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Questions and Answers
Which of the following are financial statements?
Which of the following are financial statements?
What does the Cost principle state?
What does the Cost principle state?
What does the Revenue recognition principle state?
What does the Revenue recognition principle state?
The Matching principle emphasizes that expenses should be recognized in the same accounting period that the revenue is earned.
The Matching principle emphasizes that expenses should be recognized in the same accounting period that the revenue is earned.
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What kind of accountant helps management in forecasting?
What kind of accountant helps management in forecasting?
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What kind of accountant prepares and audits the companies' financial statements?
What kind of accountant prepares and audits the companies' financial statements?
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What is a Fixed Asset?
What is a Fixed Asset?
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What is a Current Asset?
What is a Current Asset?
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What is an Intangible Asset?
What is an Intangible Asset?
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What is a Liability?
What is a Liability?
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What is Owner's Equity?
What is Owner's Equity?
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What is a Withdrawal?
What is a Withdrawal?
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What is an Expense?
What is an Expense?
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What is Revenue?
What is Revenue?
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What is the Accounting Equation?
What is the Accounting Equation?
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The Accounting Cycle describes the process of which steps which occur in the following order?
The Accounting Cycle describes the process of which steps which occur in the following order?
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The Journalizing step of the Accounting Cycle involves what?
The Journalizing step of the Accounting Cycle involves what?
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Which of the following refers to Posting?
Which of the following refers to Posting?
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What is a Chart of Accounts?
What is a Chart of Accounts?
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Which accounting principle states that the net income of any accounting period must be the result of the revenues of that period less the expenses of the same period?
Which accounting principle states that the net income of any accounting period must be the result of the revenues of that period less the expenses of the same period?
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Which of the following is NOT a type of adjusting entry?
Which of the following is NOT a type of adjusting entry?
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Prepaid expenses are expenses that have already been paid but haven't been used or consumed.
Prepaid expenses are expenses that have already been paid but haven't been used or consumed.
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Adjusting entries are required when revenues or expenses have not been recognized in the correct accounting period.
Adjusting entries are required when revenues or expenses have not been recognized in the correct accounting period.
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What are Unearned revenues?
What are Unearned revenues?
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Accrued Expenses are expenses that have been incurred but not yet paid or recorded.
Accrued Expenses are expenses that have been incurred but not yet paid or recorded.
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Accrued revenues are revenues that have been earned but not yet collected.
Accrued revenues are revenues that have been earned but not yet collected.
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The expiration of a prepaid expense requires an adjusting entry to be made at the end of the accounting period.
The expiration of a prepaid expense requires an adjusting entry to be made at the end of the accounting period.
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The purpose of depreciation is to allocate the cost of an asset over its useful life.
The purpose of depreciation is to allocate the cost of an asset over its useful life.
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Depreciation is a factual measure because the useful life of an asset is always known with certainty.
Depreciation is a factual measure because the useful life of an asset is always known with certainty.
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What is the book value of an asset?
What is the book value of an asset?
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The work sheet is an accounting record for summarizing financial information.
The work sheet is an accounting record for summarizing financial information.
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The work sheet is used to make the adjusting and preparation process easier.
The work sheet is used to make the adjusting and preparation process easier.
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In the work sheet, what is the order of the steps?
In the work sheet, what is the order of the steps?
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What kind of accounting is primarily used for business decision-making?
What kind of accounting is primarily used for business decision-making?
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Where does the Profit or Loss appear in the work sheet?
Where does the Profit or Loss appear in the work sheet?
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In the work sheet, the Balance Sheet columns are used to summarize the assets, liabilities, and owner's equity.
In the work sheet, the Balance Sheet columns are used to summarize the assets, liabilities, and owner's equity.
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The Income Statement columns in the work sheet are used to summarize the revenue and expenses.
The Income Statement columns in the work sheet are used to summarize the revenue and expenses.
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Once adjusting entries are prepared, they are posted to the work sheet.
Once adjusting entries are prepared, they are posted to the work sheet.
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The Adjusted Trial Balance reflects the balances after adjusting entries have been made.
The Adjusted Trial Balance reflects the balances after adjusting entries have been made.
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The work sheet is used to prepare financial statements but is not a formal accounting record.
The work sheet is used to prepare financial statements but is not a formal accounting record.
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Study Notes
Accounting Fundamentals
- Accounting is an information system that identifies, records, and communicates economic events of an organization to interested parties.
- Information system provides financial statements (balance sheet, income statement, cash flow statement) that summarize economic activities in monetary terms.
- Identifying economic activities involves recognizing and selecting relevant events of an organization.
- Recording involves systematic documentation of economic events in monetary units.
- Communicating financial information through summarized financial statements.
- Interested parties such as creditors, investors, auditors, management, government, customers, labor, and suppliers use accounting data.
Generally Accepted Accounting Principles (GAAP)
- Generally accepted accounting principles (GAAP) are accounting standards used for reporting economic events in financial statements.
- These standards provide a guide for accurate and consistent financial reporting.
- Cost principle: assets are recorded at their original cost when acquired. This offers reliability, objectivity, and verifiability.
- Revenue recognition principle: revenue is recognized in the accounting period when it is earned, not when cash is received.
Accounting Assumptions
- Monetary unit assumption: only transactions expressed in monetary terms are recorded. Monetary unit remains constant over time.
- Economic entity assumption: business activities are kept separate from the owner's and other economic entities. Business transactions are separated from personal activities.
- Going concern assumption: the business entity will continue to operate for the foreseeable future.
- Time period assumption: the economic life of a business can be divided into artificial time periods. Often a calendar year.
Accounting Concepts
- Matching principle: expenses should be matched with the revenues earned during the same period.
- Economic entity assumption: A business entity is an economic unit.
- Going Concern Assumption: A business entity is assumed to have a continuing operation.
- Time Period Assumption: the business is divided into defined time periods for financial reporting.
- Cost principle: assets are recorded at cost.
Key Accounting Elements
- Assets: resources owned by the entity
- Liabilities: obligations of the entity
- Owner's equity: owners' residual interest in the assets of the entity
- Revenues: increases in owners' equity from business activities intended to earn income
- Expenses: costs of assets or services used to generate revenues
Basic Accounting Equation
- Assets = Liabilities + Owner's Equity
- This equation highlights the fundamental relationship between the three basic elements in accounting.
Accounting Profession
- Financial accountants record transactions and prepare financial statements.
- Government accountants record transactions for government agencies.
- Cost accountants determine the cost of producing products.
- Managerial accountants assist management with financial information.
- Tax accountants prepare tax returns and provide tax planning for a company.
Certified Public Accountant (Auditor)
- A certified public accountant (CPA) or auditor examines financial statements to ensure fairness and accuracy.
- Internal auditors review a company's activities to ensure policies are being followed and operations are efficient.
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Description
This quiz covers the essential concepts of accounting, including the role of information systems in financial reporting and the principles of GAAP. It focuses on identifying, recording, and communicating economic events effectively. Test your understanding of the standards that guide accurate financial reporting.
