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Questions and Answers
Which of the following is not a type of business ownership form?
Which of the following is not a type of business ownership form?
What is the primary goal of most businesses?
What is the primary goal of most businesses?
Not-for-profit organizations are primarily focused on generating profit.
Not-for-profit organizations are primarily focused on generating profit.
False
What are the three main types of businesses?
What are the three main types of businesses?
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Which type of business provides intangible services?
Which type of business provides intangible services?
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Which of the following is not an example of an external stakeholder?
Which of the following is not an example of an external stakeholder?
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What is the accounting equation?
What is the accounting equation?
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What are the two main types of accounting?
What are the two main types of accounting?
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Which of the following is not one of the fundamental accounting principles?
Which of the following is not one of the fundamental accounting principles?
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What is the purpose of the cost concept in accounting?
What is the purpose of the cost concept in accounting?
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Financial information must be based on verifiable and unbiased evidence.
Financial information must be based on verifiable and unbiased evidence.
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What are the main types of adjustments made in accounting?
What are the main types of adjustments made in accounting?
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What is the purpose of the revenue recognition concept?
What is the purpose of the revenue recognition concept?
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The matching concept requires that expenses be recorded in the same period as the revenues they helped to generate.
The matching concept requires that expenses be recorded in the same period as the revenues they helped to generate.
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What is the primary purpose of an income statement?
What is the primary purpose of an income statement?
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What is the purpose of a statement of retained earnings?
What is the purpose of a statement of retained earnings?
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What does a balance sheet present?
What does a balance sheet present?
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What are the three main activities covered by a statement of cash flows?
What are the three main activities covered by a statement of cash flows?
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Which of the following best describes the purpose of adjusting entries in accounting?
Which of the following best describes the purpose of adjusting entries in accounting?
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Which of the following is not a common accounting transaction?
Which of the following is not a common accounting transaction?
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The double-entry system requires that every transaction be recorded as both a debit and a credit.
The double-entry system requires that every transaction be recorded as both a debit and a credit.
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What is the main purpose of a trial balance?
What is the main purpose of a trial balance?
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Which of the following is not a common type of accounting error?
Which of the following is not a common type of accounting error?
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What is the purpose of the accounting cycle?
What is the purpose of the accounting cycle?
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Which of the following is not one of the primary financial statements?
Which of the following is not one of the primary financial statements?
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What is the purpose of analyzing transactions in the accounting cycle?
What is the purpose of analyzing transactions in the accounting cycle?
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What is the purpose of journalizing transactions?
What is the purpose of journalizing transactions?
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What is the main purpose of posting to the ledger?
What is the main purpose of posting to the ledger?
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What is the purpose of preparing an unadjusted trial balance?
What is the purpose of preparing an unadjusted trial balance?
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What are the main purposes of adjusting entries in the accounting cycle?
What are the main purposes of adjusting entries in the accounting cycle?
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What is the purpose of preparing financial statements?
What is the purpose of preparing financial statements?
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What is the purpose of preparing a post-closing trial balance?
What is the purpose of preparing a post-closing trial balance?
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Which account category represents economic resources owned by a business?
Which account category represents economic resources owned by a business?
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Which account category represents obligations to creditors?
Which account category represents obligations to creditors?
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Which account category represents the owner's claims on the business's assets?
Which account category represents the owner's claims on the business's assets?
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Which account category represents the cost of providing goods or services to generate revenue?
Which account category represents the cost of providing goods or services to generate revenue?
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Which account typically has a debit balance?
Which account typically has a debit balance?
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What is the purpose of a worksheet in accounting?
What is the purpose of a worksheet in accounting?
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What is the relationship between net income and retained earnings?
What is the relationship between net income and retained earnings?
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What type of account is prepaid insurance?
What type of account is prepaid insurance?
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What type of account is unearned revenue?
What type of account is unearned revenue?
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What type of account is depreciation expense?
What type of account is depreciation expense?
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Study Notes
Introduction to Business and Accounting
- A business is an organization providing goods or services in exchange for value.
- Profit is the primary goal for most businesses, calculated as revenues minus expenses.
