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INTERMEDIATE ACCOUNTING VOCABULARY EXAM QUESTIONS WITH CORRECT ANSWERS
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INTERMEDIATE ACCOUNTING VOCABULARY EXAM QUESTIONS WITH CORRECT ANSWERS
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INTERMEDIATE ACCOUNTINGVOCABULARY EXAM QUESTIONS WITH
CORRECT ANSWERS
Accounting equation - Answer-the process used to capture the effect of economic
events; Assets = Liabilities + Owner's Equity.
Accounting Principles Board (APB) - Answer-the second private sector body delegated
the task of setting accounting standards.
Accounts - Answer-storage areas to keep track of the increases and decreases in
financial position elements.
Accounts payable - Answer-obligations to suppliers of merchandise or of services
purchased on open account.
Accounts receivable - Answer-receivables resulting from the sale of goods or services
on account.
Accounts receivable aging schedule - Answer-applying different percentages to
accounts receivable balances depending on the length of time outstanding.
Accrual accounting - Answer-measurement of the entity's accomplishments and
resource sacrifices during the period, regardless of when cash is received or paid.
Accruals - Answer-when the cash flow comes after either expense or revenue
recognition.
Accrued interest - Answer-interest that has accrued since the last interest date.
Accrued liabilities - Answer-expenses already incurred but not yet paid (accrued
expenses).
Accrued receivables - Answer-the recognition of revenue earned before cash is
received.
Accumulated benefit obligation (ABO) - Answer-the discounted present value of
estimated retirement benefits earned so far by employees, applying the plan's pension
formula using existing compensation levels.
Accumulated other comprehensive income - Answer-amount of other comprehensive
income (nonowner changes in equity other than net income) accumulated over the
current and prior periods.
,Accumulated postretirement benefit obligation (APBO) - Answer-portion of the EPBO
attributed to employee service up to a particular date.
Acid-test ratio - Answer-current assets, excluding inventories and prepaid items, divided
by current liabilities.
Acquisition costs - Answer-the amounts paid to acquire the rights to explore for
undiscovered natural resources or to extract proven natural resources.
Activity-based method - Answer-allocation of an asset's cost base using a measure of
the asset's input or output.
Actuary - Answer-a professional trained in a particular branch of statistics and
mathematics to assess the various uncertainties and to estimate the company's
obligation to employees in connection with its pension plan.
Additions - Answer-the adding of a new major component to an existing asset.
Adjusted trial balance - Answer-trial balance after adjusting entries have been recorded.
Adjusting entries - Answer-internal transactions recorded at the end of any period when
financial statements are prepared.
Allocation base - Answer-the value of the usefulness that is expected to be consumed.
Allocation method - Answer-the pattern in which the usefulness is expected to be
consumed.
Allowance method - Answer-recording bad debt expense and reducing accounts
receivable indirectly by crediting a contra account (allowance for uncollectible accounts)
to accounts receivable for an estimate of the amount that eventually will prove
uncollectible.
American Institute of Accountants (AIA)/American Institute of Certified Public
Accountants (AICPA) - Answer-national organization of professional public accountants.
Amortization - Answer-cost allocation for intangibles.
Amortization schedule - Answer-schedule that reflects the changes in the debt over its
term to maturity.
Annuity - Answer-cash flows received or paid in the same amount each period.
Annuity due - Answer-cash flows occurring at the beginning of each period.
,Antidilutive securities - Answer-the effect of the conversion or exercise of potential
common shares would be to increase rather than decrease, EPS.
Articles of incorporation - Answer-statement of the nature of the firm's business
activities, the shares to be issued, and the composition of the initial board of directors.
Asset retirement obligations (AROs) - Answer-obligations associated with the
disposition of an operational asset.
Assets - Answer-probable future economic benefits obtained or controlled by a
particular entity as a result of past transactions or events.
Asset turnover ratio - Answer-measure of a company's efficiency in using assets to
generate revenue.
Assigning - Answer-using receivables as collateral for loans; nonpayment of a debt will
require the proceeds from collecting the assigned receivables to go directly toward
repayment of the debt.
Attribution - Answer-process of assigning the cost of benefits to the years during which
those benefits are assumed to be earned by employees.
Auditors - Answer-independent intermediaries who help ensure that management has
appropriately applied GAAP in preparing the company's financial statements.
Auditor's report - Answer-report issued by CPAs who audit the financial statements that
informs users of the audit findings.
Average collection period - Answer-indication of the average age of accounts
receivable.
Average cost method - Answer-assumes cost of goods sold and ending inventory
consist of a mixture of all the goods available for sale.
Average days in inventory - Answer-indicates the average number of days it normally
takes to sell inventory.
Bad debt expense - Answer-an operating expense incurred to boost sales; inherent cost
of granting credit.
Balance sheet - Answer-a position statement that presents an organized list of assets,
liabilities, and equity at a particular point in time.
Balance sheet approach - Answer-determination of bad debt expense by estimating the
net realizable value of accounts receivable to be reported in the balance sheet.
, Bank reconciliation - Answer-comparison of the bank balance with the balance in the
company's own records.
Bargain purchase option (BPO) - Answer-provision in the lease contract that gives the
lessee the option of purchasing the leased property at a bargain price.
Bargain renewal option - Answer-gives the lessee the option to renew the lease at a
bargain rate.
Basic EPS - Answer-computed by dividing income available to common stockholders
(net income less any preferred stock dividends) by the weighted-average number of
common shares outstanding for the period.
Billings of construction contract - Answer-contra account to the asset construction in
progress; subtracted from construction in progress to determine balance sheet
presentation.
Board of directors - Answer-establishes corporate policies and appoints officers who
manage the corporation.
Bond indenture - Answer-document that describes specific promises made to
bondholders.
Bonds - Answer-A form of debt consisting of separable units (bonds) that obligates the
issuing corporation to repay a stated amount at a specified maturity date and to pay
interest to bondholders between the issue date and maturity.
Book value - Answer-assets minus liabilities as shown in the balance sheet.
Callable - Answer-allows the issuing company to buy back, or call, outstanding bonds
from the bondholders before their scheduled maturity date.
Capital budgeting - Answer-The process of evaluating the purchase of operational
assets.
Capital leases - Answer-installment purchases/sales that are formulated outwardly as
leases.
Capital markets - Answer-mechanisms that foster the allocation of resources efficiently.
Cash - Answer-currency and coins, balances in checking accounts, and items
acceptable for deposit in these accounts, such as checks and money orders received
from customers.
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