Accounting Principles: Assets and Balances

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• Accounts with a natural debit balance increase with a debit transaction and decrease with a credit.
• Long-term assets are intended for use longer than one year.
• A promissory note is a legally binding agreement where a business is owed money.
• Merchandise inventory is a current asset with a normal debit balance.
• The weighted average cost technique uses an item's average cost throughout the year.
• Inventory shrinkage is accounted for by debiting the cost of goods sold (COGS).

Assets and Natural Account Balance

• Assets are owned by a business (e.g., property, inventory, cash, accounts receivable).
• Each asset type has accounting entries in a general journal.
• Accounts are tracked in T-accounts (debits on left, credits on right).
• Assets have a natural debit balance, liabilities and owner's equity have a credit balance.
• Increasing an asset account requires a debit and decreasing an asset account requires a credit.

Current vs. Long-Term Assets

• Assets are divided into current and long-term categories.
• Current assets are easily converted to cash for day-to-day expenses (e.g., cash, accounts receivable).
• Long-term assets are used over a year (e.g., buildings, computers, vehicles).

Accounting for Sales Transactions

• Sales are recorded in a revenue account at the top of income statements.
• Revenue accounts have a credit balance.
• Sales affect assets (debit/credit).
• Revenue minus expenses equals net income (profit) or loss.
• Double-entry accounting (debit and credit) is required to maintain balance.
• Assets increase with debits, and sales revenue accounts increase with credits.

Notes Receivable and Uncollectable

• Notes receivable are long-term receivables (not expected within a year).
• Examples of notes payable include promissory notes, stating amount borrowed and expected payment date.
• Uncollectible accounts are receivables a company no longer expects to collect (e.g., due to fraud, bankruptcy).
• Write-off accounts prevent paying taxes on revenue not received.

Merchandise Inventory

• Merchandise inventory includes goods companies intend to sell.
• Companies providing services usually have less inventory.
• Inventory items can be identified as inventory (yes) or non-inventory (no).

Inventory Valuation Methods

• Inventory valuation methods impact reported assets and equity.
• Consistency in valuation methods is important for financial reporting.
• Common methods include specific identification, FIFO, LIFO, and weighted average cost (WAC).
• FIFO (first-in, first-out) sells the first item purchased first.
• LIFO (last-in, first-out) sells the last item purchased first.
• WAC (weighted-average cost) averages purchase prices.
• Inventory valuation methods are used to calculate current inventory values.

Adjust Inventory Balances

• Inventory balances are adjusted after physical inventory counts, usually at the end of an accounting period.
• Inventory shrinkage (loss) from various causes can cause adjustments.
• Inventory values don't account for appreciation or depreciation; a consistent method is used.
• Inventory adjustments are based on items' purchase price, not market value.
• Spoilage or shrinkage causes adjustment of the inventory account.

This quiz focuses on the fundamental principles of accounting related to assets and their natural balances. Test your understanding of key concepts such as debit and credit balances, long-term assets, and inventory management. It's essential for students learning accounting basics.