Accounting in Business Chapter 1
48 Questions
3 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to Lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is the Measurement Principle also known as?

  • Full Disclosure Principle
  • Revenue Recognition Principle
  • Cost Principle (correct)
  • Expense Recognition Principle

When should revenue be recognized according to the Revenue Recognition Principle?

  • At year-end regardless of service delivery
  • When goods or services are provided to customers (correct)
  • When cash is received from customers
  • When inventory is sold

What does the Expense Recognition Principle require a company to do?

  • Recognize expenses based on customer payments
  • Record expenses incurred to generate reported revenue (correct)
  • Record expenses based on future cash flows
  • Incur expenses before recognizing revenue

What is the purpose of the Full Disclosure Principle?

<p>To report details impacting user decisions in the notes to statements (A)</p> Signup and view all the answers

Which principle is concerned with the timing of revenue recognition?

<p>Revenue Recognition Principle (C)</p> Signup and view all the answers

What does the term 'objective' refer to in the context of the Measurement Principle?

<p>Actual cost of resources used (A)</p> Signup and view all the answers

Why is the Expense Recognition Principle sometimes referred to as the Matching Principle?

<p>It matches incurred expenses with earned revenues (C)</p> Signup and view all the answers

Which of the following is NOT a general principle of accounting?

<p>Asset Valuation Principle (B)</p> Signup and view all the answers

What does the expanded accounting equation emphasize about a business's financial position?

<p>The relationship between assets, liabilities, and equity. (D)</p> Signup and view all the answers

In the first transaction, what is the total contribution made by Chas Taylor to the business?

<p>$30,000 in cash. (B)</p> Signup and view all the answers

What accounts are affected in Transaction 2 when supplies are purchased for $2,500 cash?

<p>Cash and Supplies. (B)</p> Signup and view all the answers

When equipment is purchased for $26,000 cash, how does this transaction affect the accounting equation?

<p>It increases assets and decreases cash. (B)</p> Signup and view all the answers

Which of the following represents the correct analysis of the investment made by the owner?

<p>This investment increases total assets and equity. (B)</p> Signup and view all the answers

In the context of accounting transactions, which statement about equity is true?

<p>Equity represents the owner's residual interest in the assets. (A)</p> Signup and view all the answers

After the second transaction, how does the accounting equation balance if cash is decreased by a purchase?

<p>Assets must decrease to maintain balance. (D)</p> Signup and view all the answers

Which of the following accounts would NOT be impacted by an equipment purchase for cash?

<p>Supplies (D)</p> Signup and view all the answers

What is the effect on total equity when rent and salaries are paid?

<p>Total equity decreases (D)</p> Signup and view all the answers

Which accounts are involved when consulting services are provided on credit?

<p>Accounts Receivable, Consulting Revenues, Rental Revenue (B)</p> Signup and view all the answers

What is the total amount paid by the client in transaction 9 related to consulting services?

<p>$1,900 (C)</p> Signup and view all the answers

What is the classification of the account 'Accounts Receivable'?

<p>Asset (C)</p> Signup and view all the answers

What impact do expenses have on equity when incurred?

<p>They decrease equity (B)</p> Signup and view all the answers

Which of the following describes the account 'Consulting Revenues'?

<p>Equity (C)</p> Signup and view all the answers

What accounts are affected when cash is received from accounts receivable?

<p>Increase in Cash and decrease in Accounts Receivable (A)</p> Signup and view all the answers

What is the total amount of expenses incurred from paying rent and salaries in the given transactions?

<p>$1,700 (A)</p> Signup and view all the answers

What accounts are affected when FastForward makes a $900 partial payment for supplies?

<p>Cash and Accounts Payable (A)</p> Signup and view all the answers

How does the owner's withdrawal of $200 cash affect equity?

<p>It decreases equity (B)</p> Signup and view all the answers

In the context of business transactions, how is equity impacted when expenses are incurred?

<p>Equity decreases (B)</p> Signup and view all the answers

If a company makes a cash withdrawal for personal use by the owner, which accounting equation component is directly affected?

