Functions of Business, Part 1
Question 1: Identify the six steps in the accounting cycle.
Answer 1: Analyzing documents and records, such as invoices and travel expensesRecording transactions in journalsPosting journal entries to the ledgerTaking a trial balancePreparing financial statementsAnalyzing financial statements
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Question 2: Define the following terms:Double-entry bookkeepingTrial balanceBalance sheetIncome statementStatement of cash flows
Answer 2: Double-entry bookkeeping: a process whereby all transactions are recorded in two different locations, to reduce the chance of errorTrial balance: a summary of the financial information in the account ledgers, intended to ensure accuracy of the informationBalance sheet: a financial statement which provides the firm’s financial condition on a specific dateIncome statement: a financial statement which summarizes incoming revenues against the cost of goods and expenses over a specific time span, thus showing the firm’s profit or loss during that spanStatement of cash flows: a financial statement which summarizes money coming into or flowing out of the company as cash receipts and cash payments.
Question 3: Define the following terms:Accounts payableNotes payableIntangible assetsFixed assetsBonds payable
Answer 3: Accounts payable: current liabilities in which the firm owes money for merchandise or services bought on credit but not paid for in full—in simple terms, a bill that a firm hasn’t yet paid in fullNotes payable: short- or long-term loans a firm has obtained from a bank or other source of financing which the firm has promised to repay by a specific dateIntangible assets: long-term assets with no actual physical form, typically intellectual property assets such as trademarks, copyrights, and patentsFixed assets: long-term assets such as property, buildings, equipment, and other such tangible parts of an organization.Bonds payable: long-term liabilities which will have to be repaid and which result from the firm’s having been loaned money and having issued bonds in return.
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