MAJOR FIELD TEST BUSINESS STUDY SET C.
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Balance Sheet - Answer: Attempts to describe the financial condition of the firm at a point
in time.
Includes: Assets, Liabilities, & Equity - "net assets" what remains after deducting liabilities
from assets..
Income Statement - Answer: Presents the results of the operations of an entity over a
peroid of time.
Includes: Revenues, Expenses, Income, Gains & Losses
Statement of Equity or Statement of Retained Earnings (Capital) - Answer: Bridges the gap
between the income statement and the balance sheet.
Arrangement depends on type of organization:
Proprietorship: Statement of Owners Equity
Partnership: Statement of Partners Equity
Corporation: Statement of Stockholders Equity
In addition, it contains: Investments by Owners and Distribution to owners
Statement of Cash Flows - Answer: Provides information about a company's cash receipts
and cash payments during a specific period of time.
Includes all 10 elements of financial statements: assets, liabilities, equity, net income,
income, gains, losses, Statement of 'X' Equity, Investments by Owners, Distributions to
Owners.
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,Cash Basis Accounting - Answer: Revenue is recognized in the accounting period in which
the associated cash is received and Expenses are recognized in the accounting period that
the cash is paid.
Accrual Basis Accounting - Answer: Revenue is recognized in the accounting period in
which the revenue is earned, regardless of when the associated revenue is received.
(Recorded when the sale is made, not when it is paid for.)
Depreciation - Answer: A method of allocating the cost of a tangible asset over its useful
life. Businesses depreciate long-term assets for both tax and accounting purposes.
Straight-Line Deprecation - Answer: Straight Line Depreciation - (estimated value/useful
life)
Equal amounts of depreciation expense are recorded in each period of the useful life of the
asset, if not disposed of prior to the end of estimated useful life.
The value is divided among estimated life of item.
Double Declining Balance Depreciation - Answer: Double Declining Balance
An "accelerated" depreciation method (more expense is recorded in the early periods of
useful life and less in the later periods.)
Basic Inventory Equation for Goods - Answer: Beginning Inventory + Purchases = Goods
Basic Inventory Equation for Cost of Goods Sold (COGS) - Answer: Goods Available for Sale
- Ending Inventory = Cost of Goods Sold (COGS)
Basic Inventory Equation for Ending Inventory - Answer: Beginning Inventory + Purchases =
Goods Available for Sale - Cost of Goods Sold (COGS) = ending inventory
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, Periodic Inventory Accounting - Answer: No transactions are recorded in the inventory
account until the end of the accounting period. Merchandise purchases are recorded in a
purchases account.
Inventory is counted and costed at the end of each accounting period. The inventory
account beginning balance is adjusted to physical inventory amount and the difference is
added to or subtracted from periodic Cost of Goods Sold.
Perpetual Inventory Accounting - Answer: Merchandise purchases are added to the
inventory account when the merchandise is received.
Cost of Goods Sold is computed and subtracted from the inventory account as sales are
recorded.
FIFO (Inventory) - Answer: Inventory Oldest items inventory are sold first .(Example: Fruit)
LIFO (Inventory) - Answer: Most recent items added to inventory are sold first. (Example:
Ore from Mining)
Average Cost (Inventory) - Answer: Ending inventory units are costed using an average cost
of goods available divided by the units available for sale. (Example: Rope)
Specific Identification (Inventory) - Answer: Inventory items are tagged with their cost.
(Example: automobiles)
Generally Accepted Accounting Principles (GAAP) - Answer: A framework of accounting
standards, rules and procedures defined by the professional accounting industry, which
has been adopted by nearly all publicly traded U.S. companies.
APPHIA – Crafted with Care and Precision for Academic Excellence.
3
The smart way to Pass | Real Tests, Real results!
Balance Sheet - Answer: Attempts to describe the financial condition of the firm at a point
in time.
Includes: Assets, Liabilities, & Equity - "net assets" what remains after deducting liabilities
from assets..
Income Statement - Answer: Presents the results of the operations of an entity over a
peroid of time.
Includes: Revenues, Expenses, Income, Gains & Losses
Statement of Equity or Statement of Retained Earnings (Capital) - Answer: Bridges the gap
between the income statement and the balance sheet.
Arrangement depends on type of organization:
Proprietorship: Statement of Owners Equity
Partnership: Statement of Partners Equity
Corporation: Statement of Stockholders Equity
In addition, it contains: Investments by Owners and Distribution to owners
Statement of Cash Flows - Answer: Provides information about a company's cash receipts
and cash payments during a specific period of time.
Includes all 10 elements of financial statements: assets, liabilities, equity, net income,
income, gains, losses, Statement of 'X' Equity, Investments by Owners, Distributions to
Owners.
APPHIA – Crafted with Care and Precision for Academic Excellence.
1
,Cash Basis Accounting - Answer: Revenue is recognized in the accounting period in which
the associated cash is received and Expenses are recognized in the accounting period that
the cash is paid.
Accrual Basis Accounting - Answer: Revenue is recognized in the accounting period in
which the revenue is earned, regardless of when the associated revenue is received.
(Recorded when the sale is made, not when it is paid for.)
Depreciation - Answer: A method of allocating the cost of a tangible asset over its useful
life. Businesses depreciate long-term assets for both tax and accounting purposes.
Straight-Line Deprecation - Answer: Straight Line Depreciation - (estimated value/useful
life)
Equal amounts of depreciation expense are recorded in each period of the useful life of the
asset, if not disposed of prior to the end of estimated useful life.
The value is divided among estimated life of item.
Double Declining Balance Depreciation - Answer: Double Declining Balance
An "accelerated" depreciation method (more expense is recorded in the early periods of
useful life and less in the later periods.)
Basic Inventory Equation for Goods - Answer: Beginning Inventory + Purchases = Goods
Basic Inventory Equation for Cost of Goods Sold (COGS) - Answer: Goods Available for Sale
- Ending Inventory = Cost of Goods Sold (COGS)
Basic Inventory Equation for Ending Inventory - Answer: Beginning Inventory + Purchases =
Goods Available for Sale - Cost of Goods Sold (COGS) = ending inventory
APPHIA – Crafted with Care and Precision for Academic Excellence.
2
, Periodic Inventory Accounting - Answer: No transactions are recorded in the inventory
account until the end of the accounting period. Merchandise purchases are recorded in a
purchases account.
Inventory is counted and costed at the end of each accounting period. The inventory
account beginning balance is adjusted to physical inventory amount and the difference is
added to or subtracted from periodic Cost of Goods Sold.
Perpetual Inventory Accounting - Answer: Merchandise purchases are added to the
inventory account when the merchandise is received.
Cost of Goods Sold is computed and subtracted from the inventory account as sales are
recorded.
FIFO (Inventory) - Answer: Inventory Oldest items inventory are sold first .(Example: Fruit)
LIFO (Inventory) - Answer: Most recent items added to inventory are sold first. (Example:
Ore from Mining)
Average Cost (Inventory) - Answer: Ending inventory units are costed using an average cost
of goods available divided by the units available for sale. (Example: Rope)
Specific Identification (Inventory) - Answer: Inventory items are tagged with their cost.
(Example: automobiles)
Generally Accepted Accounting Principles (GAAP) - Answer: A framework of accounting
standards, rules and procedures defined by the professional accounting industry, which
has been adopted by nearly all publicly traded U.S. companies.
APPHIA – Crafted with Care and Precision for Academic Excellence.
3