<p>Assets decrease (D)</p> Signup and view all the answers

What is the nature of the Withdrawals account in accounting?

<p>It increases like expense accounts (D)</p> Signup and view all the answers

Which transaction type reduces the owner's equity in a business?

<p>Withdrawal of cash (A)</p> Signup and view all the answers

What effect does a $900 payment of accounts payable have on the accounting equation?

<p>Assets decrease while liabilities decrease (B)</p> Signup and view all the answers

Which financial statement is likely affected by owner withdrawals?

<p>Statement of Changes in Equity (C)</p> Signup and view all the answers

What is the main purpose of accounting in a business context?

<p>To identify, record, and communicate business activities (D)</p> Signup and view all the answers

Which group primarily uses accounting information to make investment decisions?

<p>External users like shareholders (C)</p> Signup and view all the answers

What is the role of ethics in accounting?

<p>To ensure the accuracy and integrity of financial information (A)</p> Signup and view all the answers

Which principle is NOT part of generally accepted accounting principles (GAAP)?

<p>The gross margin principle (B)</p> Signup and view all the answers

Which financial statement shows an organization's financial position at a specific point in time?

<p>Balance sheet (D)</p> Signup and view all the answers

What does the accounting equation represent?

<p>Assets = Liabilities + Equity (A)</p> Signup and view all the answers

What is a primary reason organizations prepare financial statements?

<p>To communicate financial performance to stakeholders (D)</p> Signup and view all the answers

Which of the following is NOT considered an external user of financial information?

<p>Company executives (C)</p> Signup and view all the answers

What is the accounting equation impact of purchasing equipment for $26,000 cash?

<p>Assets increase and decrease by the same amount (A)</p> Signup and view all the answers

Which accounts are affected when supplies are purchased on credit for $7,100?

<p>Supplies and Accounts Payable (C)</p> Signup and view all the answers

What is the result of providing services for $4,200 cash?

<p>Cash increases and revenues increase (C)</p> Signup and view all the answers

When rent of $1,000 is paid, which of the following accounts is affected?

<p>Assets and Expenses (D)</p> Signup and view all the answers

What accounts are affected when salaries of $700 are paid to employees?

<p>Cash and Expenses (B)</p> Signup and view all the answers

What is the effect on the accounting equation when equipment is purchased?

<p>Total assets increase while liabilities remain unchanged (C)</p> Signup and view all the answers

If supplies are purchased on credit, what is the overall effect on the accounting equation?

<p>Assets increase while liabilities increase (D)</p> Signup and view all the answers

Which of the following transactions directly impacts equity?

<p>Providing consulting services (A)</p> Signup and view all the answers

Flashcards

Purpose of Accounting

Accounting is a system that identifies, records, and communicates an organization's business activities.

Importance of Accounting

Accounting helps people make better decisions by providing information and measurements of business activities.

Users of Accounting Information

External and Internal users rely on accounting information to make decisions.

External Users

People outside the business who need accounting information.

Signup and view all the flashcards

Internal Users

People inside the business who need accounting information.

Signup and view all the flashcards

Financial Statements

Reports that communicate a business's information and activities.

Signup and view all the flashcards

Accounting Equation

A fundamental equation in accounting that shows assets equal the sum of liabilities and equity.

Signup and view all the flashcards

Business Activities

The actions a business takes to generate profit.

Signup and view all the flashcards

General Accounting Principles

Broad guidelines and assumptions used when preparing financial statements.

Signup and view all the flashcards

Specific Accounting Principles

Detailed rules used to report specific business transactions and events.

Signup and view all the flashcards

Measurement Principle

Records accounting information based on actual cost for objectivity.

Signup and view all the flashcards

Revenue Recognition Principle

Recognizes revenue when goods or services are provided and at the expected amount from the customer.

Signup and view all the flashcards

Expense Recognition Principle

Matches expenses incurred to generate the revenue reported.

Signup and view all the flashcards

Full Disclosure Principle

Reports details that would influence user decisions in the notes to financial statements.

Signup and view all the flashcards

What is the Accounting Equation?

The accounting equation shows the relationship between a company's assets, liabilities, and equity. It states that assets are always equal to the sum of liabilities and equity.

