Questions and Answers
If an adjusting entry's debit is to an expense account, then the credit must be to a:
What is permitted under current U.S. GAAP?
Accrual-basis accounting
A classified balance sheet shows subtotals for current ______ and current ______.
assets and liabilities
The closing entry for expense accounts involves the following journal entry.
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Which line items appear in an income statement? (Select all that apply)
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If Neumann Corporation purchases supplies that will be used during the following quarter, how should these supplies be recorded?
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Reporting revenues only when cash is received and expenses only when cash is paid is called the ______ basis of accounting.
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If a company determines that it has $1,400 of supplies on hand at the end of the period, then it has $1,400 in supplies remaining at the end of the period.
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What is the price earned from selling goods or services to customers?
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An Income statement reports what?
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A Balance sheet reports what?
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What is the order in which liability accounts would appear on a company's balance sheet?
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Match the following long-term assets sub-categories:
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What journal entry includes a debit to Prepaid Rent and a credit to Cash?
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An asset that can quickly be turned into cash has the characteristic of:
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Match the account with the correct terms: Temporary
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Match the account with the correct terms: Permanent
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If revenues are greater than expenses, then the company generated net income. If expenses are greater than revenues, the company generated a net:
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Study Notes
Adjusting Entries
- If an adjusting entry's debit is to an expense account, the credit must either be to a prepaid expense or a liability.
Accounting Principles
- Current U.S. GAAP permits accrual-basis accounting, recognizing revenues and expenses when incurred, regardless of cash movement.
Classified Balance Sheet
- A classified balance sheet displays subtotals for current assets and current liabilities.
Closing Entries
- The closing entry for expense accounts includes a debit to retained earnings and a credit to expenses.
Income Statement Components
- Key line items on an income statement include sales revenue, salaries expense, and income tax expense.
Supplies Accounting
- When supplies are purchased, they are recorded as an asset until used in the following quarter.
Cash Basis Accounting
- Cash basis accounting recognizes revenues and expenses only when cash is exchanged.
Supplies on Hand
- If a company has $1,400 of supplies on hand at the end of the period, that amount accurately represents remaining supplies.
Definition of Revenue
- Revenue refers to the income earned from selling goods or services to customers.
Income Statement Summary
- An income statement summarizes financial performance by reporting revenues minus expenses.
Balance Sheet Overview
- A balance sheet provides a snapshot of a company's assets, liabilities, and stockholders' equity at a specific point in time.
Liability Presentation
- Liability accounts appear on the balance sheet in the order of their due dates, from soonest to latest.
Long-term Asset Categories
- Long-term assets on a classified balance sheet may include property, plant and equipment, long-term investments, and intangible assets.
Journal Entries for Prepaid Rent
- Prepaid rent is recorded by debiting Prepaid Rent and crediting Cash, indicating a decrease in cash flow.
Liquidity of Assets
- An asset that can quickly be converted into cash is characterized by high liquidity.
Temporary Accounts
- Temporary accounts include revenues, expenses, and dividends, which are reset at the end of each accounting period.
Permanent Accounts
- Permanent accounts consist of assets, liabilities, and equity, maintaining their balances over accounting periods.
Net Income and Loss
- If revenues exceed expenses, the outcome is net income, whereas if expenses surpass revenues, the result is a net loss.
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Description
Test your understanding of fundamental accounting principles, including adjusting entries, cash basis vs accrual accounting, and the components of financial statements. This quiz covers key concepts that are essential for mastering financial accounting.
