Questions and Answers
What does the Separate Entity Assumption state?
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?
Signup and view all the answers
What does the term 'short term' refer to in accounting?
Signup and view all the answers
What does 'long term' refer to in accounting?
Signup and view all the answers
What are accrued expenses payable?
Signup and view all the answers
What is accounts payable classified as?
Signup and view all the answers
What is unearned revenue?
Signup and view all the answers
What is notes payable classified as?
Signup and view all the answers
What does mortgage payable represent?
Signup and view all the answers
What type of liability do bonds payable represent?
Signup and view all the answers
What effect does net income have on retained earnings?
Signup and view all the answers
What effect do losses and dividends have on retained earnings?
Signup and view all the answers
What type of asset is the operating right to use asset?
Signup and view all the answers
What does Treasury Stock do to stockholder's equity?
Signup and view all the answers
What is an event that isn't included on the financial statement?
Signup and view all the answers
What is a chart of accounts?
Signup and view all the answers
What does having the word RECEIVABLE in an account signify?
Signup and view all the answers
What does having the word PREPAID in an account signify?
Signup and view all the answers
What does having the word PAYABLE in an account signify?
Signup and view all the answers
What does having the word UNEARNED in an account signify?
Signup and view all the answers
What is a general journal?
Signup and view all the answers
What is a T account?
Signup and view all the answers
Assets increase with?
Signup and view all the answers
Liabilities increase with?
Signup and view all the answers
Stockholder's equity increases with?
Signup and view all the answers
Why are T accounts useful?
Signup and view all the answers
What is a trial balance?
Signup and view all the answers
What does IFRS stand for?
Signup and view all the answers
What is the current ratio equation?
Signup and view all the answers
Why are current ratios important?
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.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
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.
