BUS 251 Final Exam Questions with
All Correct Answers Graded A+(2025-
2026) Edition.
IFRS - Answer public companies follow these accounting standards
ASPE - Answer Private companies can follow this standard.
Conceptual Frameworks to decide what information is useful to the financial statement user. -
Answer -to assist the organizations as they develop new financial reporting standards
- to assist accountants in determining how to account for items for which no specific accounting
standards have been developed
- to assist users in their interpretation of the information contained in the financial statements
Useful financial information must be both - Answer relevant and representationally faithful
Relevant
Confirmatory Value
Predictive Value
Materiality
Faithful Representation
Neutrality
Completeness
Freedom from Error
Qualities that mean financial statement info is useful
(enhancing qualitative characteristics.) - Answer comparability, verifiability, timeliness,
understandability
To be representationally faithful information must be... - Answer complete, natural and free
from error
,Accrual Basis of Accounting - Answer Revenues are recorded when they are earned
Expenses are recorded when they are incurred
Accounting Equation - Answer Assets = Liabilities + Shareholders' Equity
Retained Earnings - Answer Net Income - Dividends Declared
Net Income - Answer Revenues - Expenses
Profit Margin - Answer Net Income/ Sales Revenue
Return on Equity - Answer Net Income/ Average Total Shareholder's Equity
Average Total Shareholder's Equity = Equity at the beginning of a period + equity at the end of a
period /2
Return on Assets - Answer Net Income/ Average Total Assets
Steps in the Accounting Cycle - Answer Diagram on Textbook Chapter 3 "Understanding the
Accounting Cycle"
Chart of Accounts - Answer A list of all the companies accounts
Ch 3 Chart of Accounts for more info
Permanent Accounts - Answer Accounts whose balances carry over from one period to the
next. All statement of financial positions accounts are permanent accounts.
Temporary Accounts - Answer Accounts used to keep track of information temporarily during
each accounting period. The balances in these accounts are eventually transferred to a
permanent account (Retained Earnings) at the end of the period by making closing entries
General Journal - Answer the chronological accounting record of the transactions of a business
This is where all the initial entries are made
,Trial balance - Answer a listing of all the general ledger accounts and their balances. Used to
check whether the total of the debit balances is equal to the total of the credit balances.
Adjusting Entries - Answer Two Types: Accruals and Deferrals
They never involve cash and are made at the end of each accounting period (month, quarter or
year)
Accruals: required when a company needs to recognize a revenue before the receipt of cash or
an expense prior to the payment of cash. Ex. Wage Expense
Deferrals: required when a company needs to recognize a revenue in an accounting period after
the cash has been received or an expense in an accounting period after the cash has been paid.
Ex. Pre-paid rent Expense
Purpose of Adjusted trial Balance - Answer This is done to ensure that the total debits in the
accounts still equal the total credits. after the adjusting entries
Four Closing Entries - Answer 1. Close all revenue accounts to the Income Summary account.
2. Close all expense accounts to the Income Summary account.
3. Close the Income Summary account to Retained Earnings.
4. Close the Dividends Declared account to Retained Earnings.
For Examples see Ch 3 "Preparing Financial Statements and Closing Entries"
Closing Entries Key Points - Answer transfer the balances in all temporary accounts to Retained
Earnings
reset all temporary account balances to zero
are made at the end of each year
When assessing revenues, users consider: - Answer -quantity by measuring growth
- quality by assessing the source of growth (such as same-store sales growth) and how closely
revenue growth corresponds with cash flow from operating activities
, - performance obligations
-in this approach, changes in a company's net position in a contract are required before
revenues can be recognized.
- A company's net position in a contract increases when:
Its rights under the contract increase.
Its performance obligations under the contract decrease.
Five Step Model of Revenue Recognition - Answer 1. Identify the Contract
2. Identify the performance obligations.
3. Determine the transaction price.
4. Allocate the transaction price to performance obligations.
5. Recognize revenue when each performance obligation is satisfied.
For for info on each see Ch4 Revenue Recognition
Recognizing Revenue for Returns - Answer Want to credit the refund liability until a certain
date
more info below
CH4 "Other Revenue Recognition Issues"
Revenue Recognition for Warranties - Answer Assurance Warranty: warranty coverage is
included in the price of the product (not a separate performance obligation)
Service Warranty: an optional purchase by the customer (They are a separate performance
obligation)
Factors that indicate that the warranty is a service warranty include:
The warranty is priced or negotiated separately.
The warranty coverage period is longer. The longer it is, the more likely the warranty is a service
warranty.
