Praxis 2 Business Education Content Knowledge 5101- Accounting With complete verified solutions already graded A+ 2025-2026

Fundamental Accounting Equation

States that all assets= liabilities + owners' equity. It is used in double entry accounting and shown in the balance sheet, in which all assets can be added up as the equivalent of the liabilities and shareholders equality.

Accounting Cycle

Describes the steps taken in the accounting process. A six-step procedure that results in the preparation and analysis of the major financial statements.

Journals

Important in the accounting cycle. When a transaction occurs it is initially put into this cycle, base on when transaction occurs.

Ledgers

After journal cycle, the information is transferred into this cycle. It contains different accounts like asset accounts, revenue accounts, expense accounts, liability accounts, and equity accounts.

Double- Entry Bookkeeping

Bookkeepers record all transactions in two places so they can check one list of transactions against the other for accuracy. Two columns are used, all of the debits are placed on the left while the credits go on the right.

Credits

decrease assets and increase liabilities

Debts

money that is owed to someone else

Debits

increase assets and decrease liabilities

Trial Balances

A document showing the ending balances of ledger accounts. It is done on a certain date as the company is preparing to create financial documents. On the top is the title, entity, and accounting period. Then the account titles are listed. Then there is a list of the debits (assets and expenses) on the left and a list of the credits (liabilities, income, and equity) on the right. The sum of the credits and debits are at the bottom. If everything is correct, these numbers should match, although they can still be inaccurate even if they do match. This can happen if incorrect entries were put into both the debit and credit sections at the same time, or if something was omitted altogether. Still, if they do not match, there is definitely a problem, and the company has a chance to investigate and fix it before creating the financial documents. If the company prepared the financial documents and then noticed the error, then the accountants would have to redo the documents, a much more arduous and time-consuming process. Accountants use the trial balance when making the financial documents.

Income Statements

accounting statements, also called "profit and loss statements," that show what has happened to an organization's income, expenses, and net profit over a period of time.

Balance Sheets

a financial statement that sums up a firm's financial position on a particular day, usually the end of a quarter or year. It is a snapshot showing the financial situation of the company.

Statements of Retained Earnings

A very important financial document required when income statements and comparative balance sheets are given. It showcases how a business' retained earnings change over a period of time.

Statements of Cash Flow

explains how the company's cash changed from the beginning of the accounting period to the end. It is a major accounting document that outlines the inflow and outflow of cash from a company.

Financial Ratios

calculations typically used to track a business's liquidity (cash), efficiency, and profitability over time compared to other businesses in its industry

Payroll Records

documentation used to process earnings payments and record each employee's pay history.

Payroll records contain information on all employees of the company, their compensation, and benefits.

Payroll Accounting Procedures

Ensures accurate compensation and reporting. First, a company must have a way to compute the amount of time an employee works. Sometimes this is set to a schedule, whereas other times an hourly employee works different hours every day. A time card or electronic time clock may be used to keep track of this. Sometimes, employees keep their own records or are salaried and receive the same amount no matter how many hours they work. The pay must then be computed for each person. This may be a set amount based on a salary, or be the number of hours worked multiplied by the hourly rate. It may be more complicated and include other things such as investment account distributions, bonuses, or reimbursements. They must have a system to account for special time such as when the employee is taking paid leave. The company must compute and submit all applicable taxes such as income taxes on behalf of the employee and payroll taxes. They must make other deductions such as healthcare premiums. Once this is worked out, the company will distribute the money. This is often done by check or direct deposit.

Periodic Inventory System

An inventory system in which a company does not maintain detailed records of goods on hand throughout the period and determines the cost of goods sold only at the end of an accounting period.

Perpetual Inventory System

A detailed inventory system in which a company maintains the cost of each inventory item, and the records continuously show the inventory that should be on hand.

Inventory Costing Systems

FIFO and LIFO methods

Inventory costing is the process of assigning a cost to a particular item. There are various methods a company can use. With the first in, first out (FIFO) method, the oldest cost is assigned to the first item sold, then the next oldest cost to the next item sold, and so on. For instance, if five shirts were bought wholesale for $10, and then next five were bought for $12, then the first five sold would have the $10 cost and the next five would have the $12 cost, even if they weren't the ones actually bought for those amounts. This is very common because it is a good approximation of the real world. With the last in, first out (LIFO) method, it is the opposite and the most recent cost is assigned to the first items sold. In this case it would be $12 for the first five shirts sold and then $10. This is used less often.

