FAC1502 FINANCIAL ACCOUNTING
ELEMENTARY CALCULATIONS ACTUAL
TEST QUESTIONS AND SOLUTIONS GRADED
A+ PREMIUM RESOURCE
●● Accounting Equation
Answer: Assets = Liabilities + Owners' Equity. This equation is
fundamental and must always be true in double entry accounting.
●● Accounting Period
Answer: The period of time for which the financial results are reported;
typically either a month or a quarter or a year.
●● Accounts Payable
Answer: Liability account used to show the obligation to pay suppliers
who have provided goods or services on credit terms.
●● Accounts Payable Turnover
Answer: Accounts Payable Turnover is a ratio that is used to measure
how efficiently a business is paying its vendors. It is calculated by
dividing the credit purchases for the period by the average accounts
payable balance for the period. In the absence of credit purchases
information, we may use cost of goods sold as a substitute. The ratio
represents how many times the accounts payable turned over during the
,period. For most ratios in this course, we use averages when calculating
ratios with balance sheet numbers, but this is not necessary and some
may choose to use beginning or ending balances.
●● Accounts Receivable
Answer: Asset account used to show the claim to receive cash at some
future date for goods or services that have been supplied to a customer
on credit terms.
●● Accounts Receivable Turnover
Answer: Accounts Receivable Turnover is a ratio that is used to measure
how efficiently a business is collecting receivables from its customers. It
is calculated by dividing the credit sales for the period by the average
accounts receivable balance for the period. In the absence of credit sales
information, we may use total sales as a substitute. The ratio represents
how many times the accounts receivable turned over during the period.
For most ratios in this course, we use averages when calculating ratios
with balance sheet numbers, but this is not necessary and some may
choose to use beginning or ending balances.
●● Accrual
Answer: A revenue amount that is recorded after the revenue is earned
but before the payment is received or an expense amount that is recorded
after it has been incurred but before the payment has been made. In
either case, for an accrual the exchange of cash is expected at some
future point after the initial revenue or expense is recognized.
,●● Accrual Accounting Method
Answer: This is the accounting method taught in this course, followed
by most companies, and required under US GAAP and IFRS. The
method follows the revenue recognition principle, which says that
revenue should be recognized in the period in which it is earned and
realizable, not necessarily when the cash is received and the matching
principle which says that expenses should be recognized in the period in
which the related revenue is recognized rather than when the related
cash is paid.
●● Accrued Expenses
Answer: Liability account used to record amounts at the end of an
accounting period to recognize expenses that were incurred in the period
but for which no invoice has yet been received nor payment has yet been
made. Examples are salaries/wages payable, accrued rent expense,
accrued legal fees. When the accrual is made, the debit is to the
appropriate expense account (payroll expense, rent expense, legal
expense) and the credit is to the accrued expense account, which is a
liability because it represents an obligation which will need to be paid in
the future. Remember accrued expenses are NOT expenses.
●● Accrued Liability
Answer: Liability accounts that record expenses that have been
recognized on the income statement but have not yet been paid. Similar
to accrued expenses.
, ●● Accrued Payroll
Answer: An accrued expense recorded at the end of a financial period
for amounts of payroll that have been worked but not yet paid. It is a
common type of accrued expense. See also Salaries/Wages Payable.
●● Accrued Revenue
Answer: An asset account that records revenue that has been earned and
recognized on the income statement but not yet paid for by the customer.
At the time of the accrual, we debit the receivable account and credit the
appropriate accrued revenue account. When the cash transfer ultimately
occurs, we debit the cash account and credit the receivable account.
●● Accumulated Depreciation
Answer: A contra asset account that includes the cumulative total of all
depreciation expenses recorded to date for specific assets. The credit
balance in this account offsets the debit balance in the asset account
which shows the original value of the asset. When the original asset
value is netted against the accumulated depreciation for the asset you
arrive at the net book value of the asset.
●● Accumulated other comprehensive income
Answer: An equity account that consists of cumulative unrealized gains
or losses on line items classified under other comprehensive income. It
includes items such as unrealized gains or losses on investments
available for sale, foreign currency gains or losses, and pension plan
gains or losses.
