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Bookkeeping-Accounting Terms Questions and Answers Fully Solved
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Bookkeeping-Accounting Terms
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Bookkeeping-Accounting TermsAccounting - answer The process of recording and communicating financial information
that is intended to be useful in making economic decisions.
Entity assumption - answer A business is considered a separate entity distinguishable
from its owners, creditors, employees, and all other entities.
Asset - answerResources owned by a business that have money value.
Cost principle - answer Business transactions are entered in the accounting system at
cost which includes purchase price, sales tax, freight, and any other cost needed to
prepare the asset for sale or for its intended use.
Liability - answerThe debts owed by a business.
Creditors - answerThe person or entity to whom the debt is owed.
Owners' equity - answerThe owners' interest in the assets of the business (net worth).
Capital stock - answerRefers to all classessof ownership, shares, both preferred an
common, issued by a corporation.
Accounting Equation - answerAssets = Liabilities + Owners' equity
Owners' equity = Paid-in capital + Retained earnings
Retained earnings = Beginning balance + Revenues - Expenses - Dividends
Financial statements - answerFinal result of the accounting process that serve as
important communication devices---2 types (Internal and External statements).
Internal statements - answerAre prepared at the request of mangement for the sole use
of managers within the firm.
External statements - answerAre prepared specifically for use by outside parties such
as creditior and stocklholders--- 4 types (Income statement, Retained earnings
statement, Balance sheet, Statement of cash flow).
Fiscal year - answerThe period (any 12 consecutive months) the firm selects for
reporting.
, Calendar year - answerAn accounting period that extends from January 1 to December
31.
Natural business year - answerTwelve-month period that ends when a company's sales
activities are at their lowest point.
Interim reports - answerFinancial statements prepared for periods shorter than one
year, such as monthly or quarterly. (IMA)
Income statement - answerA summary of the revenue and expenses for a specific
period of time, such as a month,quarter, or year.
Revenues - answerInflows of assets or settlements of liabilities from delivering or
producing goods, rendering services, or sales.
Expenses - answerAssets used up or services consumed in the process of generating
revenues during an accounting period.
Gains - answerIncreases in net assets from incidental transactions that are not
revenues or investments by owners.
Losses - answerDecreases in net assets from incidental transactions that are not
expenses or distributions to owners.
Retained earnings statement - answerA financial statement that summarizes the
changes in retained earnings for a specific period of time. [Retained earnings at the end
of the accounting period = Retained earnings at the beginning of the period + Net
income (or minus net loss) - Dividends declared during the period]
Balance sheet - answerA financial statement that reports assets, liabilities, and owner's
equity on a specific date.
Current assets - answerCash and other assets expected to be exchanged for cash or
consumed within a year.
Accounts receivable - answerAmounts customers owe on account.
Current Liabilities - answerObligations that a company reasonably expects to pay within
the next year or operating cycle, whichever is longer.
Accounts payable - answerMoney owed to others for merchandise or services
purchased on credit but not yet paid for.
Accounting data processing cycle or Accounting cycle - answerThe various (8-9) steps
that relate to the processing of accounting data, that is, from the occurrence of a
transaction to the preparation of financial statements completed at least once a year.
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