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Questions and Answers
What are the two main qualities of accounting?
What is the largest organization of professional accountants?
AICPA
What is the FASB responsible for establishing?
GAAP
What represents the owners' interest in the assets of a corporation?
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How does stockholders equity increase?
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What does double entry accounting indicate?
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What happens when a company receives cash for issuing stock?
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What occurs when a company performs services on account?
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What is not a component of stockholders equity?
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Where are accounting transactions originally recorded?
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What is the process of posting in traditional bookkeeping?
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What are the two primary methods used to account for transactions?
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What does an accrual refer to?
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Which account is credited in the adjusting entry to record insurance expired during the current period?
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What is not a purpose of internal control?
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Who has the primary responsibility for ensuring internal control?
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What should be added to a bank balance in the bank reconciliation?
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In a merchandising business, gross profit is equal to sales revenue minus?
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What does the perpetual inventory system provide?
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Under the allowance method for estimating uncollectible accounts, what does the entry to record bad debt expense show?
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When a company has a contingent loss with a reasonably possible chance of occurrence, what does the FASB require?
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What is the interest rate that investors demand for loaning their money called?
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If a bond is issued at a smaller percentage than the market rate, it is called a?
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What are all investments not classified as trading securities or held to maturity securities classified as?
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How is the accounting book value of an asset defined?
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Paid in capital is also known as?
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Not counting treasury stock and other comprehensive income, stockholders equity is divided into?
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What reduces total stockholders equity?
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What assesses a company's profitability focusing on the relationship between net income and average common stockholders' equity?
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An investor who wishes to know whether a company is successful in using its assets to earn income for individuals who finance the business should review the?
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Cash paid or received for long-term assets should be reported as?
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Changes in current assets or current liabilities should be reported as?
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What does a statement of responsibility declare?
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Which entity requires companies issuing publicly traded stock to have their financial statements audited?
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Study Notes
Accounting Fundamentals
- Two main qualities of accounting: relevance and reliability.
- Largest organization of professional accountants: AICPA.
- FASB's key role: establishing GAAP (Generally Accepted Accounting Principles).
Stockholders Equity
- Defined as owners' interest in the assets of a corporation.
- Increases through owner investments and net income.
Accounting Process
- Double entry accounting requires at least two accounts per transaction.
- Cash received for stock issuance results in increased assets and equity.
- Performing services on account increases assets and revenues.
- Accounting transactions are first recorded in journals or databases.
Bookkeeping Principles
- Posting process involves transferring data from journals to ledgers.
- Primary methods for accounting transactions: cash basis and accrual basis.
Accrual Accounting
- Accrual events record expenses or revenues before cash settlement.
- Adjusting entry for expired insurance credits prepaid insurance.
Internal Control and Management
- Not a purpose of internal controls: promoting operational inefficiency.
- Top management holds primary responsibility for ensuring internal controls.
Bank Reconciliation
- Deposits in transit should be added to the bank balance during reconciliation.
Merchandising and Profit Analysis
- In merchandising, gross profit equals sales revenue minus cost of goods sold.
- Perpetual inventory system maintains a continuous inventory record.
Accounts Receivable and Contingent Loss
- Under allowance method, recording bad debt expense reduces net income.
- Contingent losses with a reasonable chance of occurrence must be reported in financial statement notes.
Investments and Securities
- Effective rate of interest: the returns investors expect for loaning money.
- Bonds issued below market interest rate result in a discount.
- Investments not classified as trading or held to maturity are available for sale securities.
Asset Valuation and Capital Structure
- Accounting book value of an asset: cost minus accumulated depreciation.
- Paid-in capital is also known as additional contributed capital.
- Without treasury stock and other comprehensive income, stockholders' equity consists of contributed capital and retained earnings.
Equity Analysis
- Total stockholders' equity is reduced by treasury stock.
- Return on equity measures profitability in relation to net income against average common stockholders' equity.
- Return on assets assesses management efficiency in utilizing assets to generate income.
Cash Flow Reporting
- Cash transactions for long-term assets categorized as investing activities.
- Changes in current assets or liabilities reported as operating activities.
Financial Reporting and Compliance
- Statement of responsibility asserts management's accountability for financial statements in line with GAAP.
- SEC mandates audits for companies issuing publicly traded stock.
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Description
Test your knowledge on the basics of accounting, including key qualities such as relevance and reliability, the role of FASB in establishing GAAP, and the importance of stockholders' equity. This quiz also covers the accounting process, bookkeeping principles, and accrual accounting methods.
