Midterm Theory

MID TERM EXAM:
1ST PART IS TO MAKE A SHORT ESSAY: (20%)
For example:
 Define changes of statement on accounting

Changes in accounting estimates, such as the useful life of an asset, or changes in accounting
policies, such as the method used to calculate depreciation, are also considered changes of
statement in accounting. These changes need to be disclosed in the financial statements, along
with an explanation of the reasons for the changes, the effects of the changes on the financial
statements, and the comparative figures for the prior period presented in the financial
statements.
 What is matching concept in accounting?

The matching concept is a fundamental principle in accounting that requires a company to
match its expenses with its revenues in the same accounting period. This concept is also
known as the matching principle or the expense recognition principle.
 What is prudence concept in accounting?

Prudence is an important concept in accounting that requires a company to exercise caution
and conservatism in preparing its financial statements. It is also known as the conservatism
principle or the principle of conservatism.
Under the principle of prudence, a company should anticipate possible losses and expenses
and record them in its financial statements as soon as they become probable or likely, but
should only recognize revenue when it is certain.
 What is accrual concept in accounting?

The accrual concept is a fundamental accounting principle that states that revenue and
expenses should be recognized in the period in which they are earned or incurred, regardless
of when the actual cash transaction takes place. This concept is also known as the accrual basis
of accounting.
 The fundamental accounting equation - Explain what the accounting equation is and
how it is used to keep track of a company's financial position.
Accounting is the process of recording, classifying, and summarizing financial transactions to

provide information that is useful in making business decisions.
One of the fundamental concepts of accounting is the accounting equation, which states that
assets must always equal liabilities plus equity.
 What is GAAP?
Generally Accepted Accounting Principles is the accounting standard adopted by the U.S.
Securities and Exchange Commission and is the default accounting standard used by
companies based in the United States.
 The double-entry accounting system - Explain the basic principles of the double-
entry accounting system and how it is used to record financial transactions.
The double-entry accounting system is also a key concept in accounting. This system requires
every financial transaction to be recorded in at least two accounts - a debit account and a
credit account. The debit and credit entries must balance, which helps to ensure that the
books are accurate and complete.
 The different types of financial statements - Discuss the three main financial
statements (balance sheet, income statement, and statement of cash flows) and
explain what information is provided by each statement.
Financial statements are an essential component of accounting, and there are three main
types of financial statements - the balance sheet, income statement, and statement of cash
flows. The balance sheet shows a company's assets, liabilities, and equity at a specific point in
time. The income statement shows a company's revenues, expenses, and profits or losses over
a period of time. The statement of cash flows shows a company's cash inflows and outflows
over a period of time.
 The role of accounting in business decision-making - Describe how accounting

information is used by managers and other stakeholders to make informed decisions
about a company's operations, investments, and financing.
Accounting information is used by managers and other stakeholders to make informed

decisions about a company's operations, investments, and financing. Ethical considerations are
also important in accounting, and accountants must adhere to a strict code of ethics to ensure
that financial reporting is accurate and transparent.
2nd part is a quiz (20%):
What is the accounting equation?
a) Assets = Liabilities
b) Assets + Liabilities = Equity
c) Assets = Liabilities + Equity
What is the purpose of the income statement?
a) To show a company's assets, liabilities, and equity at a specific point in time.
b) To show a company's revenues, expenses, and profits or losses over a period of time.
c) To show a company's cash inflows and outflows over a period of time.

What is the purpose of the statement of cash flows?
a) To show a company's assets, liabilities, and equity at a specific point in time.
What is the difference between accounts payable and accounts receivable?
a) Accounts payable refers to money that a company owes to its creditors, while accounts
receivable refers to money that a company is owed by its customers.
b) Accounts payable refers to money that a company is owed by its customers, while accounts
receivable refers to money that a company owes to its creditors.
c) Accounts payable and accounts receivable are the same thing.
What is the double-entry accounting system?
a) A system that requires every financial transaction to be recorded in at least two accounts - a
debit account and a credit account.
b) A system that allows companies to report financial information using any method they
choose.
c) A system that requires every financial transaction to be recorded in only one account.
What is the difference between a debit and a credit in accounting?
a) A debit increases an asset or expense account, while a credit decreases an asset or expense
account.
b) A debit decreases an asset or expense account, while a credit increases an asset or expense
account.
c) A debit increases a liability or equity account, while a credit decreases a liability or equity
account.
What is the purpose of the balance sheet?
a) To show a company's revenues, expenses, and profits or losses over a period of time.
b) To show a company's cash inflows and outflows over a period of time.
c) To show a company's assets, liabilities, and equity at a specific point in time.

What is the difference between a cash basis and an accrual basis of accounting?
a) The cash basis recognizes revenue and expenses when cash is received or paid, while the
accrual basis recognizes revenue and expenses when they are earned or incurred.
b) The cash basis recognizes revenue and expenses when they are earned or incurred, while
the accrual basis recognizes revenue and expenses when cash is received or paid.
c) The cash basis and accrual basis of accounting are the same thing.
What is the purpose of a trial balance?
a) To check the accuracy of the accounting records by ensuring that the total debits equal the
total credits.
3RD PART IS PRACTIAL (60%):
It will consist in 3 questions:
1st of Inventory valuations (COGS, FIFO…)
2nd of depreciation (Straight line or unit based)
3rd in statement changes (accrual expenses, bad debt expenses…)

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MID TERM EXAM:

1ST PART IS TO MAKE A SHORT ESSAY: (20%)

 Define changes of statement on accounting

 What is matching concept in accounting?

 What is prudence concept in accounting?

 What is accrual concept in accounting?

Accounting is the process of recording, classifying, and summarizing financial transactions to

 The role of accounting in business decision-making - Describe how accounting

Accounting information is used by managers and other stakeholders to make informed

2nd part is a quiz (20%):

What is the accounting equation?

b) Assets + Liabilities = Equity

c) Assets = Liabilities + Equity

What is the purpose of the income statement?

a) To show a company's assets, liabilities, and equity at a specific point in time.

c) To show a company's cash inflows and outflows over a period of time.

a) To show a company's assets, liabilities, and equity at a specific point in time.

c) To show a company's cash inflows and outflows over a period of time.

What is the difference between accounts payable and accounts receivable?

c) Accounts payable and accounts receivable are the same thing.

What is the double-entry accounting system?

What is the difference between a debit and a credit in accounting?

What is the purpose of the balance sheet?

b) To show a company's cash inflows and outflows over a period of time.

c) To show a company's assets, liabilities, and equity at a specific point in time.

What is the purpose of a trial balance?

c) To show a company's cash inflows and outflows over a period of time.

3RD PART IS PRACTIAL (60%):

It will consist in 3 questions:

1st of Inventory valuations (COGS, FIFO…)

2nd of depreciation (Straight line or unit based)

3rd in statement changes (accrual expenses, bad debt expenses…)

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