FINANCIAL ACCOUNTING EXAM
QUESTIONS AND THEIR REVIEWED
ASWERS
Assets
Economic resources that the business plans to use in the
future to make money.
Balance sheet
The financial report that shows business assets, liabilities,
and owner's equity as of a particular day.
Balanced books
When "Where did it go?" equals "Where did it come from?"
or wen a company's assets equal its liabilities plus owner's
equity.
Capital
Assets that help a business or a person make money.
Capitalizer
When money is changed into another asset that helps the
business make money.
Creditors
Outsiders to whom the company owes money.
Current assets
Assets that can be used to pay current liabilities.
Current liabilities
Debts that must be paid within one year or one operating
cycle, whichever is longer.
Financial accounting
,The skill of producing financial statements from business
transactions.
Fiscal Year
The 12-month period a business uses to report the results
of its operations.
Heading
All financial statement have a standard 3-line heading as
follows:
1. Name of Company
2. Name of the Report
3. Date (balance sheet) or Period of Time (all other
statements)
Liabilities
Debts owed to people outside the company.
Liquid
The easier it is to change an asset into cash, the more
liquid that asset is.
Operating cycle
The natural period of time before certain business
activities tend to repeat- normally one year.
Owner's equity
The portion of the business the owner gets to keep after
paying off all creditors.
Sole proprietor
The individual owner (without partners) of an
unincorporated business.
Basic accounting equation
Assets = liabilities + Owner's equity
OR
Owner's equity = Assets - Liabilities
, OR
Liabilities = Assets - Owner's equity
Business entity
The financial statements report about a single business.
Every business gets its own set of books. Accountants do
not mix in the owner's personal financial info.
Current
"Current" liabilities are those debts that must be paid
within one year of one operating cycle, whichever is
longer.
Current ratio
(Current assets)/(Current liabilities)= Current ratio
Debt Ratio
(Total liabilities)/(Total assets)= debt ratio or 100%- equity
ratio= debt ratio
Double entry accounting
Recording business transactions twice: once to show
where the money came from , and another time to show
where the money went.
Equity ratio
(Total equity)/(Total assets)= Equity ratio
OR
100% - Debt ratio = Equity ratio
Liability account
Payable or Deferred
Equity Account
Owner's name, Withdrawal, Dividend, Stock.
Expense Account
Expense. (Every expense account on the CLEP exam
should have "exp." at then end, such as "rent exp.")
Income Account
QUESTIONS AND THEIR REVIEWED
ASWERS
Assets
Economic resources that the business plans to use in the
future to make money.
Balance sheet
The financial report that shows business assets, liabilities,
and owner's equity as of a particular day.
Balanced books
When "Where did it go?" equals "Where did it come from?"
or wen a company's assets equal its liabilities plus owner's
equity.
Capital
Assets that help a business or a person make money.
Capitalizer
When money is changed into another asset that helps the
business make money.
Creditors
Outsiders to whom the company owes money.
Current assets
Assets that can be used to pay current liabilities.
Current liabilities
Debts that must be paid within one year or one operating
cycle, whichever is longer.
Financial accounting
,The skill of producing financial statements from business
transactions.
Fiscal Year
The 12-month period a business uses to report the results
of its operations.
Heading
All financial statement have a standard 3-line heading as
follows:
1. Name of Company
2. Name of the Report
3. Date (balance sheet) or Period of Time (all other
statements)
Liabilities
Debts owed to people outside the company.
Liquid
The easier it is to change an asset into cash, the more
liquid that asset is.
Operating cycle
The natural period of time before certain business
activities tend to repeat- normally one year.
Owner's equity
The portion of the business the owner gets to keep after
paying off all creditors.
Sole proprietor
The individual owner (without partners) of an
unincorporated business.
Basic accounting equation
Assets = liabilities + Owner's equity
OR
Owner's equity = Assets - Liabilities
, OR
Liabilities = Assets - Owner's equity
Business entity
The financial statements report about a single business.
Every business gets its own set of books. Accountants do
not mix in the owner's personal financial info.
Current
"Current" liabilities are those debts that must be paid
within one year of one operating cycle, whichever is
longer.
Current ratio
(Current assets)/(Current liabilities)= Current ratio
Debt Ratio
(Total liabilities)/(Total assets)= debt ratio or 100%- equity
ratio= debt ratio
Double entry accounting
Recording business transactions twice: once to show
where the money came from , and another time to show
where the money went.
Equity ratio
(Total equity)/(Total assets)= Equity ratio
OR
100% - Debt ratio = Equity ratio
Liability account
Payable or Deferred
Equity Account
Owner's name, Withdrawal, Dividend, Stock.
Expense Account
Expense. (Every expense account on the CLEP exam
should have "exp." at then end, such as "rent exp.")
Income Account
