Accounting Oral Exam
Who established the basis of accounting in 1494?
Luca Pacioli, known as the "Father of Accounting," established the basis of accounting in his work "Summa de Arithmetica."
What are the three basic activities of accounting?
Identifying, Recording, and Communicating financial information.
Who uses accounting data?
Internal users (e.g., management, employees) and external users (e.g., investors, creditors, regulatory agencies).
Who are the internal users? Provide some examples.
Internal users are individuals within an organization who use accounting data. Examples include managers, employees, and executives.
Who are the external users? Provide some examples.
External users are individuals outside the organization who use accounting data. Examples include investors, creditors, and regulators.
Who does managerial accounting provide information to?
Managerial accounting provides information primarily to internal users, particularly management for decision-making purposes.
Who does financial accounting provide information to?
Financial accounting provides information to external users such as investors, creditors, and regulatory agencies.
What is the definition of qualitative characteristics in accounting?
Qualitative characteristics are the attributes that make financial information useful for decision-making.
What are the three fundamental qualitative characteristics?
Relevance, Faithful Representation, and Comparability.
What are the four enhancing qualitative characteristics?
Verifiability, Timeliness, Understandability, and Consistency.
What are assets?
Assets are resources owned by a business that have economic value and can provide future benefits.
What is a tangible asset?
Tangible assets are physical assets that can be touched and measured, such as buildings, machinery, and inventory.
What is an intangible asset?
Intangible assets are non-physical assets, such as patents, trademarks, and goodwill.
What are liabilities?
Liabilities are obligations or debts that a business owes to external parties.
What is equity?
Equity represents the residual interest in the assets of the entity after deducting liabilities. It is also referred to as owner's equity or shareholder's equity.
What is the definition of “revenues”?
Revenues are the earnings generated from the normal operations of a business, typically from the sale of goods and services.
What is the definition of “expenses”?
Expenses are the costs incurred in the process of earning revenues, representing outflows of resources.
What is the definition of “dividends”?
Dividends are payments made to shareholders from a corporation's earnings as a return on their investment.
What are the components of the basic accounting equation?
The basic accounting equation is: Assets = Liabilities + Equity.
What are the components of the expanded accounting equation?
The expanded accounting equation includes revenues and expenses: Assets = Liabilities + Equity + Revenues - Expenses.
Which financial statement summarizes the company’s revenue and expenses over the accounting period?
The Income Statement summarizes revenue and expenses.
Which financial statement summarizes what the company owns and what it owes at the end of the accounting period?
The Balance Sheet summarizes what the company owns (assets) and what it owes (liabilities).
By what other name is the balance sheet known?
The Statement of Financial Position.
How many steps does the accounting process consist of?
The accounting process typically consists of 7 steps: Identify transactions, Record transactions, Post to ledger, Prepare trial balance, Adjust entries, Prepare financial statements, and Close the accounts.
What is a business transaction?
A business transaction is any event that has a financial impact on the business and can be measured reliably.
What is the key criterion for recording a transaction?
The key criterion for recording a transaction is that it must involve an exchange of value and be verifiable.
What is the purpose of the journal in accounting, and how does it show the effects of a transaction?
The journal records transactions in chronological order and shows the effects on the accounts affected by documenting debits and credits.
What is a simple entry in accounting, and how does it differ from a compound entry?
A simple entry involves one account being debited and one account being credited, while a compound entry involves multiple accounts being debited or credited in one transaction.
What is the standard format for recording a compound journal entry?
The standard format lists the accounts in the order of debits and then credits, with the amounts indented.
What is a T-account, and why is it called that?
A T-account is an accounting device that summarizes all transactions affecting an account, called a T-account because it is formatted like the letter T.
How are debits and credits represented in a T-account?
In a T-account, debits are recorded on the left side and credits on the right side.
What are the 8 basic postulates of accounting?
Economic Entity, 2. Monetary Unit, 3. Time Period, 4. Cost, 5. Full Disclosure, 6. Going Concern, 7. Stable Monetary Unit, 8. Matching.
How does liquidity differentiate current and non-current assets?
Liquidity refers to how quickly an asset can be converted to cash; current assets can be converted within one year, while non-current assets take longer.
How does enforceability differentiate short-term and long-term liabilities?
Short-term liabilities are typically due within one year; long-term liabilities are due beyond one year and may have longer enforcement periods.
What are the two main types of stock issued by corporations?
Common stock and preferred stock.
Which is the correct sequence for recording transactions and preparing financial statements?
Analyze transactions, 2. Journalize transactions, 3. Post to accounts, 4. Prepare trial balance, 5. Prepare adjusting entries, 6. Prepare financial statements, 7. Close accounts.
What is the rule of debit and credit in accounting?
The rule states that for every debit entry made, there must be a corresponding credit entry of equal value.
What are the three main parts of a financial statement?
The three main parts are the Income Statement, the Balance Sheet, and the Cash Flow Statement.
What information is included in the heading of a financial statement?
The heading typically includes the name of the entity, the title of the statement, and the period covered by the statement.
What is depreciation?
Depreciation is 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?
A contra account is an account used to reduce the balance of another account; it has a normal balance opposite to the account it reduces.
What are the three methods used to compute depreciation?
Straight-line method, units-of-activity method, and double-declining-balance method.
How does the straight-line method of depreciation work? What is the equation of the straight-line method?
The straight-line method allocates equal amounts of depreciation each year. Equation: (Cost of Asset - Salvage Value) / Useful Life.
How is depreciation calculated using the units-of-activity method?
Depreciation is calculated based on actual usage or activity instead of time. Equation: [(Cost - Salvage Value) / Total Activity] x Activity for the Period.
What makes the double-declining-balance method accelerated? What is the equation of the double-declining-balance method?
The double-declining-balance method accelerates depreciation by applying double the straight-line rate to the asset’s declining book value. Equation: (2 / Useful Life) x Book Value at Beginning of Year.
Provide examples of current and non-current assets, as well as short-term and long-term liabilities.
Current Assets: Cash, Inventory, Accounts Receivable.
Non-Current Assets: Property, Equipment, Intangible Assets.
Short-Term Liabilities: Accounts Payable, Short-Term Debt.
Long-Term Liabilities: Bonds Payable, Long-Term Loans.