Question

Question 1: Who is required to follow GAAP?

Question 2: Who creates the rules for GAAP?

Question 3: What is the purpose of GAAP?

Questions 4-6: Show how the following transactions would affect the Accounting Equation

Question 4: James purchases a $5,000 piece of equipment.

Question 5: James writes his monthly check for rent: $3,000.

Question 6: James takes out a $25,000 loan with his bank.

Questions 7-9: Create journal entries to record the following transactions

Question 7: James purchases a $5,000 piece of equipment.

Question 8: James writes his monthly check for rent: $3,000.

Question 9: James takes out a $25,000 loan with his bank.

Question 10: What does GAAP stand for?

Question 11: What kinds of accounts decrease with a debit?

Question 12: What kind of accounts increase with a debit?

Question 13: What kind of accounts decrease with a credit?

Question 14: What kind of accounts increase with a credit?

Question 15: To increase the balance in the following accounts, would you debit the account or would you credit the account?
            a. Accounts Payable
            b. Cash
            c. Land
            d. Notes payable
            e. Accounts receivable
            f. Common stock
            g. Supplies
            h. Supplies expense
            i. Prepaid insurance
            j. Revenue
            k. Dividends
            l. Equipment
            m. Unearned revenue

Question 16-17: A company receives $500 of cash as an additional investment in the company by its owner, Mary Smith. The company's Cash account is increased and Mary Smith, Capital is increased.

Question 16: Should the $500 entry to the Cash account be a debit?

Question 17: Should the $500 entry to the Cash account be a debit?

Question 17: Which sides do the debits and credits go on?
a. Debits on the right, credits on the left
b. Debits and credits both in the center
c.   Debits on the left and credits on the right

Question 18: What helps keep the books in balance?
a. Making a lot of sales
b. Entering each transaction value as a debit and as a credit in the relevant ledger accounts
c. Not letting the bank account go into overdraft

Question 19: What dictates the debit and credit entries?
a. The golden rule        b. The guidelines of the banks      c. The accounting equation

Answer 1

GAAP Stands for Generally Accepted Accounting Principles .

GAAP is a set of fundamental accounting rules which are applicable on business enterprises. Not every business organisations are required to follow but in USA , GAAP is mandatory to be followed by the businesses that releases financial statements to public and companies that are publicaly traded on stock exchange. Publicaly traded companies are required to follow GAAP. If the company is planning to secure outside funding, it must follow GAAP.

Small and private company's generally not required to follow GAAP because they may find many principles do not apply, like if a company uses cash basis accounting then company may find difficulties in following GAAP because it says to maintain accounts on accruel basis.