Accounting Definitions and Concepts

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Questions and Answers

Match the accounting terms with their definitions.

Capital Expenditure = Additional costs incurred to improve the life of an asset. Revenue Expenditure = Costs incurred that do not materially impact the life of an asset. Depreciation = The process of allocating the cost of a fixed asset to expense. Book Value = The cost of an asset minus accumulated depreciation.

Match the accounting concepts with their characteristics.

Current Liabilities = Obligations due within one year or the operating cycle, whichever is greater. Estimated Liability = A probable future obligation that can be reasonably estimated. Contingency Liability = A potential obligation dependent on a future event arising from a past event. Unearned Revenue = Revenue received but not yet earned, considered a liability.

Match the partnership concepts with their descriptions.

Partnership Agreement = A contract outlining the terms of a partnership. Mutual Agency = Each partner can bind the partnership to contracts within the scope of the business. Partnership Liquidation = The process of selling partnership assets and distributing proceeds to partners. Partnership Termination = The dissolution of a partnership, but underlying business may continue.

Match the accounting methods with their characteristics.

Double Declining Balance Method = Depreciation method accelerating expense in early years. Straight-Line Method = Depreciation method allocating expense equally over the asset's life. Units of Production Method = Depreciation based on the asset's actual usage. Sum-of-the-Years' Digits Method = Depreciation method using a declining fraction to allocate expense. Signup and view all the answers

Match the accounting equations with their descriptions.

A = L + E = The fundamental accounting equation representing balance sheet relationships. Cash = Equity Accounts = Simplified equation focusing on cash and equity. Assets = Liabilities + Owner's Equity = Expanded accounting equation for a sole proprietorship. Total Assets = Total Liabilities + Total Owner's Equity = Accounting equation for a corporation. Signup and view all the answers

Match the accounting principles with their definitions.

Matching Principle = Matching revenues earned with expenses incurred. Going Concern Principle = Assuming a business will continue operations indefinitely. Historical Cost Principle = Recording assets at their original cost. Revenue Recognition Principle = Recognizing revenue when earned and realized. Signup and view all the answers

Match the accounting terms related to partnerships with their descriptions.

Partner's Capital Account = Represents a partner's investment and share of profits/losses. Partnership Capital Account = The total investment of all partners in the business. Partnership Income Statement = Shows the partnership's revenue, expenses, and net income or loss. Partnership Balance Sheet = Provides a snapshot of the partnership's assets, liabilities, and equity. Signup and view all the answers

Match the following accounting terms to their definitions:

DR = Debit CR = Credit PPE = Property, Plant, and Equipment JE = Journal Entry Signup and view all the answers

Match the following accounting concepts to their descriptions:

Depreciation = The allocation of the cost of a fixed asset over its useful life Amortization = The allocation of the cost of an intangible asset over its useful life Interest = The difference between the amount received from a note payable and the amount repaid Capital Deficiency = A deficit balance in a partner's capital account Signup and view all the answers

Match the following partnership account types to their characteristics:

Capital Accounts = Reflect the individual partners' investments in the partnership Withdrawal Accounts = Track the amount of money withdrawn by partners from the business Net Income and Loss Allocation = Determines how profits and losses are distributed among partners according to the partnership agreement Limited Liability Partnership = A partnership structure designed to protect innocent partners from certain liabilities Signup and view all the answers

Match the following components of the cost of land with their descriptions:

Purchase Price = The amount paid to acquire the land Back Property Taxes = Taxes owed on the land prior to the purchase Cost of Removing Existing Buildings = The expense incurred to clear the land for development Real Estate Commissions = Fees paid to real estate agents for facilitating the purchase Signup and view all the answers

Match the following terms related to partnership operations with their definitions:

Partnership Agreement = A written contract between partners outlining the terms of their business relationship Mutual Agency = The authority of each partner to bind the partnership in business transactions Unlimited Liability = Partners are personally responsible for all partnership debts Hard to Find Suitable Partners = A potential challenge in forming and maintaining a successful partnership Signup and view all the answers

Match the following components of the journal entry for a land purchase with their corresponding accounts and amounts:

DR Land = 333,333 Bldg = 166,667 CR Cash = 500,000 Amount rounded to closest whole dollar = Indicates that the money is rounded off Signup and view all the answers

Match the following terms related to current liabilities with their descriptions:

Current Liabilities = Obligations due to be paid within one year or the operating cycle, whichever is longer Payroll Liabilities = Liabilities related to employee wages and benefits Short-Term Note Payable = A written promise to pay a specified amount within one year Interest Expense = The cost incurred by a company for borrowing money Signup and view all the answers

Match the following terms related to the closing process in partnership accounting with their descriptions:

Closing the Withdrawal Account = Transferring the balance of the withdrawal account to the partner's capital account Capital Deficiency = A situation where a partner has a negative balance in their capital account Partnership Agreement = The contract that outlines how profits and losses are allocated to partners Crediting the Withdrawal Account = Increasing the balance of the withdrawal account Signup and view all the answers

Study Notes

Accounting Definitions and Concepts

Property, Plant & Equipment (PPE): Fixed assets used in business, with a useful life longer than one accounting period.
Capital Expenditures: Costs increasing the value or useful life of an asset (not repairs).
Revenue Expenditures: Costs that do not materially increase an asset's useful life.
Depreciation: Allocating the cost of a fixed asset to expense over its useful life.
Book Value: Cost of an asset minus accumulated depreciation.
Double Declining Balance Method: Depreciation method that produces higher depreciation expense in early years and lower in later years.
Liability Characteristics: Obligation arising from a past event, requiring a future payment.
Current Liabilities: Obligations due within one year or the operating cycle.
Unearned Revenue: Advance fees received, classified as both unearned revenue and a liability.
Estimated Liability: Uncertain obligation that can be reasonably estimated, with a definite timeframe.
Contingency Liability: Potential obligation from a past event, contingent on a future outcome.
Partnership: Unincorporated association of two or more persons to carry on business for profit.
Partnership Agreement: Outlines the terms of partnership operation.
Partnership Liquidation: Selling partnership assets, paying liabilities, distributing remaining cash to partners according to capital accounts.
Mutual Agency: Each partner can bind the partnership in contracts within the scope of business.
Lump Sum Purchase: Buying multiple assets for a single price, allocating the cost according to appraised values.
Partnership Accounts: Capital and withdrawal accounts for each partner, allocating net income/losses.

Additional Theory Tips

PPE Disposal: Selling, donating, discarding, or exchanging PPE.
Subsequent Capital Expenditures: Increasing asset cost, extending life, or boosting efficiency.
Intangible Assets: Non-physical assets like rights, privileges (amortized).
Land Costs: Purchase price, property taxes, removal costs, commissions.
Payroll Liabilities: Current liabilities related to employee compensation.
Interest Expense: Difference between the amount received and repaid on a note payable.
Short-Term Notes Payable: Written promise to pay a specified amount within one year or operating cycle.
Partnership Disadvantages: Limited liability, mutual agency, difficulty finding suitable partners.
Partnership Agreement: Specifies how the partnership will operate.
Limited Liability Partnership (LLP): Protects innocent partners from malpractice or negligence claims.
Capital Deficiency: At least one partner has a debit balance in their capital account.

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Description

Test your knowledge on essential accounting definitions and concepts such as Property, Plant & Equipment, capital and revenue expenditures, and various liability characteristics. This quiz covers key principles and methods of accounting that are critical for financial management and reporting.