ELEMENTARY CALCULATIONS ACTUAL
TEST QUESTIONS AND SOLUTIONS GRADED
A+ PREMIUM RESOURCE
●● Accounting Equation
Answer: Assets = Liabilities + Owners' Equity. This equation is
fundamental and must always be true in double entry accounting.
●● Accounting Period
Answer: The period of time for which the financial results are reported;
typically either a month or a quarter or a year.
●● Accounts Payable
Answer: Liability account used to show the obligation to pay suppliers
who have provided goods or services on credit terms.
●● Accounts Payable Turnover
Answer: Accounts Payable Turnover is a ratio that is used to measure
how efficiently a business is paying its vendors. It is calculated by
dividing the credit purchases for the period by the average accounts
payable balance for the period. In the absence of credit purchases
information, we may use cost of goods sold as a substitute. The ratio
represents how many times the accounts payable turned over during the
,period. For most ratios in this course, we use averages when calculating
ratios with balance sheet numbers, but this is not necessary and some
may choose to use beginning or ending balances.
●● Accounts Receivable
Answer: Asset account used to show the claim to receive cash at some
future date for goods or services that have been supplied to a customer
on credit terms.
●● Accounts Receivable Turnover
Answer: Accounts Receivable Turnover is a ratio that is used to measure
how efficiently a business is collecting receivables from its customers. It
is calculated by dividing the credit sales for the period by the average
accounts receivable balance for the period. In the absence of credit sales
information, we may use total sales as a substitute. The ratio represents
how many times the accounts receivable turned over during the period.
For most ratios in this course, we use averages when calculating ratios
with balance sheet numbers, but this is not necessary and some may
choose to use beginning or ending balances.
●● Accrual
Answer: A revenue amount that is recorded after the revenue is earned
but before the payment is received or an expense amount that is recorded
after it has been incurred but before the payment has been made. In
either case, for an accrual the exchange of cash is expected at some
future point after the initial revenue or expense is recognized.
,●● Accrual Accounting Method
Answer: This is the accounting method taught in this course, followed
by most companies, and required under US GAAP and IFRS. The
method follows the revenue recognition principle, which says that
revenue should be recognized in the period in which it is earned and
realizable, not necessarily when the cash is received and the matching
principle which says that expenses should be recognized in the period in
which the related revenue is recognized rather than when the related
cash is paid.
●● Accrued Expenses
Answer: Liability account used to record amounts at the end of an
accounting period to recognize expenses that were incurred in the period
but for which no invoice has yet been received nor payment has yet been
made. Examples are salaries/wages payable, accrued rent expense,
accrued legal fees. When the accrual is made, the debit is to the
appropriate expense account (payroll expense, rent expense, legal
expense) and the credit is to the accrued expense account, which is a
liability because it represents an obligation which will need to be paid in
the future. Remember accrued expenses are NOT expenses.
●● Accrued Liability
Answer: Liability accounts that record expenses that have been
recognized on the income statement but have not yet been paid. Similar
to accrued expenses.
, ●● Accrued Payroll
Answer: An accrued expense recorded at the end of a financial period
for amounts of payroll that have been worked but not yet paid. It is a
common type of accrued expense. See also Salaries/Wages Payable.
●● Accrued Revenue
Answer: An asset account that records revenue that has been earned and
recognized on the income statement but not yet paid for by the customer.
At the time of the accrual, we debit the receivable account and credit the
appropriate accrued revenue account. When the cash transfer ultimately
occurs, we debit the cash account and credit the receivable account.
●● Accumulated Depreciation
Answer: A contra asset account that includes the cumulative total of all
depreciation expenses recorded to date for specific assets. The credit
balance in this account offsets the debit balance in the asset account
which shows the original value of the asset. When the original asset
value is netted against the accumulated depreciation for the asset you
arrive at the net book value of the asset.
●● Accumulated other comprehensive income
Answer: An equity account that consists of cumulative unrealized gains
or losses on line items classified under other comprehensive income. It
includes items such as unrealized gains or losses on investments
available for sale, foreign currency gains or losses, and pension plan
gains or losses.
