Describes Financial Accounting Quiz Questions

The income statement shows a company's revenues and expenses. It provides a summary of the company's financial performance over a specific period of time, typically a month, quarter, or year. The statement starts with the company's revenues, which are the amounts earned from the sale of goods or services. Then, it deducts the expenses incurred by the company to generate those revenues. The result is the net income or net loss for the period, which indicates the company's profitability. Therefore, the income statement is the financial statement that shows a company's revenues and expenses.

The correct answer is "Measuring a company's business activities and communicating those measurements to external parties." This definition accurately describes financial accounting as the process of measuring and recording a company's financial transactions and activities, and then communicating this information to external stakeholders such as investors, creditors, and regulators. Financial accounting involves preparing financial statements, such as the balance sheet, income statement, and cash flow statement, which provide a comprehensive overview of a company's financial performance and position.

Financial accounting is a process that involves measuring, recording, and communicating financial information about an organization. It focuses on providing accurate and reliable financial statements and reports to external stakeholders such as investors, creditors, and regulators. This information helps in making informed decisions about the financial health and performance of the organization. Therefore, the best description for financial accounting is an information measurement/communication process.

The balance sheet is the correct answer because it is the financial statement that reports a company's assets and liabilities. It provides a snapshot of the company's financial position at a specific point in time by listing its assets (such as cash, inventory, and property) and liabilities (such as loans, accounts payable, and accrued expenses). The balance sheet also shows the company's equity, which is the difference between its assets and liabilities. Overall, the balance sheet is an important tool for investors, creditors, and analysts to assess a company's financial health and stability.

The correct answer is "all of the above" because traditional careers in public accounting involve various roles such as auditors, tax preparers/planners, and business consultants. Auditors are responsible for examining financial records and ensuring compliance with regulations. Tax preparers/planners assist individuals and businesses in managing their taxes. Business consultants provide advice and guidance to organizations on various aspects of their operations. Therefore, all of these roles are considered traditional careers in public accounting.

The income statement reports the net income for a specific period, which is calculated by subtracting expenses from revenues. This statement provides information on the profitability of a company and shows if it is generating a profit or a loss. It does not include information on cash flows from operating, investing, and financing activities, changes in stockholders' equity, or the equality of total assets with total liabilities plus stockholders' equity.

When purchasing office supplies on account for $100, the correct recording is to debit the Supplies account for $100 and credit the Accounts Payable account for $100. This reflects an increase in the Supplies asset and an increase in the liability owed to the supplier.

Cash is an asset account, and a credit is used to decrease asset accounts. Therefore, when a credit is used, it decreases the cash account.

Purchasing land is considered an investing activity because it involves the acquisition of a long-term asset that is expected to generate future economic benefits. This transaction represents an investment in a physical asset with the intention of earning a return through appreciation, rental income, or future development. It is a capital expenditure that is classified as an investing activity in the statement of cash flows.

A debit is used to decrease the balance in the Accounts Payable account. When a company pays off its outstanding debts or reduces the amount owed to its creditors, a debit entry is made to decrease the Accounts Payable balance. This helps to accurately reflect the decrease in the company's liabilities.

Posting refers to the process of transferring the debit and credit information from a journal to individual accounts in the general ledger. This step is crucial in the accounting cycle as it helps organize and summarize financial transactions in a systematic manner. By posting, the information recorded in the journal is accurately reflected in the respective accounts, allowing for easy tracking and analysis of financial data.

Clearmore Services should record service revenue on September 22, the date of cash receipt, when using cash-basis accounting. This method recognizes revenue when cash is received, rather than when the service is provided or requested. Therefore, the revenue should be recorded on the date when the cash is actually received.

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Issuing common stock to investors is considered a financing activity because it involves raising funds from external sources, specifically investors, in exchange for ownership in the company. This activity directly impacts the company's capital structure and represents an inflow of cash, which is classified as a financing activity in the statement of cash flows.

The correct answer is "Total debit amounts should always equal total credit amounts." In accounting, a trial balance is a statement that lists all the general ledger accounts and their balances. It is used to ensure that the total debits equal the total credits in the accounting system, which is a fundamental principle of double-entry bookkeeping. This balance is important for ensuring the accuracy of the financial records and detecting any errors or discrepancies in the accounts.

Adjusting entries are necessary in accrual accounting to ensure that revenues and expenses are recognized in the appropriate accounting period. These entries allow for the proper application of the revenue recognition principle, which states that revenue should be recognized when it is earned, and the matching principle, which states that expenses should be recognized in the same period as the revenue they help generate. Adjusting entries are not used in cash-basis accounting, are recorded at the end of the accounting period, and do not reduce the balances of revenue accounts to zero.

