Accounting Oral Exam

Who established the basis of accounting in 1494?

Luca Pacioli, known as the 'Father of Accounting.'

What are the three basic activities of accounting?

Identifying, Recording, and Communicating financial information.

Who uses accounting data?

Internal users (management, employees) and external users (investors, creditors, regulatory agencies).

Who are the internal users of accounting data?

Individuals within an organization, such as managers, employees, and executives.

Who are the external users of accounting data?

Individuals outside the organization, such as investors, creditors, and regulators.

Who does managerial accounting provide information to?

Primarily to internal users, especially management for decision-making purposes.

Who does financial accounting provide information to?

External users such as investors, creditors, and regulatory agencies.

What are the three fundamental qualitative characteristics of accounting?

Relevance, Faithful Representation, and Comparability.

What are the four enhancing qualitative characteristics of financial information?

Verifiability, Timeliness, Understandability, and Consistency.

What are assets?

Resources owned by a business that have economic value and can provide future benefits.

What is a tangible asset?

Physical assets that can be touched and measured, such as buildings, machinery, and inventory.

What is an intangible asset?

Non-physical assets like patents, trademarks, and goodwill.

What are liabilities?

Obligations or debts that a business owes to external parties.

What is equity?

The residual interest in the assets of the entity after deducting liabilities.

What are revenues?

Earnings generated from the normal operations of a business.

What are expenses?

Costs incurred in the process of earning revenues.

What are dividends?

Payments made to shareholders from a corporation's earnings as a return on their investment.

What is the basic accounting equation?

Assets = Liabilities + Equity.

What is the expanded accounting equation?

Assets = Liabilities + Equity + Revenues - Expenses.

Which financial statement summarizes the company’s revenue and expenses?

The Income Statement.

Which financial statement shows what the company owns and what it owes?

The Balance Sheet.

What is another name for the balance sheet?

The Statement of Financial Position.

How many steps are there in the accounting process?

7 steps.

What is a business transaction?

An event that has a financial impact on the business and can be measured reliably.

What is the key criterion for recording a transaction?

It must involve an exchange of value and be verifiable.

What is the purpose of the journal in accounting?

It records transactions in chronological order, showing effects on accounts.

What is a simple entry in accounting?

An entry involving one account debited and one account credited.

What is a compound entry?

An entry involving multiple accounts being debited or credited.

What is a T-account?

An accounting device that summarizes all transactions affecting an account.

How are debits and credits represented in a T-account?

Debits on the left side and credits on the right side.

What are the 8 basic postulates of accounting?

Economic Entity, Monetary Unit, Time Period, Cost, Full Disclosure, Going Concern, Stable Monetary Unit, Matching.

How does liquidity differentiate current and non-current assets?

Current assets can be converted to cash within one year; non-current assets take longer.

What distinguishes short-term and long-term liabilities?

Short-term liabilities are due within one year; long-term liabilities are due beyond one year.

What are the two main types of stock issued by corporations?

Common stock and preferred stock.

What is the rule of debit and credit in accounting?

For every debit entry, there must be a corresponding credit entry of equal value.

What are the three main parts of a financial statement?

Income Statement, Balance Sheet, and Cash Flow Statement.

What information is included in the heading of a financial statement?

The name of the entity, title of the statement, and the period covered.

What is depreciation?

The systematic allocation of the cost of a tangible asset over its useful life.

What are the three classes of plant assets to which depreciation applies?

Land improvements, buildings, and equipment.

What are the features of a contra account?

It reduces the balance of another account and has an opposite normal balance.

What are the three methods used to compute depreciation?

Straight-line method, units-of-activity method, double-declining-balance method.

How does the straight-line method of depreciation work?

Allocates equal amounts of depreciation each year.

How is depreciation calculated using the units-of-activity method?

Based on actual usage or activity; Equation: [(Cost - Salvage Value) / Total Activity] x Activity for the Period.

What makes the double-declining-balance method accelerated?

It applies double the straight-line rate to the declining book value of the asset.

Provide examples of current and non-current assets.

Current Assets: Cash, Inventory. Non-Current Assets: Property, Equipment.

What are examples of short-term and long-term liabilities?

Short-Term Liabilities: Accounts Payable. Long-Term Liabilities: Bonds Payable.