Questions and Answers
What is Accrual Basis Accounting?
Revenue recognition refers to recording revenue when it is earned?
What is the goal of the matching principle?
To record expenses in the same period as the revenue they helped generate.
When are adjusting entries recorded?
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What are deferrals in accounting?
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What are accruals?
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What is an account in accounting?
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What is included in the chart of accounts?
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What does the General Journal provide?
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What is a general ledger?
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What does debit refer to in accounting?
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What does credit refer to in accounting?
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What is a trial balance?
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How is Net Income calculated?
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What does the Statement of Retained Earnings show?
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What are liabilities?
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What are assets?
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What are the basic forms of business organization?
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What is accounting?
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What does the Securities and Exchange Commission (SEC) do?
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What is profitability?
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What is solvency?
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What does the Balance Sheet reflect?
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What is reported in the Statement of Cash Flows?
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What is stockholders' equity?
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What is a source document in accounting?
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Study Notes
Accounting Principles
- Accrual Basis Accounting: Records transactions when they occur, not when cash changes hands.
- Revenue Recognition: Revenue is recorded when earned, irrespective of cash receipt timing.
- Matching Principle: Expenses recorded in the same period as the revenue they helped generate.
Adjustments and Entries
- Adjusting Entries: Made on the last day of accounting period, impact one income statement account, do not affect cash.
- Deferrals: Adjustments for prepaid expenses and unearned revenues, recognizing expense portions.
- Accruals: Recognizes revenues earned or expenses incurred but not recorded; necessary for current financial statements.
Accounting Tools
- Account: Used to track increases and decreases in financial statement elements; often visualized as a 'T account'.
- Chart of Accounts: Organized list of all accounts categorized by assets, liabilities, equity, revenue, and expense.
- General Journal: Chronological record of all transactions for a firm.
- General Ledger: Compilation of all accounts and their balances for a firm.
- Trial Balance: Summary of account balances used to verify the equality of debits and credits.
Financial Statements
- Income Statement: Illustrates profitability; calculated as revenues minus expenses.
- Statement of Retained Earnings: Shows changes in retained earnings, linking income statement and balance sheet.
- Balance Sheet: Reflects company's financial position, listing assets, liabilities, and equity at a specific time.
- Statement of Cash Flows: Reports cash inflows and outflows over a period.
Types of Accounts
- Liabilities: Include accounts payable, notes payable, and accrued expenses; represent obligations to pay.
- Assets: Comprise cash, accounts receivable, inventory, and various physical assets like land and buildings.
- Stock and Equity: Common stock, capital stock, and retained earnings constitute ownership interest in a corporation.
Business Structures
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Forms of Business Organization:
- Sole Proprietorship: Single owner structure.
- Partnership: Two or more individuals sharing skills and resources.
- Corporation: Independent legal entity owned by stockholders.
Business Activities
- Service Business: Provides intangible products/services (e.g., dry cleaners).
- Merchandising Business: Sells goods (e.g., Target, Amazon).
- Manufacturing Business: Produces goods to sell (e.g., Goodyear Tire).
Definitions and Concepts
- Accounting: The systematic process of analyzing, organizing, recording, and communicating financial data.
- Securities and Exchange Commission (SEC): Regulatory agency ensuring investors access to quality financial information.
- Profitability: Ability of a business to generate profit.
- Solvency: Capability to meet debts as they come due.
- Source Document: Written proof or evidence supporting transactions (e.g., receipts).
Key Concepts
- Stockholders' Equity: Represents owner’s interest in a corporation.
- Business Entity Concept: Ensures that the business's financial transactions are separate from those of its owners.
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Description
Test your knowledge of key accounting concepts with these flashcards. From accrual basis accounting to the matching principle, this quiz covers essential terminology and definitions that are crucial for understanding financial practices. Ideal for students looking to reinforce their learning.