Average cost and specific identification methods

The average cost and specific identification methods are two inventory costing methods. The average cost method keeps a running average of inventory and assigns the item sold the current average. For instance, if a company buys five shirts for $10 and five for $12, then the next shirt sold would be assigned the cost of $11. This is good when a company has non-perishable items that are not sold sequentially. It can be steadier and more reliable as long as there is not a great change in the costs of the items. The specific identification method assigns the cost of a product with the actual cost paid for that specific product. These are used for low-volume, high-dollar producers. For instance, a company that sells high-end cars might use this system so they know exactly how much they made on a car. It is not good for companies with a lot of very similar items.

FIFO Method (First in, First out)

an inventory costing method that assumes that the earliest goods purchased are the first to be sold

LIFO Method

an inventory costing method that assumes that the latest units purchased are the first to be sold.

Average Cost

The total cost divided by the number of units.

The total cost/output

Specific Identification Method

identifies the cost of the specific item that was sold

Depreciation

A decrease or loss in value. It is the concent that assets such as equipment, machinery, and cars have a useful life and will only be usable for a certain amount of time and therefore lose value as time goes on.

Management Accounting

Refers to the evaluation of information for the purpose of managers. It can include the identification, measurement, evaluation, interpretation, and communication of information.

Focuses on reporting information to management

Cost Accounting

Is useful for managers to help make decisions while planning and controlling. Used to reduce and eliminate costs in a business. Cost accounting is used to determine a price for a product or service that will allow earnings of a reasonable profit.

Types of Cost

variable cost, fixed cost, direct cost, indirect cost

Direct Cost

The costs that go directly into making a product. A cost which can be clearly identified with a particular unit of output. If a company is manufacturing pens, then the cost of the ink would represent this cost.

Indirect Cost

Cost is incurred to the company as a whole and is necessary but not directly tied into that one product. For instances, the office supplies utilized in the marketing department They are not used directly in making the pens, but they are still important to the function of the marketing department that helps to promote the pen.

Fixed Cost

a cost that does not change, no matter how much of a good is produced.

Variable Cost

a cost that rises or falls depending on how much is produced. Costs that change as output changes.

Cost- Volume- Profit Analysis (CVP)

Part of managerial economics and looks at how alterations in the cost (fixed and variables) and sales volume change the profit of a company.

Return on Investment (ROI)

The amount earned from an expenditure (the amount of money spent).

Investment Options

Real estate, bonds, stocks, mutual funds, or savings account.

Bonds

Paper notes promising to repay money after a certain length of time with interest. An investor is loaning money to an institution, which is borrowing the money. In exchange, the borrower is providing the investor with a coupon or preminum. Thus, the investor will get money for lending this money. Once it reaches face value it will be given back to the investor. This investment is less risky, but less reward.

Stocks

A common form of investment. Investors purchase a very small amount of a company. The returns depends on the rising prices when the company is doing well. There are no limit to what someone can make. It is possible to make a fortune on a small investment. Disadvantage, it is risk and the investor can lose everything.

Mutual Funds

Businesses that take money from a variety of investors and put it in a portfolio of bonds, stocks, securities, and assets.A person who buys into this fund will hold a portion of ownership of the portfolio and reap the rewards when the portfolio gains value.

Personal Income Taxes

Taxes paid by households or individuals in households on all forms of income, including wages, rental income, interest income, and dividends (income from ownership of shares in a company); is the most important source of government tax revenues in many countries (especially economically more developed countries). Taxes on the money a person earns.

Federal Insurance Contributions Act (FICA)

A federal system of old-age, survivors, disability and health-care insurance (Medicare) which requires employers to withhold (or transfer) wages from employees' paychecks and deposit that money in designated accounts.

Medicare Taxes

Taxes paid by employees and employers to the federal government based on the amount of money paid to the employee by the employer each pay period. These taxes pay for health care benefits for retired and disabled workers.

Property Taxes

Taxes paid by anyone who owns property such as land, a home or commercial real estate

Gain Taxes

Based on profit from a non-inventory asset such as bonds, stocks, property, and precious metals.

