Accounting Basics Quiz

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Questions and Answers

What is the main purpose of the adjusted trial balance?

To close temporary accounts

To record unadjusted balances

To reflect accurate balances before financial statements (correct)

To calculate net income

GAAP stands for General Accounting Assessment Procedures.

False

What is the formula for calculating net income?

Net Income = Revenues - Expenses

The accounting equation is expressed as _____ = Liabilities + Owner’s Equity.

Assets Signup and view all the answers

Which of the following accounts are considered permanent accounts?

Assets Signup and view all the answers

Match the following terms with their definitions.

Debits = Increase assets and expenses Credits = Decrease assets and increase liabilities Temporary Accounts = Accounts closed at the end of the period Permanent Accounts = Accounts that carry over across periods Signup and view all the answers

What does the term 'accrued revenue' mean?

Revenue earned but not yet collected Signup and view all the answers

In the straight-line depreciation formula, the Depreciation Expense is calculated as (Cost - Residual Value) / _ _ .

Useful Life Signup and view all the answers

What is the primary purpose of financial accounting?

To report financial information to external users Signup and view all the answers

Managerial accounting is utilized mainly for external reporting.

False Signup and view all the answers

What is the accounting equation?

Assets = Liabilities + Owner's Equity Signup and view all the answers

Adjustments in accounting are necessary to ensure that financial statements reflect __________ information for the reporting period.

accurate Signup and view all the answers

Match each type of adjusting entry with its description:

Prepaid Expenses = Payments made in advance for expenses Unearned Revenue = Money received before goods or services are provided Accruals = Revenues earned or expenses incurred but not yet recorded Depreciation = Allocation of the cost of long-term assets over their useful life Signup and view all the answers

Which of the following is a sign of double-entry accounting?

Each transaction affects at least two accounts Signup and view all the answers

The role of accountants is to create marketing strategies for the business.

False Signup and view all the answers

A __________ is a collection of all accounts where journal entries are posted.

ledger Signup and view all the answers

Study Notes

Accounting & Business

Accounting is the process of identifying, measuring, and communicating financial information about an organization.
Financial accounting focuses on reporting financial information to external users such as investors, creditors, and regulators.
Managerial accounting provides internal reports for decision-making, including budgets and performance evaluations.

The Accounting Equation

The accounting equation is: Assets = Liabilities + Owner's Equity
This equation must always balance, meaning every transaction affects both sides.

Double-Entry Accounting

Double-entry accounting means each transaction affects at least two accounts.
One account is debited while another is credited.
Debits increase assets or decrease liabilities and equity, and are recorded on the left.
Credits decrease assets or increase liabilities and equity, and are recorded on the right.

Journal and Ledger

The journal is where transactions are initially recorded in chronological order.
The ledger is a collection of all accounts where journal entries are posted.

Adjusting Entries

Adjusting entries are crucial for ensuring accurate financial statements.
They ensure that the financial statements reflect real-time data even when transactions haven't been formally recorded.
Prepaid expenses represent payments made in advance for expenses, for example prepaid insurance.
Unearned revenue is money received before goods or services are provided.
Accruals are revenues earned or expenses incurred but not yet recorded.

Completing The Accounting Cycle

The accounting cycle is a series of steps that begin with a transaction and end with the preparation of financial statements and closing of temporary accounts.

Key Formulas:

Income Statement: Net Income = Revenues - Expenses
Balance Sheet: Assets = Liabilities + Owner's Equity
Statement of Retained Earnings: Ending Retained Earnings = Beginning Retained Earnings + Net Income - Dividends

Closing Entries

Closing entries are the process of closing out temporary accounts – such as revenues, expenses, and withdrawals – to the owner’s equity at the end of the period.
They ensure that only permanent accounts (assets, liabilities, and equity) remain after closing entries are made.

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Description

Test your knowledge of fundamental accounting concepts including financial and managerial accounting, the accounting equation, and double-entry accounting. This quiz will help reinforce your understanding of how transactions are recorded and reported.