Double Entry Accounting Quiz

Owned and operated by one person, who contributes capital, with total control and liability.

Owned and operated by two or more partners, each contributing capital, with limited liability for partners.

Owned by shareholders, each contributing capital (shares), with limited liability for shareholders.

Funding is limited to the owner's personal funds. Banks are less likely to lend.

More likely to secure funding from banks due to partners' personal assets serving as collateral. Funds increase with more partners.

Companies can raise funds by issuing more shares and secure funding from banks easily because of high-value business assets.

The owner is fully liable for the business's debts, using personal assets to pay off debts or losses.

Individual partners are not personally responsible for the LLP's debts; liability is limited to invested capital.

Only transactions with a measurable monetary value should be recorded in accounting.

Financial records must be unbiased and supported by verifiable evidence.

Record transactions at their original cost.

A business is separate from its owners; business transactions are recorded from the business's perspective.

A company is expected to continue operations indefinitely unless there's clear evidence otherwise.

A company's activities are reported over a specific period, e.g., a year.

Being honest and straightforward in professional relationships.

Avoid letting personal biases affect professional judgment; impartiality.

A system where every transaction affects at least two accounts – one account increases (debit) and the other account decreases (credit) – keeping the accounting equation balanced.

Another way to remember double-entry bookkeeping; where increases and decreases are tracked using debit and credit

A process with four sequential steps for recording transactions: 1) Identify the accounts affected. 2) Determine the increase or decrease. 3) Classify the accounts. 4) Apply debit and credit entries based on classification.

A record of all transactions related to a specific account (asset, liability, equity, income, or expense items), showing debit and credit balances over time.

An accounting entry that increases assets, expenses, and dividends, or decreases liabilities, owner's equity, and revenues. It is typically recorded on the left side of an accounting equation.

A reduction from the list price of goods offered by a seller to encourage bulk purchases, customer loyalty, or to reward patronage.

A reduction from the invoiced price of goods offered by a seller to encourage prompt payment.

The amount owed to a credit supplier for goods purchased on credit.

Recording the purchase of goods on credit involves increasing the inventory account and increasing the trade payables account.

Recording the return of goods to a credit supplier involves decreasing the trade payables account and decreasing the inventory account.

A financial report that shows a business's revenue, expenses, and profit (or loss) over a specific period.

Income earned from providing services to customers, like haircuts or consulting.

Extra sources of income for a business besides the main service offerings.

Costs incurred by a business that are not directly related to its main services.

The amount of money a business makes after deducting all its expenses from its income.

A financial report that shows a business's assets, liabilities, and equity at a specific point in time.

What a business owns, like cash, equipment, and buildings.

What a business owes to others, like loans and unpaid bills.

This accounting principle dictates that when a business anticipates uncollectible debts, it should immediately recognize the potential loss in asset value as an expense (impairment loss) to prevent overstating profits. It also involves adjusting the asset value (trade receivables) by creating a contra asset (allowance for impairment) to accurately reflect the potential loss.

A contra asset account that represents the estimated amount of trade receivables that are expected to be uncollectible. It is deducted from the 'Trade Receivables' account on the balance sheet to present a realistic view of the value of the receivables that are likely to be collected.

An expense recognized when there is a reduction in the value of an asset due to factors like uncollectible receivables. This loss reflects the decrease in the asset's worth and is reported on the income statement.

A business estimates the impairment loss by considering factors like the likelihood of collecting outstanding receivables, the history of past bad debts, and the current economic conditions. For instance, a company might estimate a percentage of total receivables that are deemed unlikely to be collected, thus calculating the impairment loss.

The impairment loss is reflected in the Balance Sheet by reducing the 'Trade Receivables' asset account and increasing the 'Allowance for Impairment of Trade Receivables' contra asset account. This ensures that the 'Trade Receivables' amount presented on the Balance Sheet accurately reflects the value of the receivables that are likely to be collected.

The impairment loss is recognized as an expense on the Income Statement. This reduces the company's profit for the period, providing a more realistic portrayal of the business's financial performance. The expense is recorded within the 'Operating Expenses' section.

Money owed to a business by its customers for goods or services sold on credit. These are listed as an asset on the balance sheet.

When an account receivable is deemed uncollectible, a journal entry is created to remove the receivable from the books. The journal entry will debit the 'Allowance for Impairment of Trade Receivables' account and credit the 'Trade Receivables' account for the amount being written off.