Intro to Financial Accounting Exam -
Mount Allison Questions & Answers
Account - ANSWERSAn individual accounting record of increases and decreases in a
specific asset, liability, and/or shareholders' equity (common shares, retained earnings,
revenue, expense, and dividends declared) item.
Accounting - ANSWERSThe information system that identifies, records, and
communicates the economic events of an organization to users interested in that
information.
Accounting cycle - ANSWERSA series of nine steps used to account for, and report,
transactions: analyze transactions (step 1), journalize transactions (step 2), post
transactions (step 3), prepare a trial balance (step 4), journalize and post adjusting
entries (step 5), prepare an adjusted trial balance (step 6), prepare financial statements
(step 7), journalize and post closing entries (step 8), and prepare a post-closing trial
balance.
Accounting equation - ANSWERSThe equation that states that Assets = Liabilities +
Shareholders' Equity.
Accounting Information System - ANSWERSThe system of collecting and processing
transaction data and communicating financial information to decision makers.
Accounting Transaction - ANSWERSAn economic event that is recorded in the financial
statements because it involves an exchange that affects assets, liabilities, and/or
shareholders' equity.
Accounts payable - ANSWERSAmounts owed to suppliers for purchases made on
credit (on account).
Accounts receivable - ANSWERSAmounts owed by customers who purchased products
or services on credit (on account).
Accrual basis of accounting - ANSWERSAn accounting basis in which transactions that
change a company's financial statements are recorded in the periods in which the
events occur, rather than in the periods in which the company receives or pays cash.
accrued expenses - ANSWERSExpenses incurred but not yet paid in cash that are
recorded at the end of the period by an adjusting entry.
Accrued Revenues - ANSWERSRevenues earned but not yet received in cash that are
recorded at the end of an accounting period by an adjusting entry.
,Accumulated other comprehensive income (AOCI) - ANSWERSThe cumulative change
in shareholders' equity that results from the gains and losses that bypass net income
(recorded in other comprehensive income) but affect shareholders' equity.
adjusted trial balance - ANSWERSA list of accounts and their balances after all
adjusting journal entries have been recorded and posted.
adjusting entries - ANSWERSJournal entries made at the end of an accounting period
to update the accounts to ensure the proper recognition of revenues and expenses.
Aging of accounts receivable - ANSWERSA method of determining bad debts expense
and allowance for doubtful accounts based on an analysis of customer balances by the
length of time they have been outstanding.
allowance method - ANSWERSA method of accounting for bad debts that involves
estimating uncollectible accounts at the end of each period.
amortizable amount - ANSWERSThe cost of a finite-life intangible asset (for example,
patent, copyright) less its residual value, if any.
amortization - ANSWERSThe systematic allocation of the amortizable cost of a finite-life
intangible asset over the shorter of the asset's legal or useful life.
amortized cost model - ANSWERSA method of valuing debt investments that are held
to earn cash flows with specified payment dates in a contract in which the carrying value
is adjusted only to the extent that discounts and premiums are amortized and not for the
effect of changes in fair value.
annuity - ANSWERSA series of equal payments received over time.
asset retirement costs - ANSWERSThe amount added to the cost of a long-lived asset
that relates to obligations to dismantle, remove, or restore an asset when it is retired.
asset turnover - ANSWERSA measure of how efficiently a company uses its total assets
to generate sales. It is calculated by dividing sales by average total assets [(beginning +
ending total assets) ÷ 2].
assets - ANSWERSThe resources owned or controlled by a business that are expected
to provide future economic benefits.
associate - ANSWERSAn investee that is significantly influenced by an investor.
authorized shares - ANSWERSThe amount of share capital that a corporation is
authorized to sell. The amount may be unlimited or specified.