The Financial Accounting Standards Board (FASB) has the primary responsibility for establishing Generally Accepted Accounting Principles (GAAP). GAAP is a set of accounting standards and principles that guide the preparation of financial statements. The FASB is an independent organization that sets these standards in the United States. The American Institute of Certified Public Accountants (AICPA) is a professional organization that provides guidance and support to accountants, but it does not have the primary responsibility for establishing GAAP. The International Accounting Standards Board (IASB) is responsible for setting International Financial Reporting Standards (IFRS), which are used in many countries outside of the United States. The Securities and Exchange Commission (SEC) is a regulatory agency that oversees financial markets and enforces securities laws, but it does not establish GAAP.

Preparing a trial balance involves listing all the accounts and their respective debit and credit balances. The purpose of preparing a trial balance is to ensure that the total debits equal the total credits, which helps in identifying any errors or discrepancies in the recording of transactions. By comparing the total debits and total credits, it helps to ensure the accuracy and completeness of the accounting records before preparing financial statements.

The closing process in accounting refers to the steps taken at the end of an accounting period to transfer the balances of temporary accounts (such as revenues, expenses, and dividends) to the retained earnings account. This process ensures that the temporary accounts are reset to zero for the next accounting period and that the net income or loss is properly reflected in the retained earnings account. It allows for accurate financial statements to be prepared and provides a clear starting point for the next accounting period.

The expiration of an insurance policy over time is not considered an external business transaction because it does not involve any exchange of goods, services, or money with an external party. It is a contractual agreement that ends based on a predetermined period or condition.

When a company purchases office supplies on account, it means that they are buying the supplies but not paying for them immediately. Instead, they will owe the amount to the supplier in the future. This creates a liability for the company as they now have an obligation to pay for the supplies. Therefore, purchasing office supplies on account causes an increase in total liabilities.

According to the matching principle, expenses should be recorded in the same period as the revenue they help generate. In this case, the lawn maintenance service provided by Green Lawn on March 8 is directly related to the request made by Tonkawa on March 4. Therefore, the expense should be recorded on March 8, the date of the lawn maintenance service.

According to the revenue recognition principle, revenue should be recorded when the service is provided. In this case, the service was provided on September 15, so Clearmore Services should record the service revenue on that date.

Salaries Payable is listed in a post-closing trial balance because it is an account that represents the amount of salaries owed to employees at the end of an accounting period. This account is not closed at the end of the period and is carried forward to the next period. The post-closing trial balance includes all balance sheet accounts that have not been closed, and Salaries Payable falls into this category.

Predictive value refers to the ability of accounting information to provide insights and make accurate predictions about future events or outcomes. This means that the information is useful for decision-making purposes and can help users anticipate and plan for future scenarios. It is an important component of relevant accounting information as it enables users to make informed decisions based on the potential impact of certain events or actions.

Financial accounting plays a crucial role in supporting the efficient distribution of society's resources. It helps in providing accurate and reliable financial information about an organization's performance, financial position, and cash flows. This information is essential for various stakeholders, including investors, creditors, and government regulators, to make informed decisions regarding the allocation of resources. By ensuring transparency and accountability in financial reporting, financial accounting contributes to the effective allocation of resources in an economy, promoting economic growth and stability.

In a business transaction, it is possible for assets to decrease and expenses to increase. This can happen when a company spends money on expenses such as salaries, rent, or supplies, which reduces their assets.

Paying salaries expense for the current month causes a decrease in stockholders' equity because it is an expense that reduces the company's net income. When salaries are paid, it decreases the company's retained earnings, which is a component of stockholders' equity. This transaction represents an outflow of cash and a decrease in the company's overall financial position.

The correct answer is Rent Expense10,000 Prepaid Rent10,000. This is because the prepaid rent of $12,000 was initially recorded as an asset when it was purchased on November 1. However, at the end of the year on December 31, $10,000 worth of rent has been used up or expired. Therefore, the adjusting entry is made to recognize the expense of $10,000 and reduce the prepaid rent by the same amount. This ensures that the financial statements reflect the correct amount of rent expense for the year.

The balance of retained earnings in the adjusted trial balance is equal to the balance of retained earnings at the beginning of the accounting period. This means that any adjustments made during the accounting period, such as closing entries, have been accounted for and the final balance of retained earnings matches the beginning balance. This is important for accurately reporting the financial position of a company and ensuring that all changes in retained earnings are properly recorded.