Accounting Basics Quiz

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Questions and Answers

What is the primary focus of financial accounting?

Providing information for internal management

Developing accounting information systems

Delivering economic and financial information for external users (correct)

Preparing tax returns for clients

What distinguishes public accounting from private accounting?

Public accountants only work for government entities.

Public accounting deals with external audit services while private accounting is internal to one organization. (correct)

Private accountants handle taxation exclusively.

Public accountants do not prepare tax returns.

Which of the following is NOT a duty performed by a private accountant?

Cost accounting

Management consulting (correct)

Tax accounting

Budgeting

Which type of organization does not-for-profit accounting primarily serve?

Governmental units and charities Signup and view all the answers

Which principle describes the guidelines accountants use for reporting economic events?

Generally Accepted Accounting Principles (GAAP) Signup and view all the answers

What is the primary role of auditing within public accounting?

To examine financial statements and express opinions on their fairness Signup and view all the answers

Which of the following best summarizes the ethical decision-making process in accounting?

Recognize an ethical issue, analyze elements, weight alternatives, select the most ethical choice. Signup and view all the answers

What is the function of the Securities and Exchange Commission (SEC)?

To enforce compliance with accounting standards and protect investors. Signup and view all the answers

What do revenues represent in a business?

Gross increases in owner's equity from business activities Signup and view all the answers

What occurs when expenses exceed revenues?

Net loss Signup and view all the answers

Which of the following describes drawings by the owner?

Cash or assets taken out of the business for personal use Signup and view all the answers

Which of the following statements about transactions is true?

Each transaction is recorded as an economic event of the enterprise Signup and view all the answers

What must occur if one asset of the business is increased?

A liability must be increased or another asset decreased Signup and view all the answers

Why must the two sides of the accounting equation always be equal?

To reflect the balance between assets and claims Signup and view all the answers

Which component of the basic accounting equation represents the owner's claim on assets?

Owner's equity Signup and view all the answers

What is the purpose of preparing a tabular summary of transactions?

To show the cumulative effect of transactions on the accounting equation Signup and view all the answers

What does the income statement primarily present?

A report of expenses and resulting net income for a specific period Signup and view all the answers

Which financial statement reports assets, liabilities, and owner's equity at a specific date?

Balance sheet Signup and view all the answers

What does the recording process in accounting primarily involve?

Identifying, measuring, and recording economic events Signup and view all the answers

Which category of accounting deals with organizations like charities and labor unions?

Not-for-profit accounting Signup and view all the answers

How does net income affect the owner's equity statement?

It is added to the beginning balance of owner's capital Signup and view all the answers

Which of the following statements correctly represents the basic accounting equation?

Assets = Liabilities + Owner’s equity Signup and view all the answers

What information does the statement of cash flows summarize?

Cash receipts and payments during a specific period Signup and view all the answers

Which financial statement provides details about cash inflows and outflows over a period?

Statement of cash flows Signup and view all the answers

Which item is typically listed first on an income statement?

Revenues Signup and view all the answers

Which of the following is NOT a role of regulatory agencies in accounting?

Approving financial statements for companies Signup and view all the answers

In the income statement provided, how much were the total expenses?

P3,890 Signup and view all the answers

Which of the following is NOT a component of the balance sheet?

Revenues Signup and view all the answers

Which statement correctly describes the relationship between the cash balance and the statement of cash flows?

Cash balance is reported on the statement of cash flows and balance sheet Signup and view all the answers

Which statement about accounting is correct?

Accounting involves identifying, recording, and communicating economic events. Signup and view all the answers

What characterizes bookkeeping in relation to accounting?

Bookkeeping is part of the recording process of accounting. Signup and view all the answers

Who are considered internal users of accounting information?

Managers. Signup and view all the answers

Which organization establishes accounting reporting guidelines?

Financial Accounting Standards Board. Signup and view all the answers

What is true about Certified Public Accountants (CPAs)?

CPAs have broader responsibilities than just audits and tax returns. Signup and view all the answers

What does the economic entity assumption entail?

The activities of an entity should be separated from its owners. Signup and view all the answers

What occurs when an accounts receivable is collected?

Only accounts receivable decreases. Signup and view all the answers

How does paying an expense with cash affect the accounting equation?

It decreases cash and decreases owner's equity. Signup and view all the answers

Study Notes

Accounting

Accounting is an information system that identifies, records, and communicates the economic events of an organization to interested users.
Bookkeeping focuses on record-keeping and is just one aspect of accounting.
Internal users manage the business.
The Financial Accounting Standards Board (FASB) is a private organization that establishes general accounting guidelines.

Accounting Divisions

Financial Accounting provides economic and financial information for external users like investors, creditors, and regulators.
Managerial Accounting provides economic and financial information for internal users like managers.

Accounting Profession

Public Accounting offers services including auditing, taxation, and management consulting.
- Auditing involves examining financial statements and expressing an opinion on their fairness.
- Taxation includes providing tax advice, preparing tax returns, and representing clients before government agencies.
- Management Consulting involves offering advice to managers on topics like financial planning, control, and computer systems.
Private Accounting refers to accountants employed within individual companies. Private accountants perform various duties like general accounting, cost accounting, budgeting, and internal auditing.
Not-for-profit Accounting focuses on accounting practices for organizations like governmental units, foundations, hospitals, colleges, universities, and charities.

Ethics

Ethics are standards of conduct that judge actions as right or wrong, honest or dishonest, and fair or unfair.
Ethical decision-making requires recognizing the ethical issue, analyzing its elements, considering alternatives, and weighing their impact on stakeholders.
The most ethical alternative should be chosen.

GAAP

Generally Accepted Accounting Principles (GAAP) are a set of accounting guidelines used by businesses to report economic events.

Basic Accounting Equation

Assets = Liabilities + Owner's Equity
Assets are resources owned by the business.
Liabilities are obligations to outsiders.
Owner's Equity represents the owner's claim on the assets.

Transactions

Transactions are business events recorded and analyzed in terms of their effect on the accounting equation.
Every transaction has a dual effect, meaning one account increases, and another decreases or increases.

Financial Statements

Four primary financial statements are prepared from accounting data:
- Income Statement shows revenues and expenses, resulting in net income or net loss for a specific period.
- Owner's Equity Statement summarizes changes in owner's equity for a specific period.
- Balance Sheet reports assets, liabilities, and owner's equity at a specific date.
- Statement of Cash Flows summarizes cash inflows (receipts) and outflows (payments) for a specific period.

Interrelation of Financial Statements

The net income or loss from the income statement is added or subtracted from the beginning owner's capital balance on the owner's equity statement.
The ending owner's capital balance on the owner's equity statement is shown on the balance sheet.
The cash balance in the balance sheet is also included in the statement of cash flows.

Statement of Cash Flows

The statement of cash flows reports the sources, uses, and net increase or decrease in cash.

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Description

Test your knowledge of essential accounting concepts, including the differences between financial and managerial accounting, as well as the roles of public accountants. This quiz covers the fundamental information users and the key standards established by FASB.