The World of Accounting: Test Review

Key facts

Where marks get lost

• ×Treating "bookkeeping" and "accounting" as interchangeable — bookkeeping is only the recording step inside the larger accounting process. (What Is Accounting?)
• ×Assuming only large companies need accounting — every business, including a sole proprietor with no employees, has to track money to survive. (What Is Accounting?)
• ×Forgetting external users like the CRA and thinking accounting reports are only written for the owner. (What Is Accounting?)
• ×Believing accounting is just "doing taxes" — tax preparation is one small application of accounting information, not the whole field. (What Is Accounting?)
• ×Thinking a partnership automatically means every partner has limited liability — only limited partners in a limited partnership do; general partners never do. (Forms of Business Organization)
• ×Confusing "public" with "government-owned" — a public corporation just means its shares are publicly traded on a stock exchange, not that the government owns it. (Forms of Business Organization)
• ×Forgetting that a corporation is a separate legal entity, so its debts belong to the corporation, not automatically to its shareholders. (Forms of Business Organization)
• ×Assuming a partnership agreement is optional paperwork rather than the document that protects each partner if there's a dispute. (Forms of Business Organization)
• ×Mixing up non-profit with "makes no money" — a non-profit can earn a surplus, it just cannot distribute that surplus to owners as profit. (Forms of Business Organization)
• ×Mixing up the cost principle and the fair value principle — most assets stay at original cost; fair value is used only for specific items like actively traded investments. (GAAP: The Rules Behind the Numbers)
• ×Thinking conservatism means "be pessimistic" in general — it only applies when there are two acceptable ways to record something; you must always pick the one that doesn't overstate income or assets. (GAAP: The Rules Behind the Numbers)
• ×Recording revenue only when cash is received — that's the cash basis, not the revenue recognition principle used under accrual accounting. (GAAP: The Rules Behind the Numbers)
• ×Believing the business entity principle applies only to corporations — it applies to every form of business, including a one-person sole proprietorship. (GAAP: The Rules Behind the Numbers)
• ×Assuming IFRS and ASPE are completely different sets of principles rather than two different levels of detail applying the same underlying GAAP ideas. (GAAP: The Rules Behind the Numbers)
• ×Putting assets in random order instead of liquidity order — cash always comes first, then the items closest to becoming cash. (The Balance Sheet and the Accounting Equation)
• ×Writing a two-line heading and forgetting the specific date, or writing a date range ("for the year ended...") instead of a single point-in-time date — that belongs on the income statement, not the balance sheet. (The Balance Sheet and the Accounting Equation)
• ×Confusing owner's equity with cash — owner's equity is a claim against total assets, not a pile of cash sitting somewhere. (The Balance Sheet and the Accounting Equation)
• ×Forgetting that a balance sheet must literally balance — if the two sides don't match, there is an error somewhere, not a rounding quirk to ignore. (The Balance Sheet and the Accounting Equation)
• ×Mixing up liabilities and expenses — a liability is a debt still owed (appears on the balance sheet); an expense is a cost already used up (appears on the income statement). (The Balance Sheet and the Accounting Equation)
• ×Mixing up debtor and creditor — a debtor owes money (linked to our accounts receivable); a creditor is owed money (linked to our accounts payable). (Accounts Receivable and Accounts Payable)
• ×Treating accounts receivable as if it were cash already in hand — it's a promise of future cash, not cash itself, and carries the risk the customer won't pay (bad debts). (Accounts Receivable and Accounts Payable)
• ×Recording accounts payable as an asset because it feels like it's "about supplies we got" — the supplies became an asset, but the unpaid amount is a liability. (Accounts Receivable and Accounts Payable)
• ×Forgetting that accounts receivable and accounts payable are usually short-term (often due within 30 days), not long-term debts. (Accounts Receivable and Accounts Payable)
• ×Thinking ethics only matters if someone gets caught — the harm from misleading statements happens whether or not anyone notices. (Ethics, Audits, and Careers in Accounting)
• ×Assuming CA, CMA, and CGA are still three active, different designations in Canada today — they merged into the single CPA designation. (Ethics, Audits, and Careers in Accounting)
• ×Believing an audit checks every single transaction — auditors test samples and internal controls, not every entry. (Ethics, Audits, and Careers in Accounting)
• ×Confusing forensic accounting with regular auditing — forensic accounting specifically investigates fraud and often supports legal proceedings. (Ethics, Audits, and Careers in Accounting)
• ×Assuming accounting software eliminates the need to understand debits and credits — the software still relies on someone entering transactions to the correct accounts. (Technology in Accounting)
• ×Confusing EFT with a debit card — EFT is the broader electronic bank-to-bank transfer system; a debit card is one everyday way a customer initiates a transfer. (Technology in Accounting)
• ×Thinking cloud accounting means less security — properly configured cloud systems are usually more secure and reliably backed up than a single office computer. (Technology in Accounting)
• ×Believing automation removes the need for GAAP judgment calls like materiality or conservatism — those still require a person's professional judgment. (Technology in Accounting)

Practice test

21 questions from across the unit. Each one shows the lesson it comes from.

Endless drill

Fresh numbers every time, for the calculation questions in this unit.