Accounting Principles and Concepts Quiz
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Questions and Answers

What does the Separate Entity Assumption state?

  • Business transactions are combined with the owner's transactions
  • Only personal transactions should be recorded
  • Business transactions are separate from the owner's transactions (correct)
  • Business and personal transactions can be recorded together

    • What does the Going Concern Assumption imply?

    Businesses are assumed to continue operating into the foreseeable future.

    What is the Monetary Unit Assumption?

    Requires that only items that can be expressed in money are recorded.

    What are prepaid expenses categorized as?

    <p>Asset</p> Signup and view all the answers

    What does the term 'short term' refer to in accounting?

    <p>Within a year.</p> Signup and view all the answers

    What does 'long term' refer to in accounting?

    <p>Beyond a year.</p> Signup and view all the answers

    What are accrued expenses payable?

    <p>Current liability</p> Signup and view all the answers

    What is accounts payable classified as?

    <p>Current liability</p> Signup and view all the answers

    What is unearned revenue?

    <p>Current liability</p> Signup and view all the answers

    What is notes payable classified as?

    <p>Noncurrent liability</p> Signup and view all the answers

    What does mortgage payable represent?

    <p>Noncurrent liability</p> Signup and view all the answers

    What type of liability do bonds payable represent?

    <p>Concurrent liability</p> Signup and view all the answers

    What effect does net income have on retained earnings?

    <p>Increases retained earnings.</p> Signup and view all the answers

    What effect do losses and dividends have on retained earnings?

    <p>Decreases retained earnings.</p> Signup and view all the answers

    What type of asset is the operating right to use asset?

    <p>Concurrent asset</p> Signup and view all the answers

    What does Treasury Stock do to stockholder's equity?

    <p>Reduces stockholder's equity.</p> Signup and view all the answers

    What is an event that isn't included on the financial statement?

    <p>Signing a contract.</p> Signup and view all the answers

    What is a chart of accounts?

    <p>A list of accounts used by a business.</p> Signup and view all the answers

    What does having the word RECEIVABLE in an account signify?

    <p>An asset.</p> Signup and view all the answers

    What does having the word PREPAID in an account signify?

    <p>An asset.</p> Signup and view all the answers

    What does having the word PAYABLE in an account signify?

    <p>Liability.</p> Signup and view all the answers

    What does having the word UNEARNED in an account signify?

    <p>Liability.</p> Signup and view all the answers

    What is a general journal?

    <p>A chronological list of each transaction's effects.</p> Signup and view all the answers

    What is a T account?

    <p>Records effects and balances of each account.</p> Signup and view all the answers

    Assets increase with?

    <p>Debts.</p> Signup and view all the answers

    Liabilities increase with?

    <p>Credits.</p> Signup and view all the answers

    Stockholder's equity increases with?

    <p>Credits.</p> Signup and view all the answers

    Why are T accounts useful?

    <p>They allow us to see what transactions a company engaged in during a period.</p> Signup and view all the answers

    What is a trial balance?

    <p>A list of all amounts from T accounts to check the equality of debts and credits.</p> Signup and view all the answers

    What does IFRS stand for?

    <p>International Financial Reporting Standards.</p> Signup and view all the answers

    What is the current ratio equation?

    <p>Current Ratio = CURRENT assets / CURRENT liabilities.</p> Signup and view all the answers

    Why are current ratios important?

    <p>They help understand if a company has the short-term resources to pay its short-term debt.</p> Signup and view all the answers

    Study Notes

    Accounting Principles and Concepts

    • Separate entity assumption: Business transactions are distinct from those of owners.
    • Going concern assumption: Businesses are presumed to operate indefinitely into the future.
    • Monetary unit assumption: Only transactions expressible in monetary terms are recorded; examples include U.S. currency and Euros.

    Types of Assets and Liabilities

    • Prepaid expenses: Represent assets that are expenses paid in advance.
    • Current (short-term) liabilities: Obligations due within one year.
    • Long-term (non-current) liabilities: Obligations due beyond one year.
    • Accrued expenses payable: Current liabilities for incurred expenses like salary and utilities.
    • Accounts payable: Current liability reflecting amounts owed to suppliers.
    • Unearned revenue: Current liability representing payments received for services not yet delivered.
    • Notes payable and Mortgage payable: Non-current liabilities documenting formal loans.

    Stockholder's Equity

    • Treasury stock: Represents the company's repurchase of its own shares, reducing stockholder's equity.
    • Net income: Increases retained earnings, reflecting profitability.
    • Losses and dividends: Decrease retained earnings.

    Accounting Records and Statements

    • General journal: A chronological record highlighting transaction effects—what is received versus what is given.
    • T accounts (General Ledger): Track the effects and balances of individual accounts.
    • Trail Balance: A summary to verify that total debits equal total credits in the accounts.

    Accounting Terminology

    • Accounts with “RECEIVABLE” are classified as assets.
    • Accounts with “PREPAID” indicate assets as well.
    • Accounts with “PAYABLE” denote liabilities.
    • Accounts with “UNEARNED” also indicate liabilities.

    Ratios and Financial Analysis

    • Current Ratio Equation: Calculated by dividing current assets by current liabilities.
    • Importance of Current Ratios: Assess a company’s short-term financial health and ability to meet immediate obligations; excessively high ratios may signal underutilized resources.

    Additional Concepts

    • Operating right to use asset: Considered a concurrent asset if leased long-term.
    • Chart of accounts: A comprehensive list of accounts used by a business for organization and tracking.
    • Events not included in financial statements: Signing contracts does not constitute a recognized financial transaction.

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    Description

    Test your understanding of key accounting principles and the different types of assets and liabilities. This quiz covers essential concepts such as the separate entity and going concern assumptions, as well as current and long-term liabilities. Perfect for students looking to reinforce their knowledge of accounting fundamentals.

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