Major Field Test Business Study Set
Questions and All Correct Answers.
Balance Sheet - Answer Attempts to describe the financial condition of the firm at a point in
time.
Includes: Assets, Liabilities, & Equity - "net assets" what remains after deducting liabilities from
assets..
Income Statement - Answer Presents the results of the operations of an entity over a peroid
of time.
Includes: Revenues, Expenses, Income, Gains & Losses
Statement of Equity or Statement of Retained Earnings (Capital) - Answer Bridges the gap
between the income statement and the balance sheet.
Arrangement depends on type of organization:
Proprietorship: Statement of Owners Equity
Partnership: Statement of Partners Equity
Corporation: Statement of Stockholders Equity
In addition, it contains: Investments by Owners and Distribution to owners
Statement of Cash Flows - Answer Provides information about a company's cash receipts and
cash payments during a specific period of time.
Includes all 10 elements of financial statements: assets, liabilities, equity, net income, income,
gains, losses, Statement of 'X' Equity, Investments by Owners, Distributions to Owners.
Cash Basis Accounting - Answer Revenue is recognized in the accounting period in which the
associated cash is received and Expenses are recognized in the accounting period that the cash
is paid.
Accrual Basis Accounting - Answer Revenue is recognized in the accounting period in which
the revenue is earned, regardless of when the associated revenue is received. (Recorded when
the sale is made, not when it is paid for.)
Depreciation - Answer A method of allocating the cost of a tangible asset over its useful life.
Businesses depreciate long-term assets for both tax and accounting purposes.
,Straight-Line Deprecation - Answer Straight Line Depreciation - (estimated value/useful life)
Equal amounts of depreciation expense are recorded in each period of the useful life of the
asset, if not disposed of prior to the end of estimated useful life.
The value is divided among estimated life of item.
Double Declining Balance Depreciation - Answer Double Declining Balance
An "accelerated" depreciation method (more expense is recorded in the early periods of useful
life and less in the later periods.)
Basic Inventory Equation for Goods - Answer Beginning Inventory + Purchases = Goods
Basic Inventory Equation for Cost of Goods Sold (COGS) - Answer Goods Available for Sale -
Ending Inventory = Cost of Goods Sold (COGS)
Basic Inventory Equation for Ending Inventory - Answer Beginning Inventory + Purchases =
Goods Available for Sale - Cost of Goods Sold (COGS) = ending inventory
Periodic Inventory Accounting - Answer No transactions are recorded in the inventory
account until the end of the accounting period. Merchandise purchases are recorded in a
purchases account.
Inventory is counted and costed at the end of each accounting period. The inventory account
beginning balance is adjusted to physical inventory amount and the difference is added to or
subtracted from periodic Cost of Goods Sold.
Perpetual Inventory Accounting - Answer Merchandise purchases are added to the inventory
account when the merchandise is received.
Cost of Goods Sold is computed and subtracted from the inventory account as sales are
recorded.
FIFO (Inventory) - Answer Inventory Oldest items inventory are sold first .(Example: Fruit)
LIFO (Inventory) - Answer Most recent items added to inventory are sold first. (Example: Ore
from Mining)
Average Cost (Inventory) - Answer Ending inventory units are costed using an average cost of
goods available divided by the units available for sale. (Example: Rope)
, Specific Identification (Inventory) - Answer Inventory items are tagged with their cost.
(Example: automobiles)
Generally Accepted Accounting Principles (GAAP) - Answer A framework of accounting
standards, rules and procedures defined by the professional accounting industry, which has
been adopted by nearly all publicly traded U.S. companies.
Securities Act of 1935 - Answer Established the SEC Securities and Exchange Commission
with the explicit authority to establish the rules, standards, and procedures used to account for
transactions and events. Also to establish the form and content of published financial reporting.
Management Accounting - Answer Concerned with identification, measurement,
accumulation, analysis, preparation, interpretation, and communication of financial information
used my management to plan and evaluate and control within an organization to assure
appropriate use of and accountability of resources.
Cost Accounting - Answer Concerned only with the cost of a product or service.
Product Costs - Answer Cost of the various products manufactured and sold by a company.
(Examples: Inventory Costs or Cost of Prodcution
Period Cost - Answer ll costs incurred by a company that are not considered product costs.
(Examples: Administration Expenses or Selling Expenses)
Direct Costs - Answer A cost that is easily traceable to the cost object and is a result solely of
the cost object. (Example: Lye used to make bars of soap.)
Indirect Cost - Answer A cost that supports more than one cost objects, and must be
"allocated" to those various cost objects (Example: Electricity used at a plant.)
Direct Material - Answer Cost of materials used in production. (Examples: sheet metal, tires,
fabric, etc.)
Direct Labor - Answer Cost of Labor used in production. (Example: assembly line workers)
Manufacturing Overhead - Answer Indirect factory-related costs that are incurred when a
product is manufactured. (Examples: facility costs, indirect labor, machine set up costs, quality
control, etc.)
