Accounting Basics Quiz - Part A & B

The total amount of money an employee earns before any deductions are taken out, including regular pay and overtime.

The amount of money an employee's wages or salary are reduced by for insurance premiums. It is calculated as a percentage of their total insurance coverage.

The total amount of an employee's income that is subject to income tax. It is calculated by subtracting certain deductions from their gross earnings.

Any payments made to an employee for their work, including wages, salaries, commissions, and bonuses.

A system that requires employers to contribute to a fund that provides benefits to employees who are unemployed.

A financial ratio that measures a company's ability to pay its current liabilities with its current assets.

A more conservative measure than the current ratio, excluding inventory and prepaid expenses from current assets.

The journal where all sales of merchandise are recorded, providing a detailed breakdown of sales transactions.

The journal where all cash payments are recorded, including payments for expenses, purchases, and debt repayments.

A financial statement that reconciles the bank balance per the bank statement with the balance per the company's records.

A document that records the details of employee pay, including deductions and net pay.

A ledger that contains the individual balances of each supplier to whom the company owes money.

An account in the general ledger that summarizes the total balance of a related subsidiary ledger.

The accounting concept that requires businesses to report their financial performance and position at regular time intervals, often monthly, quarterly, or annually.

The principle of conservatism suggests that businesses should be cautious when accounting for potential losses and gains. It states that when in doubt, it's better to recognize a loss sooner rather than later.

The matching principle ensures that expenses incurred in generating revenue are recognized in the same accounting period as the revenue they helped create. It's all about pairing costs with the income they helped produce.

The business entity concept states that a business's financial records should be separate from the owner's personal finances. This principle emphasizes the distinct nature of the business as a separate entity.

A journal is the first stage in the accounting process where transactions are recorded chronologically. This book contains the initial entries of every transaction.

A sales invoice is a document that records the details of a sale, usually including the items purchased, price, and payment terms. It's a key source document used for bookkeeping.

A purchase invoice is a document issued by a seller to a buyer confirming the items purchased, price, and other details of the transaction.

Source documents are original records that provide evidence of transactions. They are used to support entries in the journal and ledger. In the accounting process, source documents are the foundation for creating journal entries.

The ratio of total debt to total assets, indicating the proportion of a company's assets financed by debt.

A ratio that indicates a company's ability to meet its interest expense obligations using its earnings before interest and taxes (EBIT).

A ratio that measures the efficiency with which a company is managing its inventory, calculated by dividing the cost of goods sold by the average inventory.

The ratio of a company's market price per share to its earnings per share, indicating how much investors are willing to pay for each dollar of earnings.

A partnership agreement that allocates profits and losses based on a predetermined ratio of contributions, with an additional fixed salary for one partner.

A small amount of cash kept in the business for minor expenses, typically requiring detailed documentation of each expenditure.

The amount of income that is subject to income tax withholding, determined based on factors such as income level and tax deductions.

A credit memo is a document that is used to credit a bank account. This can be used to correct an error or to add funds to the account.

When an amount is recorded to a wrong account, the trial balance will still balance, but the financial statements will be inaccurate.

A transaction that increases the balance of an asset account is recorded as a debit. Accounts including cash, accounts receivable, and inventory are commonly debited.

Accounts payable represents money owed to suppliers for goods or services purchased on credit. Typically, a business makes payments to suppliers to reduce the balance of accounts payable.

The income statement, also known as the profit and loss statement, shows the financial performance of a business over a specific period. It summarizes revenues and expenses to determine the net income.

A bank account balance is a liability. Any debit to the bank account will decrease the liability. This occurs when money is taken out.

HST is a tax charged on the sale of goods and services in Canada. It is recovered on sales and paid on purchases. This means that businesses can claim back the HST they paid on their purchases by deducting it from the HST they collected on their sales.

The journal entry for an HST refund involves debiting HST recoverable (an asset) and crediting HST payable (a liability) to reflect the decrease in the amount of HST payable. The Bank account is debited or credited depending on whether cash is received or paid for the refund.

The cost principle dictates that assets must be recorded at their original cost to the buyer. This cost includes the purchase price and any directly related expenses incurred to get the asset ready for use

Source documents are original records that provide evidence of a business transaction. They serve as proof of the transaction and are essential for accurate bookkeeping and auditing.

Posting refers to the process of transferring information from a journal (a chronological record) to a ledger (a grouped record). Each transaction is categorized in the ledger based on its account type.

A trial balance is a list of all the accounts in the general ledger with their corresponding debit or credit balances. It is used to ensure that the total debits and credits are equal, which indicates that the accounting equation is balanced.

If a debit is posted as a credit, the trial balance will still balance. However, it will not be correct, indicating that the accounts have been recorded in the wrong direction.

An error in posting can cause an imbalance in the trial balance. Specifically, an over-added bank account would result in debits being greater than credits. This indicates that the bank balance listed in the ledger is higher than the actual bank balance.