Questions and Answers
Which of the following represents the amount of revenue generated by a business?
Which of the following is derived by subtracting the cost of goods sold from the net sales figures?
Which of the following are the costs directly associated with making or acquiring products such as materials purchased from outside suppliers?
Which of the following is the amount of money the business has earned after paying income taxes?
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Which of the following is the correct equation for profit?
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Which of the following represents the basic accounting equation?
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Which of the following is the most liquid asset?
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Which of the following is NOT a current asset?
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Accounts payable are classified as which of the following?
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Debits decrease liabilities.
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Which of the following shows the numerical balances determined by the chart of accounts?
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Which of the following shows any changes which have occurred in the numerical balances of a company?
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Which of the following is also known as a profit and loss statement?
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Which of the following is the last step in the business operating cycle?
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When suppliers are paid, which of the following occurs?
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Accounting is simply the process used to figure out how much money a business made during a certain time period.
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What are the accounting rules used to prepare, present, and report financial statements called?
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______________ are items of value your company owns.
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___________ are any debts or obligations owed by the company.
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It is often beneficial for a business owner to use business accounts and personal accounts interchangeably.
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An __________ is a summary of a company's profit or loss during any one given period of time.
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How often should a business calculate profitability and review financial statements?
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The Financial Accounting Standards Board is the government agency regulating the accounting industry.
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How many steps are in the business operating cycle?
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Income statements are used to help determine ______________.
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Study Notes
Accounting Concepts Overview
- Sales Figures: Represents total revenue generated by a business from selling goods or services.
- Gross Profit: Calculated by subtracting the cost of goods sold from net sales figures; indicates profitability before operating expenses.
- Costs of Goods Sold (COGS): Includes all costs directly associated with manufacturing or acquiring products, such as materials and labor.
- Net Income: The profit a business earns after subtracting income taxes; an indicator of overall financial health.
- Profit Formula: Profit is derived from the equation Revenue - Expenses = Profit, representing the leftover amount after all costs.
Fundamental Accounting Equations
- Basic Accounting Equation: Assets = Liabilities + Owner's Equity; highlights the relationship between what a business owns and owes.
Types of Assets
- Cash: The most liquid asset, easily accessible for transactions and immediate obligations.
- Land: Classified as a long-term asset, not a current asset, due to its non-liquid nature and long-term value.
Liabilities and Accounting Principles
- Current Liabilities: Include debts or obligations due within a year, often reflected in accounts payable.
- Debits and Liabilities: Debits decrease liabilities; when a company pays its suppliers, it reduces accounts payable.
Financial Statements
- Balance Sheet: Displays a company’s financial position at a specific point in time, detailing assets, liabilities, and equity.
- Profit and Loss Statement (Income Statement): Shows revenues, expenses, and profits or losses over a specific period.
Business Management Practices
- Last Step in Business Cycle: Collecting payment for credit sales; crucial for cash flow and financial stability.
- Frequency of Profitability Review: It is advisable for businesses to calculate profitability and review financial statements monthly to keep track of financial health.
General Accounting Principles
- Generally Accepted Accounting Principles (GAAP): Accounting standards that guide the preparation and reporting of financial statements.
- Assets: Valuable items owned by a company that contribute to its overall worth.
- Liabilities: Defined as debts or obligations owed to external parties; essential for balance sheet accuracy.
Misconceptions in Accounting
- False Notions: Accounting is not merely about calculating profits; it is a comprehensive process involving detailed tracking and reporting of financial activities.
- Use of Accounts: Mixing business and personal accounts is discouraged, as it complicates financial management and violates best practices.
Operational Insights
- Business Operating Cycle: Typically comprises nine steps; each step plays a vital role in the business's revenue generation process.
- Credit Limits: Income statements assist in determining credit limits for customers, guiding risk management in sales.
Summary Insights
- Income Statement Definition: A financial statement summarizing the company's profitability over a specific period.
- Accounting Regulation: The Financial Accounting Standards Board (FASB) is a private entity, not a government agency, overseeing accounting standards in the U.S.
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Description
Test your knowledge of fundamental accounting concepts with this flashcard quiz. Cover important terms such as sales figures, gross profit, and costs of goods sold. Perfect for students and professionals looking to refresh their accounting skills!