, average collection period - ANSWERSThe average amount of time that a receivable is
outstanding. It is calculated by dividing 365 days by the receivables turnover.
average cost formula - ANSWERSAn inventory cost formula that assumes that the
goods available for sale are homogeneous or non-distinguishable. The cost of goods
sold and ending inventory are determined using a weighted average unit cost,
calculated by dividing the cost of the goods available for sale by the units available for
sale.
Bank indebtedness - ANSWERSA short-term loan, such as an operating line of credit,
pre-arranged with a bank to cover cash shortfalls.
Basic earnings per share (EPS) - ANSWERSA measure of profitability showing the
income earned by each common share. It is calculated by dividing income available to
common shareholders by the weighted average number of common shares.
bond - ANSWERSA type of long-term debt issued by large corporations, universities,
and governments that involves a promise to repay a large amount of money at a fixed
future date.
Capital expenditures - ANSWERSExpenditures that benefit future periods. They are
recorded (capitalized) as long-lived assets.
Capital Lease - ANSWERSA long-term agreement allowing one party (the lessee) to
use the asset of another party (the lessor). The arrangement is accounted for as a
purchase because the risks and rewards of owning the asset have been transferred to
the lessee.
Carrying amount - ANSWERSAmount at which an asset is recognized in the statement
of financial position. Can be used to describe the assets of a company as a whole or
individual assets such as accounts receivable (cost less allowance for doubtful
accounts), depreciable assets (cost less accumulated depreciation), amortizable assets
(cost less accumulated amortization), investments, and bonds.
Cash - ANSWERSResources that consist of coins, currency, cheques, and money
orders that are acceptable at face value on deposit in a bank or similar institution.
Cash basis accounting - ANSWERSAn accounting basis in which revenue is recorded
only when cash is received, and an expense is recorded only when cash is paid.
Cash dividend - ANSWERSA pro rata (proportional) distribution of cash to shareholders.
Cash equivalents - ANSWERSShort-term, highly liquid (easily sold) investments that
have insignificant risk, are held to meet short-term cash needs rather than for
investment purposes and are readily converted into cash, usually within less than 90
days.
Mount Allison Questions & Answers
Account - ANSWERSAn individual accounting record of increases and decreases in a
specific asset, liability, and/or shareholders' equity (common shares, retained earnings,
revenue, expense, and dividends declared) item.
Accounting - ANSWERSThe information system that identifies, records, and
communicates the economic events of an organization to users interested in that
information.
Accounting cycle - ANSWERSA series of nine steps used to account for, and report,
transactions: analyze transactions (step 1), journalize transactions (step 2), post
transactions (step 3), prepare a trial balance (step 4), journalize and post adjusting
entries (step 5), prepare an adjusted trial balance (step 6), prepare financial statements
(step 7), journalize and post closing entries (step 8), and prepare a post-closing trial
balance.
Accounting equation - ANSWERSThe equation that states that Assets = Liabilities +
Shareholders' Equity.
Accounting Information System - ANSWERSThe system of collecting and processing
transaction data and communicating financial information to decision makers.
Accounting Transaction - ANSWERSAn economic event that is recorded in the financial
statements because it involves an exchange that affects assets, liabilities, and/or
shareholders' equity.
Accounts payable - ANSWERSAmounts owed to suppliers for purchases made on
credit (on account).
Accounts receivable - ANSWERSAmounts owed by customers who purchased products
or services on credit (on account).
Accrual basis of accounting - ANSWERSAn accounting basis in which transactions that
change a company's financial statements are recorded in the periods in which the
events occur, rather than in the periods in which the company receives or pays cash.
accrued expenses - ANSWERSExpenses incurred but not yet paid in cash that are
recorded at the end of the period by an adjusting entry.
Accrued Revenues - ANSWERSRevenues earned but not yet received in cash that are
recorded at the end of an accounting period by an adjusting entry.
