Questions and Answers
What is the accounting equation?
What are assets?
Debit based
What are liabilities?
Credit based
What is equity?
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What is income?
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What are expenses?
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Study Notes
Accounting Basics
- Accounting Equation: Represents the relationship between a company's assets, liabilities, and equity. Formula: Assets = Liabilities + Equity.
Key Terms
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Assets: Resources owned by a business; they increase with debits, indicating ownership and value.
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Liabilities: Obligations or debts that a business needs to settle; they increase with credits, representing amounts owed to external parties.
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Equity: The owner's interest in the business, calculated as the residual interest after liabilities are deducted from assets; also increases with credits.
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Income: Earnings generated by business activities; increases with debits, reflecting profitable operations.
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Expenses: Costs incurred in the process of earning income; they increase with credits, indicating reductions in equity.
Fundamental Relationships
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Debits and Credits:
- "Debit based" terms (Assets, Income) reflect additions to resources or earnings.
- "Credit based" terms (Liabilities, Equity, Expenses) denote increases in obligations or costs associated with operations.
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Description
Test your knowledge on the fundamentals of accounting including the accounting equation, key terms, and the relationship between debits and credits. This quiz will assess your understanding of assets, liabilities, equity, income, and expenses.
