Questions and Answers
What is the correct classification for long-term investments?
How should accounts receivable be classified?
What classification does consulting revenue fall under?
Which classification is correct for computer assets?
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How should a mortgage payable account be classified?
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What classification does accounts payable fall under?
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What is the correct classification for salaries payable?
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How should cash be classified in accounting?
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Which option correctly defines income tax expense?
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Which classification is appropriate for retained earnings?
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How is land classified on a balance sheet?
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What is the correct classification of inventory?
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Salaries expense falls under which classification?
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What is the classification of a bank loan payable?
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How are common shares classified in financial statements?
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What category does utility expense belong to?
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Study Notes
Account Classification Overview
- Accounts are classified into six main categories: Asset (A), Liability (L), Shareholders’ Equity (SE), Revenue (Rev), Expense (Exp), and Dividend (Div).
- Assets represent resources owned by a company that provide future economic benefits.
- Liabilities are obligations that a company owes to outside parties.
- Shareholders’ Equity reflects the owners' residual interest in the assets after deducting liabilities.
Asset Classification
- Assets can be categorized as Current (C) or Long-Term (LT).
- Current assets are expected to be converted into cash or used within one year.
- Long-term assets provide value for more than one year.
- Examples:
- Long-term investments: Asset (A) - Long-Term (LT)
- Accounts receivable: Asset (A) - Current (C)
- Computer: Asset (A) - Long-Term (LT)
- Land: Asset (A) - Long-Term (LT)
Liability Classification
- Liabilities also fall into Current (C) or Long-Term (LT) categories.
- Current liabilities are due within one year, while long-term liabilities are due beyond that.
- Examples:
- Mortgage payable: Liability (L) - Long-Term (LT)
- Salaries payable: Liability (L) - Current (C)
- Accounts payable: Liability (L) - Current (C)
Revenue and Expense Accounts
- Revenue accounts record income generated from operations.
- Expense accounts track the costs of running the business.
- Examples:
- Consulting revenue: Revenue (Rev)
- Rent revenue: Revenue (Rev)
- Salaries expense: Expense (Exp)
- Utilities expense: Expense (Exp)
Shareholders’ Equity
- Shareholders’ Equity represents the funds contributed by shareholders and retained earnings.
- Common shares are classified under Shareholders’ Equity (SE).
Key Identifiers for Each Account Type
- Assets include items that can be liquidated or provide benefits, such as cash, inventory, and buildings.
- Liabilities encompass debts and obligations, such as loans, payable accounts, and accrued expenses.
- Revenue signifies earned income from business activities, while Expenses denote outflows incurred in operations.
Overall Test Purpose
- The multiple-choice test assesses comprehension of basic account classifications and distinctions between current and long-term designations.
- Understanding these classifications is crucial for effective financial accounting and reporting.
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Description
Test your knowledge on account classifications in accounting. Classify each listed account into categories such as Asset, Liability, Shareholders’ Equity, Revenue, Expense, or Dividend. This quiz is perfect for students and professionals looking to reinforce their understanding of financial principles.