,Accumulated other comprehensive income (AOCI) - ANSWERSThe cumulative change
in shareholders' equity that results from the gains and losses that bypass net income
(recorded in other comprehensive income) but affect shareholders' equity.
adjusted trial balance - ANSWERSA list of accounts and their balances after all
adjusting journal entries have been recorded and posted.
adjusting entries - ANSWERSJournal entries made at the end of an accounting period
to update the accounts to ensure the proper recognition of revenues and expenses.
Aging of accounts receivable - ANSWERSA method of determining bad debts expense
and allowance for doubtful accounts based on an analysis of customer balances by the
length of time they have been outstanding.
allowance method - ANSWERSA method of accounting for bad debts that involves
estimating uncollectible accounts at the end of each period.
amortizable amount - ANSWERSThe cost of a finite-life intangible asset (for example,
patent, copyright) less its residual value, if any.
amortization - ANSWERSThe systematic allocation of the amortizable cost of a finite-life
intangible asset over the shorter of the asset's legal or useful life.
amortized cost model - ANSWERSA method of valuing debt investments that are held
to earn cash flows with specified payment dates in a contract in which the carrying value
is adjusted only to the extent that discounts and premiums are amortized and not for the
effect of changes in fair value.
annuity - ANSWERSA series of equal payments received over time.
asset retirement costs - ANSWERSThe amount added to the cost of a long-lived asset
that relates to obligations to dismantle, remove, or restore an asset when it is retired.
asset turnover - ANSWERSA measure of how efficiently a company uses its total assets
to generate sales. It is calculated by dividing sales by average total assets [(beginning +
ending total assets) ÷ 2].
assets - ANSWERSThe resources owned or controlled by a business that are expected
to provide future economic benefits.
associate - ANSWERSAn investee that is significantly influenced by an investor.
authorized shares - ANSWERSThe amount of share capital that a corporation is
authorized to sell. The amount may be unlimited or specified.
, average collection period - ANSWERSThe average amount of time that a receivable is
outstanding. It is calculated by dividing 365 days by the receivables turnover.
average cost formula - ANSWERSAn inventory cost formula that assumes that the
goods available for sale are homogeneous or non-distinguishable. The cost of goods
sold and ending inventory are determined using a weighted average unit cost,
calculated by dividing the cost of the goods available for sale by the units available for
sale.
Bank indebtedness - ANSWERSA short-term loan, such as an operating line of credit,
pre-arranged with a bank to cover cash shortfalls.
Basic earnings per share (EPS) - ANSWERSA measure of profitability showing the
income earned by each common share. It is calculated by dividing income available to
common shareholders by the weighted average number of common shares.
bond - ANSWERSA type of long-term debt issued by large corporations, universities,
and governments that involves a promise to repay a large amount of money at a fixed
future date.
Capital expenditures - ANSWERSExpenditures that benefit future periods. They are
recorded (capitalized) as long-lived assets.
Capital Lease - ANSWERSA long-term agreement allowing one party (the lessee) to
use the asset of another party (the lessor). The arrangement is accounted for as a
purchase because the risks and rewards of owning the asset have been transferred to
the lessee.
Carrying amount - ANSWERSAmount at which an asset is recognized in the statement
of financial position. Can be used to describe the assets of a company as a whole or
individual assets such as accounts receivable (cost less allowance for doubtful
accounts), depreciable assets (cost less accumulated depreciation), amortizable assets
(cost less accumulated amortization), investments, and bonds.
Cash - ANSWERSResources that consist of coins, currency, cheques, and money
orders that are acceptable at face value on deposit in a bank or similar institution.
Cash basis accounting - ANSWERSAn accounting basis in which revenue is recorded
only when cash is received, and an expense is recorded only when cash is paid.
Cash dividend - ANSWERSA pro rata (proportional) distribution of cash to shareholders.
Cash equivalents - ANSWERSShort-term, highly liquid (easily sold) investments that
have insignificant risk, are held to meet short-term cash needs rather than for
investment purposes and are readily converted into cash, usually within less than 90
days.
