can be expressed in money units.

Question 25

Revenue recognition principle:

Accepted Answer

The principle that revenue is recorded when earned through providing goods and services.

Question 26

Time period assumption:

Accepted Answer

Presumes that the life of a company can be divided into periods for reporting purposes.

Question 27

Account:

Accepted Answer

A record of the increases and decreases in a specific asset, liability, equity, revenue, or expenses item.

Question 28

Accounting equation:

Accepted Answer

Expresses the relation of assets, liabilities and equity in a company, comparing the resources the company owns to the sources of funds to acquire the resources.

Question 29

Accrual basis accounting:

Accepted Answer

The accounting system using the adjusting process to recognize when earned and expenses when incurred.

Question 30

Accrued expenses:

Accepted Answer

Costs that are incurred in a period but are both unpaid and unrecorded, requiring an adjustment at the end of the period.

Question 31

Accrued revenues:

Accepted Answer

Revenues earned in a period that are both unrecorded and not yet received in cash or other assets.

Question 32

Adjusting entry:

Accepted Answer

a journal entry made at the end of an accounting period to reflect a transaction or even that is not yet recorded; affects one or more income statement account and one or more balance sheet account, but never cash.

Question 33

Assets:

Accepted Answer

Recourses a companions or controls that are expected to yield future benefits.

Question 34

Balance sheet:

Accepted Answer

A report that describes a company's financial position at a point in time.

Question 35

Cash basis accounting:

Accepted Answer

The accounting system that recognizes when cash is received and recorded express when cash is paid.

Question 36

Closing entires:

Accepted Answer

Entries used a transfer end-of-period balances in revenue, expense, and withdrawals accounts to the permanent owner's capital account.

Question 37

Contra account:

Accepted Answer

An account linked with another account and having an opposite normal balance.

Question 38

Credit:

Accepted Answer

Decrease in an asset, owner withdrawal and expense account, and increase in a liability, owner's capital and revenue account; recorded on the right ride of the T-account.

Question 39

Debit:

Accepted Answer

An increase in an asset and expense account, and a decrease in a liability, owner's capital, and revenue account, recorded on the left side of a T-account.

Question 40

Expenses:

Accepted Answer

Decreases in equity from costs of providing products or service to customers.

Question 41

Income statement:

Accepted Answer

Describes a company's revenues and expenses along with the resulting net income or loss over a period of time.

Question 42

Journal:

Accepted Answer

a company's chronological record of each transaction in one place that shows debits and credits for each transaction.

Question 43

Ledger:

Accepted Answer

A record containing all the accounts of a company and their balances.

Question 44

Liabilities:

Accepted Answer

Creditor's claims on a company's assets

Question 45

Owner's capital:

Accepted Answer

The owner's claim on the assets of a company

Question 46

Permanent Account:

Accepted Answer

Accounts that report on activities related to one or more future accounting periods; they carry their ending balances into the next period.

Question 47

Posting:

Accepted Answer

The process of transferring journal entry information to the ledger account.

Question 48

Prepaid expenses:

Accepted Answer

Items paid for in advance of receiving their benefits;recorded as an asset when purchased and expensed when used.

Question 49

Source documents:

Accepted Answer

Verifiable evidence that transactions have occurred used to record accounting information.

Question 50

Statement of owner's equity:

Accepted Answer

a financial statement that reports the changes in equity over the reporting period; including increases such as owner investment.

Question 51

Temporary accounts:

Accepted Answer

Accounts that accumulate data related to one accounting period only; they include income statement accounts and withdrawals.

Question 52

Trial Balance:

Accepted Answer

A list of accounts and their balances at a point in time.

Question 53

Work sheet:

Accepted Answer

A widely used working paper that is a useful tool for prepares in working with accounting information, usually not available to external decision makers.

Acct. 201 Exam 1

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