Signup and view all the flashcards

What are Assets?

Assets are resources owned by a company that have a future economic benefit. They represent what a company possesses.

Signup and view all the flashcards

What are Liabilities?

Liabilities represent obligations or debts that a company owes to others. They represent what the company owes.

Signup and view all the flashcards

What is Equity?

Equity represents the owners' claim on the assets of the company. It represents the owners' investment in the company.

Signup and view all the flashcards

Investment by Owner

When an owner invests personal funds into a business, it increases both cash (an asset) and equity.

Signup and view all the flashcards

Purchase Supplies for Cash

Buying supplies for cash uses up cash (an asset) and increases supplies (another asset).

Signup and view all the flashcards

Purchase Equipment for Cash

When a company purchases equipment with cash, it decreases cash (an asset) and increases equipment (another asset).

Signup and view all the flashcards

Analyze Business Transactions

Analyzing business transactions helps you understand how transactions affect the accounting equation and the financial position of the company.

Signup and view all the flashcards

What does 'on credit' mean in business?

Purchasing goods or services without immediately paying for them. The payment is due at a later date.

Signup and view all the flashcards

What are Accounts Payable?

Money a company owes to its suppliers for goods or services purchased 'on credit'.

Signup and view all the flashcards

How do you buy equipment with cash?

Paying for an asset, such as equipment, with cash from the company's bank account.

Signup and view all the flashcards

What are 'Supplies' in accounting?

Items used in daily business operations, such as office supplies, cleaning materials, etc.

Signup and view all the flashcards

What is 'Revenue'?

The income a business generates from providing goods or services to customers.

Signup and view all the flashcards

What is 'Expense'?

The cost of doing business, including salaries, rent, and utilities.

Signup and view all the flashcards

What is 'Withdrawal'?

Money taken out of the business by the owner for personal use.

Signup and view all the flashcards

What are 'Consulting Services'?

Providing expert advice or guidance to clients in a particular field.

Signup and view all the flashcards

What happens to Equity when Expenses increase?

When expenses increase, total Equity decreases because expenses reduce the overall profit of the business.

Signup and view all the flashcards

What are the accounts involved in paying Rent and Salaries?

The accounts involved are Cash (an asset) and Rent Expense and Salaries Expense (both under Equity).

Signup and view all the flashcards

Accounts Receivable

Accounts Receivable is an asset representing money owed to a company by customers for goods or services already delivered.

Signup and view all the flashcards

Consulting Revenues

Consulting Revenues represent the income earned by the company from providing consulting services.

Signup and view all the flashcards

Rental Revenue

Rental Revenue represents the income earned by the company from renting out its facilities.

Signup and view all the flashcards

What are the accounts involved when a client pays for services?

The accounts involved are Cash (an asset) and Accounts Receivable (an asset).

Signup and view all the flashcards

How does receiving cash affect Accounts Receivable?

When a client pays for their bill, the company receives cash and the amount owed by the client (Accounts Receivable) decreases.

Signup and view all the flashcards

Accounts Payable

Money owed to suppliers for goods or services already received but not yet paid for.

Signup and view all the flashcards

Cash

The most liquid asset, representing readily available money.

Signup and view all the flashcards

Partial Payment

Paying a portion of a total amount owed.

Signup and view all the flashcards

Withdrawals

Money taken out of the business by the owner for personal use.

Signup and view all the flashcards

Equity

The owner's stake in the business, representing the difference between assets and liabilities.

Signup and view all the flashcards

Assets

Things of value owned by the business, such as cash, inventory, equipment.

Signup and view all the flashcards

Liabilities

Debts owed to others by the business.

