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Financial Accounting Terms Questions and Complete Solutions Graded A+
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Financial Accounting Terms Questions and Complete Solutions Graded A+
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FinancialAccounting Terms
Questions and
Complete Solutions
Graded A+
Denning [Date] [Course title]
,Accounting Equation - Answer: Assets=Liabilities+Owners' Equity
Equality of Assets= Claims of Creditors+Claims of Owners
Reason why we call it a "Balance" Sheet.
Always equal because they represent two views of the same business.
Everything a business owns has been supplied to it either by the creditors or the owners
Accrual - Answer: Example-Interest Expense, Wages (or Salaries) Expense, Uncollected Revenue.
To grow or accumulate overtime.
Accrual Accounting - Answer: Calls for recording revenue in the period in which it is earned and
recording expenses in which they are incurred. The effect of events on the business is recognized as
services are rendered or consumed rather than cash is received or paid.
The policy of recognizing in the accounting records when it is earned and recognizing expenses when the
related goods or services are used.
The purpose for this is to measure the profitability of economic activities conducted during the
accounting period.
Matching Principle-most important concept, Revenue is offset with all of the expenses incurred in
generating that revenue, measuring overall profitability of the economic activity.
Alternate is Cash Basis Accounting
Adjusted Trial Balance - Answer: A schedule indicating the balances in ledger accounts after end-of-
period adjusting entries have been posted. The amounts shown in this are carried directly into financial
statements.
Step 5 of Accounting Cycle; comes after end-of-period adjustments
, Adjusting Entry - Answer: Example:Shop purchases supplies that will be used for several months. You
need this to record the expense associated with the shop supplies used each month.
Example 2: Two or Three year magazine subscriptions
Needed at the end of each accounting period to make certain that appropriate amounts of revenue and
expense are reported in the company's income statement.
Four Types of Adjusting Entries (pg. 142)
1)Converting Assets to Expenses
2)Converting Liabilities to Revenue
3)Accruing Unpaid Expenses
4)Accruing Uncollected Revenue
These entries assign revenues to the period in which they are earned, and expenses to the periods in
which related goods or services are used.
Certain transactions affect the revenue or expenses of two or more accounting periods. The purpose of
adjusting entires is to assign to each accounting period appropriate amounts of revenue and expense.
Balance Sheet - Answer: The financial statement showing the financial position of an enterprise by
summarizing its assets, liabilities, and owners' equity at a point in time or specific date. Sometimes
described as a snapshot of the business in financial or dollar terms. Also called the statement of financial
position.
Business Transactions - Answer: An economic event that initiates the accounting process of recording it
in a company's accounting system. They are the interactions between businesses and their customers,
vendors and others with whom they do business.
Consistency - Answer: Example: Choosing FIFO or LIFO.
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