Payroll Fundamentals 2 Exam Study Guide

Payroll Fundamentals 2 Exam Study Guide with Complete Solutions The accounting equation states: - Correct Answer Assets = Liabilities + Owners Equity Owner's Equity has two components: - Correct Answer Owner's Equity = Contributed Capital + Retained Earnings Contributed Capital - Correct Answer The amount of payments in cash or assets that the owners have made to the company The accounting equation can be expanded to: - Correct Answer Assets = Liabilties + Contributed Capital + Retained Earnings The 5 different accounts of a typical for-profit organization - Correct Answer - asset accounts

• liability accounts
• revenue accounts
• expense accounts
• owners' equity accounts

Asset accounts - Correct Answer Contains the value of items owned by the organization Liability accounts - Correct Answer Indicates the money that the organization owes to its creditors

Asset accounts include: - Correct Answer - Cash

• Accounts receivable
• prepaid expenses
• inventory

Liability accounts include - Correct Answer - accounts payable

• salaries and wages payable
• vacation pay payable 1 / 2

Revenue accounts - Correct Answer Used to record the income earned by the organization during the accounting cycle Expense accounts - Correct Answer Costs incurred by an organization in the process of earning revenue during a designated period of time Equity accounts - Correct Answer Accounts that show the owners' or shareholders' worth or interest in the organization Owners' equity is divided into: - Correct Answer Contributed capital & retained earnings General ledger accounts consists of the following five elements: - Correct Answer - account name

• opening balance
• reference
• debit and credit transactions
• closing balance

Each journal entry must contain the following components: - Correct Answer - A journal entry reference or number

• the date of the transaction
• the debit and credit amounts to be applied to each account
• a total of the debit entries and of the credit entries
• a brief explanation of the transaction

double-entry accounting - Correct Answer Accounting system in which each transaction affects at least two accounts and has at least one debit and one credit Income Statement - Correct Answer A financial statement which presents the revenue, expenses, and net profit or loss of an organization during a specific period of time The main purpose of an income statement - Correct Answer to determine if the organization has earned a profit or incurred a loss during the period being reported

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