Sales Taxes

Paid on items people buy.Added to the price of goods and services at the time of purchase

Credit Cards

Allows people to make purchases in advance and then pay it back monthly. People can keep a balance on the cards, but the interest can be very high.

Auto Loans

a personal loan to purchase an automobile. Allows people to pay off their cars slowly, but they can lose the car if unable to pay.

Mortgages

Loans made to let people purchase home. Generally these loans come from the bank and allow home buyers to slowly pay off the house with interest.

Foreclosure

Process by which the holder of a mortgage sells the property of a homeowner who has not made interest and/or principal payments on time as stipulated in the mortgage contract

Home Equity Loans

home owners can borrow against the appraised value of their already purchased homes. The person's equity is put upas collateral in case the person defaults on the loan.

Variable Loan

A loan in which the interest rate changes along with the market interest rate, changing the payments.

Bankruptcy

A legal process to get out of debt when you can no longer make all your required payments.Has a major impact on personal credit.

Chapter 7 Bankruptcy

a filing has been done, and a cease letter is sent to each employee about three weeks before the close of the company. Next somebody can buy your company and then no Bankruptcy will happen. If no buyer happens, the bank or some other entity, will take a look at all the assets and then try and sell the assets. Typically, only 1/3rd of employees are kept to finish the loose ends of the company.

Chapter 11 Bankruptcy

A form of bankruptcy that involves a reorganization of a business's debts, affairs, and assets.A reorganization form of bankruptcy for businesses that allows them to continue operating under court supervision as they repay their restructured debts.

Chapter 13 Bankruptcy

equivalent to chapter 11 bankruptcy but applies to natural persons. this type of bankruptcy allows for a payment of debt over a period of time and debtor keeps assets. A repayment plan for debt for individuals.

Annual Percentage Rate (APR)

Cost of borrowing money on an annual basis; takes into account the interest rate and other related fees on a loan.

Life Insurance

A type of coverage people buy that pays out upon a person's death.

Beneficiary

one who benefits from something; a person who is left money or other property in a will or the like.

Rider

Changes provisions or clauses of the insurance policy.

Annuities

a fixed sum of money paid to someone each year, typically for the rest of their life.

Actuarial Tables

A comprehensive list of statistical data; used most often by insurance companies to determine illness, disease, and accident projections. Shows the chance tht someone will pass away before their birthday, used by life insurance companies when developing plans and pricing.

Automobile Insurance

Covers drivers in the case of an occurrence that causes some sort of damage or harm.

Liability Coverage

protection against injuries suffered by others on your property or as a result of your actions.

Collision Coverage

Cars involved in an accident. People often have a deductible, or money have to be paid first.

Preminiums

The amount a driver pays monthly or regularly to maintain coverage.

Comprehensive Insurance

Covers cars damaged without a collision such as from vandalism or weather related events.

Property Insurance

Provides coverage against a wide variety of risks and includes fire insurance, earthquakes insurance, home insurance, and flood insurance.

Open Perils

where all losses are covered except those losses specifically excluded.

Replacement Insurance

Insurance that actually replaces an item that has been destroyed.

Health Insurance

Insurance that covers medical illness or injury.

Employer- sponsored plan

Employer-provided group coverage; employees must meet service requirements and work full-time

Medicare

A federal program of health insurance for persons 65 years of age and older

Medicaid

A federal and state assistance program that pays for health care services for people who cannot afford them.

Preferred Provider Plan (PPO)

Generally gives greater benefits if an individual sees someone " in network" as compared to "Out of network."

HMO

Health Management Organization, contracts physicians, hospitals, and other providers and gives benefits based on that.

Strategies for Lowering Product's Cost

Take advantage of sales, look for coupons traditionally and on line purchases, purchase items on clearance, purchase in bulk, and compare shops to look for the lowest price on an item..

Factors that can influence employment opportunities

Economic Factors, Geographic Location, Education, Skills, and Experience.

Factors that can influence cost of living

Housing prices, Family size, Inflation

Factors that influence personal income

Person's education, Experience, Job market, Geographic Location

Profit Margins

Makes it possible to compare companies of different sizes because it is expressed by percentages. Example, To calculate profit margin, first the raw profit is calculated. This is accomplished by subtracting total costs of sales revenue. For instances, if sales of a product made 10,000 for the company and cost were $8,000, then raw profit will be $10,000- $8000, or $2,000. Next the gross profit is divided by the revenue. Therefore, 2,000 would be divided by $10,000 for an answer of 0.2. The profit margin is this number expressed as a percentage. To get this, a person would multiply the decimal by 100, thus 0.2 is equal to a 20 percent profit margin.

Sales Price

The price minus the discount, which is calculated by the percentage off. For instance, to calculate the sale price of an item that is $100 and 20 percent off. First the percentage should be transformed to decimal form, which is done by moving the decimal point to the left by two digits. Therefore, 20 percent is the same as 0.2. Five percent is the same as 0.05, and one percent is the same as 0.01. To calculate the discount, one would multiple 0.2 by 100. This equals $20. The sale price is calculated by taking the full price and subtracting the discount. In this example, it is $100-$20. Thus the sale price is $80.

Commission

An amount paid to an employee based on a percentage of the employee's sales. For instances, if an employee receives a 10 percent commission on $100, then he will receive $10 in commission. (0.1x100) The employee will need to calculate taxes on the commission to ascertain the final pay.

Hourly wages

fixed amount of pay for each hour worked. First the amount of hours worked in the year would be calculated. If the person worked 40 hours a week, then the number of hours worked in the year would be 40x52 or 2080 hours. If they worked 35 hours a week, then it would be 35 x52 , or 1820. To calculate the hourly wage for 40 hours, divide the full-time salary by 2080. Thus, if the person earned 41,600, then the hourly salary would be 41,600/2080 or $20. an hour.

Percentages

part = (percent / 100) x whole; To calculate a percentage from a decimal multipy it by 100. Thus, 0.15 is 15 pecent. To increase a number by a certain percentage (like when a product is marked up by a percentage), calculate the increase by multiplying the percentage by the cost. Example, if the cost of a good is $100 and the company wants to mark it up 50 percent, then the markup would be $100 multiplied by 50 percent (which is the same as 0.5), and that would equal $50. Thus the cost plus of the markup would be $150. This can also be use to finde wholesale prices, if the wholesale prices is 75 percent on the price of $100, then to get the wholesale price, just multiple $100 by 75% or .75 to get a wholesaleprice of $75.

Frequency Distribution

an arrangement of data that indicates how often a particular score or observation occurs.

Mean

the arithmetic average of a distribution, obtained by adding the scores and then dividing by the number of scores. Example: 3,2,3,4, add them to get 12 and then divide by 4 to get 3.

Mode

The number that appears the most. Example: 3,2,3,and 4, that number will be 3.

Median

The number that would appear in the middle if the numbers were put in order. Ex: 7,3,9,1,5 in order it will be 1,3,5,7,9, that number will be 5 because it is in the middle.

Line Graph

A graph that uses line segments to show changes that occur over time

Scatter Plot

A graph with points plotted to show a possible relationship between two sets of data.Shows how two variables are related to each other.

Bar Graphs

Can be used to show data in a way that it is clear and easy to understand.Used to compare amounts.

Circle Graphs

Useful visual aid that shows a variety of data.

show fixed quantity, also called a pie graph, circle represnts the total and slices represent the different parts as percentages

Asset

Something that produces value and is owned.

Fixed Asset

A tangible asset that is generally used to generate profit and will not be turned into cash within the year. (Samples: Plant, Land, Computer Equipment, Furniture, Cars, Buildings, and Equipment)

Variable Asset

Maybe transformed to cash sooner and will include the inventory of the actual product. It can also include accounts receivable, the money customers own for delivered items.

Accounts Receivable

Amounts to be received in the future due to the sale of goods or services. Is the money that a company has a right to receive because it had provided customers with goods and/or services

Accounts Payable

Amounts to be paid in the future for goods or services already acquired. includes all the money you owe to vendors. Keep track of credit that vendors have extended to you.

Intangible Asset

Not tangible; Its not physical. It includes recognition of the brand name as well as intellectual property like logs, trademarks, and patents.

Liquidity

the ease with which an asset can be converted into cash. Refers to how easily an asset can be bought or sold on the market at the same price. It also refers to being able to make an asset become cash easily and quickly.

Equity

Shows what the owner has contributed in addition to the retained earnings. Ownership - debts.The sum of your asset.

Depreciation

Refers to how things lose value as time goes on.

Cash Flow

Refers to the actual cash that is going in and out of a business such as revenues or expense due to business activities.