Accounting Basics: Assets, Liabilities, and Equity
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Questions and Answers

What is the main difference between Current Assets and Intangible Assets?

  • Current assets are due within 1 year, while intangible assets are not time-bound.
  • Current assets are owned outright by the company, while intangible assets are always associated with debt.
  • Current assets can be converted into cash in 1 year, while intangible assets cannot be resold. (correct)
  • Current assets include property, plant, and equipment, while intangible assets include patents and copyrights.

    • How do Accrual Accounting and Cash-basis Accounting differ?

  • Accrual Accounting is used for liabilities, while Cash-basis Accounting is used for assets.
  • Cash-basis Accounting is more accurate than Accrual Accounting in recognizing revenue.
  • Accrual Accounting is simpler than Cash-basis Accounting in practice.
  • Accrual Accounting records revenue when it is earned, while Cash-basis Accounting records revenue only when cash is received. (correct)

    • Which of the following statements best describes Stockholders Equity?

  • Stockholders Equity represents the company's debts.
  • Stockholders Equity includes patents and copyrights.
  • Stockholders Equity is the same as Current Liabilities.
  • Stockholders Equity consists of common stock and retained earnings. (correct)

    • What happens to the numbers on the Income Statement at the end of a period?

    <p>The numbers are reset to zero for the next period.</p> Signup and view all the answers

    When do expenses appear on the Income Statement?

    <p>When they are incurred to generate revenue.</p> Signup and view all the answers

    Which financial statement shows the Net Income or Net Loss of a company?

    <p>Income Statement</p> Signup and view all the answers

    What is the formula for calculating Net Income on an Income Statement?

    <p>Total Revenues - Total Expenses</p> Signup and view all the answers

    Which of the following is considered a Current Liability?

    <p>Bonds Payable</p> Signup and view all the answers

    On a Balance Sheet, what does Equity represent?

    <p>Ownership Interest in the Company</p> Signup and view all the answers

    Which of the following is an example of an Intangible Asset?

    <p>Patents</p> Signup and view all the answers

    What does the formula Balance Sheet Assets = Liabilities + Equity represent?

    <p>The double-entry bookkeeping system</p> Signup and view all the answers

    When calculating Retained Earnings, which of the following is subtracted from Net Income?

    <p>Dividends</p> Signup and view all the answers

    What is the purpose of the Statement of Retained Earnings?

    <p>To explain the changes in Retained Earnings over a period</p> Signup and view all the answers

    'Outstanding stock' refers to shares that are:

    <p>'Issued and in the hands of investors'</p> Signup and view all the answers

    What happens to the numbers on the Income Statement at the end of a period?

    <p>They are eliminated to start fresh for the next period.</p> Signup and view all the answers

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