Signup and view all the flashcards

Study Notes

Accounting in Business

  • The textbook is Fundamental Accounting Principles 3rd edition by Wild, Kwok, Venkatesh, and Shaw
  • Copyright is ©2022 McGraw Hill

Chapter 1 Learning Objectives

  • Conceptual:
    • Explain the purpose and importance of accounting
    • Identify users and uses of, and opportunities in, accounting
    • Explain why ethics are crucial to accounting
    • Explain generally accepted accounting principles (GAAP) and define and apply several accounting principles
    • Identify and describe the three major activities (operating, investing, and financing) of organizations
  • Analytical:
    • Define and interpret the accounting equation and its components
    • Compute and interpret return on assets (ROA)
    • Explain the relation between return and risk
  • Procedural:
    • Analyze business transactions using the accounting equation
    • Identify and prepare basic financial statements and explain how they interrelate

Learning Objective C1

  • Accounting is a system that identifies, records, and communicates an organization's business activities
  • The importance of accounting is centered around identifying, recording, and communicating activities to improve decision-making

Learning Objective C2

  • External users: Lenders, external auditors, shareholders, regulators, and customers
  • Internal users: Research and development managers, purchasing managers, human resource managers, marketing managers, production managers, and distribution managers

Learning Objective C3

  • Ethics are crucial in accounting for the trustworthiness of information
  • Steps to making ethical decisions: identify ethical concerns, analyze options, and make ethical decisions

Learning Objective C4

  • Generally accepted accounting principles (GAAP) govern financial accounting
  • GAAP ensures relevance and faithful representation of information
  • International accounting standards are issued by the International Accounting Standards Board (IASB)
  • Principles, assumptions, and constraints govern the preparation of financial statements.

Learning Objective A1

  • Assets = Liabilities + Equity is the accounting equation
  • Expanded equation: Assets = Liabilities + Owner's Capital - Owner's Withdrawals + Revenues + Expenses

Learning Objective P1

  • Business transactions affect the accounting equation
  • Owner investment increases assets and equity
  • Purchase of supplies for cash decreases cash and increases supplies
  • Purchase of equipment for cash decreases cash and increases equipment
  • Purchase supplies on credit increases supplies and accounts payable
  • Providing services for cash increases cash and revenues
  • Paying expenses in cash decreases cash and increases expenses. Examples include rent and salaries
  • Cash receipt from receivables increases cash and decreases accounts receivable.
  • Owner withdrawal of cash decreases cash and equity

Learning Objective P2

  • Financial Statements: Used to summarize and report the financial position and activities.
    • Income Statement: Summarizes revenues and expenses to determine profit/loss for a period.
    • Statement of changes in equity: Shows changes in equity over a period through capital contributions and withdrawals.
    • Balance Sheet: Lists assets = liabilities + equity at a specific date.
    • Statement of cash flows: Shows the movement of cash into and out of a company over a period.

Learning Objective A2

  • Return on assets (ROA) is a measure of profitability relative to the amount of assets a company employs. ROA = Net Profit / Average Total Assets

Learning Objective A3

  • Risk is the uncertainty about the return on an investment.
  • Return on assets (ROA) and other investment returns depend on the level of risk. The riskier the investment the higher the expected return.

Learning Objective C5

  • The three major activities of organizations are operating, investing, and financing.
    • Financing activities: Raising capital for funds
    • Investing activities: Acquiring resources and disposing of resources to execute business strategy
    • Operating activities: Using resources for business strategy, research, development, purchase, production, distribution, and marketing.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Quiz Team

Related Documents

Accounting in Business Chapter 1 PDF

Description

This quiz focuses on the foundational concepts presented in Chapter 1 of Fundamental Accounting Principles. It covers the purpose of accounting, key users and uses, GAAP, and basic accounting principles. Additionally, it explores the accounting equation and its importance in financial analysis.

More Like This

Accounting in Business
6 questions

Accounting in Business

SmartestRiemann avatar
SmartestRiemann
Introduction to Accounting Basics
15 questions

Introduction to Accounting Basics

GoldenHappiness avatar
GoldenHappiness
Accounting in Business Chapter 1
43 questions

Accounting in Business Chapter 1

FlatteringAntigorite5526 avatar
FlatteringAntigorite5526
Текущо счетоводно отчитане - Тема 5
21 questions

Текущо счетоводно отчитане - Тема 5

BlissfulSugilite3426 avatar
BlissfulSugilite3426
Use Quizgecko on...
Browser
Open
Browser
Browser