- Not-for-profit organizations aim for social impact instead of profit.
Types of Businesses
- Service businesses provide intangible services (e.g., tax services).
- Merchandising businesses sell tangible products (e.g., clothing).
- Manufacturing businesses transform raw materials into finished goods (e.g., cars).
Business Ownership Forms
- Proprietorship: Single owner, assumes all risks and benefits.
- Partnership: Two or more owners share risks and profits.
- Corporation: A separate legal entity, owners' liability is limited to their investment(s).
- LLC (Limited Liability Company): Combines features of partnerships and corporations.
Stakeholders and the Role of Accounting
- Stakeholders are individuals with an interest in a company's operations and financial performance.
- Internal stakeholders include owners, employees, and managers.
- External stakeholders include customers, suppliers, creditors, and investors.
- Accounting, the language of business, provides financial data to stakeholders for decision-making.
Accounting Principles and Concepts
- Cost Concept: Assets are recorded at their original cost, avoiding subjective evaluation.
- Objectivity Concept: Financial information is based on verifiable evidence.
- Unit of Measurement: Consistency in using a common unit (e.g., USD) for transactions.
The Accounting Equation
- The accounting equation is Assets = Liabilities + Equity.
- Assets are resources owned by a business.
- Liabilities are obligations to creditors.
- Equity represents owners' claim on assets.
Common Accounting Transactions
- Receiving cash from customers for services increases cash and revenue.
- Paying wages decreases cash and increases expenses.
- Borrowing cash increases cash and liabilities.
Key Concepts in Adjusting Process
- Accrual basis accounting recognizes revenues when earned and expenses when incurred, regardless of cash flow, unlike cash basis accounting which only recognizes transactions when cash changes hands.
- Adjustments are made to ensure financial statements accurately reflect the period's activities.
Types of Adjustments
- Prepaid expenses are expenses paid in advance (e.g., prepaid insurance).
- Unearned revenues are cash received before earning revenue (e.g., subscriptions).
- Accrued revenues are revenue earned but not yet collected.
- Accrued expenses are expenses incurred but not yet paid.
Key Differences between Service and Merchandising Businesses
- Service businesses provide services and record revenue for work performed; Merchandising businesses buy and sell goods.
Key Accounts and Concepts for Merchandising Businesses
- Merchandise Inventory: Asset account reflecting goods available for sale.
- Cost of Merchandise Sold (COGS): Cost of goods sold during the period.
- Gross Profit: Revenue from sales minus the cost of goods sold.
- Periodic and Perpetual Inventory Systems: Different ways businesses track and report merchandise inventory.
Income Statements
- Multi-Step Income Statement: Presents different levels of profitability, including gross profit.
- Single-Step Income Statement: Groups all revenues and expenses together.
- Net Income/Loss: Revenue less expenses (multi-step) or the difference between all revenues and expenses (single-step).
Key Terminologies
- Sales Discounts: Discounts offered for early payment
- Sales Returns and Allowances: Adjustments to sales for returned or discounted items
- Freight Terms (FOB): Establishes responsibility related to shipping costs (FOB shipping point, FOB destination).
- Depreciation: Allocating the cost of a fixed asset over its useful life.
Financial Statements
- Income Statement: Reports revenues and expenses over a period to determine net income or net loss.
- Statement of Retained Earnings: Tracks changes in retained earnings, calculated as beginning retained earnings plus net income minus dividends.
- Balance Sheet: Presents a snapshot of the company's financial position as of a specific date, listing assets, liabilities, and equity.
- Statement of Cash Flows: Summarizes cash inflows and outflows during a period, categorized into operating, investing, and financing activities.
Analyzing Transactions Review
- Accounts: Records of increases and decreases in individual financial statement items
- Chart of Accounts: Structured list of accounts in financial statement order
Trial Balance
- A summary of all account balances. It verifies that debits and credits are equal to ensure accuracy.
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Description
Explore the fundamental concepts of business and accounting in this quiz. Understand different types of businesses, ownership forms, and the role of stakeholders. Perfect for beginners looking to grasp the basics of the business world.
