Questions and Answers
What classification does 'Accounts payable' fall under?
How is 'Income tax expense' classified in accounting terms?
What classification does 'Car' typically fall under in financial accounting?
Which classification correctly describes 'Salaries expense'?
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What is the classification of 'Land' in an accounting context?
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How is 'Building' classified in financial accounting?
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The classification of 'Bank loan payable' is which of the following?
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What is the correct classification of 'Common shares'?
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What classification does 'long-term investments' belong to?
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Which account classification is 'accounts receivable'?
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The classification for 'consulting revenue' is which of the following?
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How is 'mortgage payable' classified?
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What category does 'salaries payable' fall under?
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Which classification does 'supplies expense' belong to?
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What is the classification of 'temporary investments'?
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What is the correct classification for 'retained earnings'?
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Study Notes
Account Classification Overview
- Accounts are classified into six categories: Asset (A), Liability (L), Shareholders’ Equity (SE), Revenue (Rev), Expense (Exp), and Dividend (Div).
- Understanding account classification is essential for accurate financial reporting and analysis.
Types of Accounts
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Assets (A): Resources owned by a company expected to provide future economic benefits.
- Can be further categorized as Current (C) or Long-Term (LT).
- Current assets are expected to be converted into cash or used within one year, while long-term assets provide benefits over several years.
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Liabilities (L): Obligations that a company owes to outside parties.
- Also classified as Current (C) or Long-Term (LT).
- Current liabilities are due within one year, and long-term liabilities are due beyond one year.
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Shareholders’ Equity (SE): Represents the owners' claim to the assets after liabilities are subtracted.
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Revenue (Rev): Income generated from normal business operations.
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Expenses (Exp): Costs incurred in the process of earning revenue.
Sample Accounts and Classifications
- Long-term investments: Classified as Asset (A) - Long-Term (LT).
- Accounts receivable: Classified as Asset (A) - Current (C), representing amounts owed by customers.
- Consulting revenue & Rent revenue: Classified as Revenue (Rev), reflecting income earned from services provided and rental agreements.
- Computer and Car: Classified as Asset (A) - Long-Term (LT), as they are used over several years rather than converting to cash in the short term.
Liabilities and Their Classifications
- Mortgage payable: Classified as Liability (L) - Long-Term (LT), as it is a long-term obligation for property financing.
- Salaries payable: Classified as Liability (L) - Current (C), indicating obligations to pay employees in the short term.
- Accounts payable: Classified as Liability (L) - Current (C), representing amounts owed to suppliers for short-term purchases.
Expense Classifications
- Salaries expense, Utilities expense, and Supplies expense: All classified as Expense (Exp), indicating outflows of resources incurred to generate revenue.
- Income tax expense: Also an Expense (Exp), representing taxes owed to the government.
Shareholders' Equity
- Retained earnings: Classified as Shareholders’ Equity (SE), representing accumulated profits retained in the business.
- Common shares: Also classified as Shareholders’ Equity (SE), representing the ownership equity contributed by shareholders.
Temporary Investments and Other Assets
- Temporary investments: Classified as Asset (A) - Current (C), often consisting of marketable securities expected to be sold quickly.
- Land, Building, and Inventory: Classified as Asset (A) - Long-Term (LT) or Asset (A) - Current (C) depending on their usage and liquidity.
Conclusion
- Mastering account classifications aids in financial literacy, crucial for anyone involved in business or finance.
- Utilizing correct classifications ensures accurate financial statements, reflecting the true financial position of an entity.
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Description
This multiple-choice test evaluates your understanding of account classifications such as Assets, Liabilities, and more. Each account will challenge you to appropriately categorize it, enhancing your accounting knowledge. Perfect for accounting students or anyone looking to test their financial skills.
