FINANCIAL ACCOUNTING FINAL EXAM

• | Page

FINANCIAL ACCOUNTING FINAL EXAM

UPDATED ACTUAL EXAM WITH CORRECT

SOLUTIONS.

Separate Entity Assumption - correct answer- the financial reports of a business are assumed to include the results of only the business's activities

Cost - correct answer- the amount of resources that a company sacrifices to obtain goods or services; often said to be incurred when the company pays cash or uses credit to acquire the item

Revenue Recognition Principle - correct answer- revenues are reported when goods or services are delivered, there is evidence of an arrangement for customer payment, the price is fixed or determinable, and collection is reasonably assured

Expense Recognition Principle - correct answer- expenses are recorded when incurred in earning revenue; also called "matching"

Accrual Basis Accounting - correct answer- records revenues when they are earned and expenses in the same period as the 1 / 2

• | Page

revenues to which they relate, regardless of the timing of cash receipts or payments

Adjusting Journal Entries - correct answer- entries necessary at the end of each accounting period to measure all revenues and expenses of that period

Contra Account - correct answer- an account that is an offset to, or reduction of, another account

Carrying Value - correct answer- the amount at which an asset or liability is reported ("carried") in the financial statements; also known as "net book value" or "book value"

Dividends - correct answer- the distribution of a company's earnings to its stockholders' as a return on their investment; not an expense!

Permanent Accounts - correct answer- accounts that track financial results from year to year by carrying their ending balances into the next year

• / 2