D774 Introduction to Business Accounting - Section 2 - all questions from
course material *From PA
1. What is the accounting equation, and what are its elements?: It shows what a
company owns and how what it owns was financed—through either debt or equity.
Assets = Liabilities + Owners' Equity.
2. What is a classified balance sheet?: A balance sheet distinguishes between current and long-term
assets and current and long-term liabilities.
3. What is a comparative balance sheet?: A balance sheet includes information for both the current
year and one or more preceding years allowing users to identify any significant changes in particular items from year
to year.
4. Assets and liabilities are usually listed in what order on the balance sheet?-
: Assets and liabilities are usually listed on a balance sheet in order of their liquidity, that is, how fast and easily they
can be converted to cash.
5. Owners' equity has two components. What are they?: Capital Stock and Retained
Earnings
6. You know the amount of a company's assets and the amount of the compa-
ny's owners' equity. According to the accounting equation, what computation
should you perform to find out the amount of the company's liabilities?: Assets
minus owners' equity
7. Kretsmart Company's financial records include these accounts at the end of
the year.
Inventory, Loans Payable, Retained Earnings, Cash, Land, Accounts Receiv-
able, Accounts Payable, Capital Stock (also called Paid-in Capital), Unearned
Revenue
Which set of items composes a complete listing of Kretsmart's assets?: Cash,
accounts receivable, inventory, and land
8. Which action causes owners' equity to increase?: Generating net income
9. What is the difference between a regular balance sheet and a classified
balance sheet?: Assets and liabilities are reported separately based on whether they are current or long term.
10. What is an accurate description of "mortgage payable"?: Obligation arising from the
amount of unpaid purchase price related to the purchase of property
11. What is revenue?: The amount a company receives from the sale of goods and services.
12. What is an expense?: The costs incurred to support normal business operations and generate revenue.
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, D774 Introduction to Business Accounting - Section 2 - all questions from
course material *From PA
13. How is net income computed?: Calculated as the difference between revenues and all expenses.
14. What is a multi-step income statement?: Where the income statement is divided into separate
sections, and various subtotals are reported that reflect different levels of profitability.
15. What is a common-size income statement?: Where the income statement numbers have
been standardized as a percentage of sales.
16. When the terms are correctly used, what is the difference between revenue
and income?: Income is a net concept whereas revenue is a gross concept.
17. How is net income computed?: revenues minus expenses
18. In a carefully constructed multi-step income statement, which item is listed
between sales and gross profit?: Cost of goods sold
19. When should a passenger airline report the revenue associated with a
passenger trip?: When the customer has completed the trip
20. In a multi-step income statement, what is an example of an expense that
fits under the heading "operating expenses"?: Rent paid for a building used by the company
21. A report that enables users to analyze a company's performance over
multiple periods and identify significant trends is a ____________ income state-
ment.: Comparative
22. What are costs incurred to support normal business operations?: Expenses
23. What is the single most used number in all the financial statements is net
___________?: Income
24. An income statement in which all of the numbers have been divided by sales
is called a _________ size income statement.: Common
25. Sales are not recorded until they are __________.: Earned
26. Revenue minus cost of goods sold is equal to ________ margin.: Gross
27. What are the three categories of cash flows shown on the statement of cash
flows?: Operating, Investing, and Financing.
28. What are investing activities as shown on the statement of cash flows?: Are
those activities associated with buying and selling long-term assets—primarily the purchase and sale of land,
buildings, and equipment.
2/9
course material *From PA
1. What is the accounting equation, and what are its elements?: It shows what a
company owns and how what it owns was financed—through either debt or equity.
Assets = Liabilities + Owners' Equity.
2. What is a classified balance sheet?: A balance sheet distinguishes between current and long-term
assets and current and long-term liabilities.
3. What is a comparative balance sheet?: A balance sheet includes information for both the current
year and one or more preceding years allowing users to identify any significant changes in particular items from year
to year.
4. Assets and liabilities are usually listed in what order on the balance sheet?-
: Assets and liabilities are usually listed on a balance sheet in order of their liquidity, that is, how fast and easily they
can be converted to cash.
5. Owners' equity has two components. What are they?: Capital Stock and Retained
Earnings
6. You know the amount of a company's assets and the amount of the compa-
ny's owners' equity. According to the accounting equation, what computation
should you perform to find out the amount of the company's liabilities?: Assets
minus owners' equity
7. Kretsmart Company's financial records include these accounts at the end of
the year.
Inventory, Loans Payable, Retained Earnings, Cash, Land, Accounts Receiv-
able, Accounts Payable, Capital Stock (also called Paid-in Capital), Unearned
Revenue
Which set of items composes a complete listing of Kretsmart's assets?: Cash,
accounts receivable, inventory, and land
8. Which action causes owners' equity to increase?: Generating net income
9. What is the difference between a regular balance sheet and a classified
balance sheet?: Assets and liabilities are reported separately based on whether they are current or long term.
10. What is an accurate description of "mortgage payable"?: Obligation arising from the
amount of unpaid purchase price related to the purchase of property
11. What is revenue?: The amount a company receives from the sale of goods and services.
12. What is an expense?: The costs incurred to support normal business operations and generate revenue.
1/9
, D774 Introduction to Business Accounting - Section 2 - all questions from
course material *From PA
13. How is net income computed?: Calculated as the difference between revenues and all expenses.
14. What is a multi-step income statement?: Where the income statement is divided into separate
sections, and various subtotals are reported that reflect different levels of profitability.
15. What is a common-size income statement?: Where the income statement numbers have
been standardized as a percentage of sales.
16. When the terms are correctly used, what is the difference between revenue
and income?: Income is a net concept whereas revenue is a gross concept.
17. How is net income computed?: revenues minus expenses
18. In a carefully constructed multi-step income statement, which item is listed
between sales and gross profit?: Cost of goods sold
19. When should a passenger airline report the revenue associated with a
passenger trip?: When the customer has completed the trip
20. In a multi-step income statement, what is an example of an expense that
fits under the heading "operating expenses"?: Rent paid for a building used by the company
21. A report that enables users to analyze a company's performance over
multiple periods and identify significant trends is a ____________ income state-
ment.: Comparative
22. What are costs incurred to support normal business operations?: Expenses
23. What is the single most used number in all the financial statements is net
___________?: Income
24. An income statement in which all of the numbers have been divided by sales
is called a _________ size income statement.: Common
25. Sales are not recorded until they are __________.: Earned
26. Revenue minus cost of goods sold is equal to ________ margin.: Gross
27. What are the three categories of cash flows shown on the statement of cash
flows?: Operating, Investing, and Financing.
28. What are investing activities as shown on the statement of cash flows?: Are
those activities associated with buying and selling long-term assets—primarily the purchase and sale of land,
buildings, and equipment.
2/9