Questions and All Correct Answers.
Balance Sheet - Answer Attempts to describe the financial condition of the firm at a point in
time.
Includes: Assets, Liabilities, & Equity - "net assets" what remains after deducting liabilities from
assets..
Income Statement - Answer Presents the results of the operations of an entity over a peroid
of time.
Includes: Revenues, Expenses, Income, Gains & Losses
Statement of Equity or Statement of Retained Earnings (Capital) - Answer Bridges the gap
between the income statement and the balance sheet.
Arrangement depends on type of organization:
Proprietorship: Statement of Owners Equity
Partnership: Statement of Partners Equity
Corporation: Statement of Stockholders Equity
In addition, it contains: Investments by Owners and Distribution to owners
Statement of Cash Flows - Answer Provides information about a company's cash receipts and
cash payments during a specific period of time.
Includes all 10 elements of financial statements: assets, liabilities, equity, net income, income,
gains, losses, Statement of 'X' Equity, Investments by Owners, Distributions to Owners.
Cash Basis Accounting - Answer Revenue is recognized in the accounting period in which the
associated cash is received and Expenses are recognized in the accounting period that the cash
is paid.
Accrual Basis Accounting - Answer Revenue is recognized in the accounting period in which
the revenue is earned, regardless of when the associated revenue is received. (Recorded when
the sale is made, not when it is paid for.)
Depreciation - Answer A method of allocating the cost of a tangible asset over its useful life.
Businesses depreciate long-term assets for both tax and accounting purposes.
,Straight-Line Deprecation - Answer Straight Line Depreciation - (estimated value/useful life)
Equal amounts of depreciation expense are recorded in each period of the useful life of the
asset, if not disposed of prior to the end of estimated useful life.
The value is divided among estimated life of item.
Double Declining Balance Depreciation - Answer Double Declining Balance
An "accelerated" depreciation method (more expense is recorded in the early periods of useful
life and less in the later periods.)
Basic Inventory Equation for Goods - Answer Beginning Inventory + Purchases = Goods
Basic Inventory Equation for Cost of Goods Sold (COGS) - Answer Goods Available for Sale -
Ending Inventory = Cost of Goods Sold (COGS)
Basic Inventory Equation for Ending Inventory - Answer Beginning Inventory + Purchases =
Goods Available for Sale - Cost of Goods Sold (COGS) = ending inventory
Periodic Inventory Accounting - Answer No transactions are recorded in the inventory
account until the end of the accounting period. Merchandise purchases are recorded in a
purchases account.
Inventory is counted and costed at the end of each accounting period. The inventory account
beginning balance is adjusted to physical inventory amount and the difference is added to or
subtracted from periodic Cost of Goods Sold.
Perpetual Inventory Accounting - Answer Merchandise purchases are added to the inventory
account when the merchandise is received.
Cost of Goods Sold is computed and subtracted from the inventory account as sales are
recorded.
FIFO (Inventory) - Answer Inventory Oldest items inventory are sold first .(Example: Fruit)
LIFO (Inventory) - Answer Most recent items added to inventory are sold first. (Example: Ore
from Mining)
Average Cost (Inventory) - Answer Ending inventory units are costed using an average cost of
goods available divided by the units available for sale. (Example: Rope)
, Specific Identification (Inventory) - Answer Inventory items are tagged with their cost.
(Example: automobiles)
Generally Accepted Accounting Principles (GAAP) - Answer A framework of accounting
standards, rules and procedures defined by the professional accounting industry, which has
been adopted by nearly all publicly traded U.S. companies.
Securities Act of 1935 - Answer Established the SEC Securities and Exchange Commission
with the explicit authority to establish the rules, standards, and procedures used to account for
transactions and events. Also to establish the form and content of published financial reporting.
Management Accounting - Answer Concerned with identification, measurement,
accumulation, analysis, preparation, interpretation, and communication of financial information
used my management to plan and evaluate and control within an organization to assure
appropriate use of and accountability of resources.
Cost Accounting - Answer Concerned only with the cost of a product or service.
Product Costs - Answer Cost of the various products manufactured and sold by a company.
(Examples: Inventory Costs or Cost of Prodcution
Period Cost - Answer ll costs incurred by a company that are not considered product costs.
(Examples: Administration Expenses or Selling Expenses)
Direct Costs - Answer A cost that is easily traceable to the cost object and is a result solely of
the cost object. (Example: Lye used to make bars of soap.)
Indirect Cost - Answer A cost that supports more than one cost objects, and must be
"allocated" to those various cost objects (Example: Electricity used at a plant.)
Direct Material - Answer Cost of materials used in production. (Examples: sheet metal, tires,
fabric, etc.)
Direct Labor - Answer Cost of Labor used in production. (Example: assembly line workers)
Manufacturing Overhead - Answer Indirect factory-related costs that are incurred when a
product is manufactured. (Examples: facility costs, indirect labor, machine set up costs, quality
control, etc.)