The warranty is not required by law.
All Correct Answers Graded A+(2025-
2026) Edition.
IFRS - Answer public companies follow these accounting standards
ASPE - Answer Private companies can follow this standard.
Conceptual Frameworks to decide what information is useful to the financial statement user. -
Answer -to assist the organizations as they develop new financial reporting standards
- to assist accountants in determining how to account for items for which no specific accounting
standards have been developed
- to assist users in their interpretation of the information contained in the financial statements
Useful financial information must be both - Answer relevant and representationally faithful
Relevant
Confirmatory Value
Predictive Value
Materiality
Faithful Representation
Neutrality
Completeness
Freedom from Error
Qualities that mean financial statement info is useful
(enhancing qualitative characteristics.) - Answer comparability, verifiability, timeliness,
understandability
To be representationally faithful information must be... - Answer complete, natural and free
from error
,Accrual Basis of Accounting - Answer Revenues are recorded when they are earned
Expenses are recorded when they are incurred
Accounting Equation - Answer Assets = Liabilities + Shareholders' Equity
Retained Earnings - Answer Net Income - Dividends Declared
Net Income - Answer Revenues - Expenses
Profit Margin - Answer Net Income/ Sales Revenue
Return on Equity - Answer Net Income/ Average Total Shareholder's Equity
Average Total Shareholder's Equity = Equity at the beginning of a period + equity at the end of a
period /2
Return on Assets - Answer Net Income/ Average Total Assets
Steps in the Accounting Cycle - Answer Diagram on Textbook Chapter 3 "Understanding the
Accounting Cycle"
Chart of Accounts - Answer A list of all the companies accounts
Ch 3 Chart of Accounts for more info
Permanent Accounts - Answer Accounts whose balances carry over from one period to the
next. All statement of financial positions accounts are permanent accounts.
Temporary Accounts - Answer Accounts used to keep track of information temporarily during
each accounting period. The balances in these accounts are eventually transferred to a
permanent account (Retained Earnings) at the end of the period by making closing entries
General Journal - Answer the chronological accounting record of the transactions of a business
This is where all the initial entries are made
,Trial balance - Answer a listing of all the general ledger accounts and their balances. Used to
check whether the total of the debit balances is equal to the total of the credit balances.
Adjusting Entries - Answer Two Types: Accruals and Deferrals
They never involve cash and are made at the end of each accounting period (month, quarter or
year)
Accruals: required when a company needs to recognize a revenue before the receipt of cash or
an expense prior to the payment of cash. Ex. Wage Expense
Deferrals: required when a company needs to recognize a revenue in an accounting period after
the cash has been received or an expense in an accounting period after the cash has been paid.
Ex. Pre-paid rent Expense
Purpose of Adjusted trial Balance - Answer This is done to ensure that the total debits in the
accounts still equal the total credits. after the adjusting entries
Four Closing Entries - Answer 1. Close all revenue accounts to the Income Summary account.
2. Close all expense accounts to the Income Summary account.
3. Close the Income Summary account to Retained Earnings.
4. Close the Dividends Declared account to Retained Earnings.
For Examples see Ch 3 "Preparing Financial Statements and Closing Entries"
Closing Entries Key Points - Answer transfer the balances in all temporary accounts to Retained
Earnings
reset all temporary account balances to zero
are made at the end of each year
When assessing revenues, users consider: - Answer -quantity by measuring growth
- quality by assessing the source of growth (such as same-store sales growth) and how closely
revenue growth corresponds with cash flow from operating activities
, - performance obligations
-in this approach, changes in a company's net position in a contract are required before
revenues can be recognized.
- A company's net position in a contract increases when:
Its rights under the contract increase.
Its performance obligations under the contract decrease.
Five Step Model of Revenue Recognition - Answer 1. Identify the Contract
2. Identify the performance obligations.
3. Determine the transaction price.
4. Allocate the transaction price to performance obligations.
5. Recognize revenue when each performance obligation is satisfied.
For for info on each see Ch4 Revenue Recognition
Recognizing Revenue for Returns - Answer Want to credit the refund liability until a certain
date
more info below
CH4 "Other Revenue Recognition Issues"
Revenue Recognition for Warranties - Answer Assurance Warranty: warranty coverage is
included in the price of the product (not a separate performance obligation)
Service Warranty: an optional purchase by the customer (They are a separate performance
obligation)
Factors that indicate that the warranty is a service warranty include:
The warranty is priced or negotiated separately.
The warranty coverage period is longer. The longer it is, the more likely the warranty is a service
warranty.
The warranty is not required by law.
