Chapter 2 Review Packet Solution.docx - Acct 1201 Review Packet Chapter 2 1 Define the following a Asset An asset is a probable future economic benefit

Chapter 2 Review Packet Solution.docx - Acct 1201 Review...

This preview shows page 1 - 3 out of 12 pages.

Acct 1201 Review Packet Chapter 2:1.Define the following:a. Asset b. Current assetc. Liabilityd. Current liabilitye.Additional paid-in capitalf.Retained earningsAn asset is a probable future economic benefit owned or controlled by the entity as a result of past transactions.A current asset is an asset that will be used or turned into cash within one year; inventory is always considered a current asset regardless of how long it takes to produce and sell the inventory.A liability is a probable future sacrifice of economic benefits of the entity arisingfrom preset obligations as a result of a past transaction.A current liability is a liability that will be settled by providing cash, goods, orother services within the coming year.Additional paid-in capital is the owner-provided financing to the business that represents the excess of the amount received when the common stock was issued over the par value of the common stock.Retained earnings are the cumulative earnings of a company that are not distributed to the owners and are reinvested in the business.2.Explain what the following accounting terms mean:The separate entity assumption requires that business transactions are separate from the transactions of the owners. For example, the purchase of a truck by the owner for personal use is not recorded as an asset of the businessThe monetary unit assumption requires information to be reported in the national monetary unit without any adjustment for changes in purchasing power. That means that each business will account for and report its financial results primarilyin terms of the national monetary unit, such as Yen in Japan and Australian dollars in Australia.
Background image
Under the going-concern assumption, businesses are assumed to operate into the foreseeable future. That is, they are not expected to liquidateHistorical cost is a measurement model that requires assets to be recorded at thecash-equivalent cost on the date of the transaction. Cash-equivalent cost is thecash paid plus the dollar value of all noncash considerations.
Background image
Image of page 3

You've reached the end of your free preview.

Want to read all 12 pages?

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes