Podcast
Questions and Answers
What does the Separate Entity Assumption state?
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?
What does the Going Concern Assumption imply?
Businesses are assumed to continue operating into the foreseeable future.
What is the Monetary Unit Assumption?
What is the Monetary Unit Assumption?
Requires that only items that can be expressed in money are recorded.
What are prepaid expenses categorized as?
What are prepaid expenses categorized as?
What does the term 'short term' refer to in accounting?
What does the term 'short term' refer to in accounting?
What does 'long term' refer to in accounting?
What does 'long term' refer to in accounting?
What are accrued expenses payable?
What are accrued expenses payable?
What is accounts payable classified as?
What is accounts payable classified as?
What is unearned revenue?
What is unearned revenue?
What is notes payable classified as?
What is notes payable classified as?
What does mortgage payable represent?
What does mortgage payable represent?
What type of liability do bonds payable represent?
What type of liability do bonds payable represent?
What effect does net income have on retained earnings?
What effect does net income have on retained earnings?
What effect do losses and dividends have on retained earnings?
What effect do losses and dividends have on retained earnings?
What type of asset is the operating right to use asset?
What type of asset is the operating right to use asset?
What does Treasury Stock do to stockholder's equity?
What does Treasury Stock do to stockholder's equity?
What is an event that isn't included on the financial statement?
What is an event that isn't included on the financial statement?
What is a chart of accounts?
What is a chart of accounts?
What does having the word RECEIVABLE in an account signify?
What does having the word RECEIVABLE in an account signify?
What does having the word PREPAID in an account signify?
What does having the word PREPAID in an account signify?
What does having the word PAYABLE in an account signify?
What does having the word PAYABLE in an account signify?
What does having the word UNEARNED in an account signify?
What does having the word UNEARNED in an account signify?
What is a general journal?
What is a general journal?
What is a T account?
What is a T account?
Assets increase with?
Assets increase with?
Liabilities increase with?
Liabilities increase with?
Stockholder's equity increases with?
Stockholder's equity increases with?
Why are T accounts useful?
Why are T accounts useful?
What is a trial balance?
What is a trial balance?
What does IFRS stand for?
What does IFRS stand for?
What is the current ratio equation?
What is the current ratio equation?
Why are current ratios important?
Why are current ratios important?
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.
