Financial Accounting Principles Quiz

Financial accounting is the process of recording, summarizing, and reporting the financial transactions of an organization.

Accrual Basis Accounting: Revenue and expenses are recorded when they are earned or incurred, regardless of cash movement.
Consistency Principle: Accounting methods should be applied consistently over time.
Materiality Principle: All significant information should be reported; insignificant information can be ignored.
Conservatism Principle: Anticipate potential losses but not gains; report expenses and liabilities as soon as possible.

Balance Sheet:
- Shows the organization's assets, liabilities, and equity at a specific point in time.
- Equation: Assets = Liabilities + Equity.
Income Statement:
- Reports revenue, expenses, and profit or loss over a specific period.
- Key components: Revenue, Cost of Goods Sold (COGS), Gross Profit, Operating Income, Net Income.
Cash Flow Statement:
- Displays cash inflows and outflows from operating, investing, and financing activities over a period.
- Sections: Operating Activities, Investing Activities, Financing Activities.
Statement of Changes in Equity:
- Summarizes changes in equity from transactions with shareholders, net income, and other comprehensive income.

Double-Entry Accounting: Every financial transaction affects at least two accounts (debit and credit).
Chart of Accounts: A list of all accounts used by an organization, categorized into assets, liabilities, equity, revenue, and expenses.
Journal Entries: The formal recording of transactions in the accounting books, showing the accounts affected and the amounts.
Trial Balance: A report that lists the balances of all accounts to ensure that debits equal credits.

Facilitates informed decision-making by stakeholders (investors, management, creditors).
Enhances transparency and accountability in financial reporting.

Accrual Basis Accounting: Revenue and expenses are recognized when earned or incurred, irrespective of when cash is received or paid.
Consistency Principle: Accounting methods remain consistent from period to period for accurate comparisons.
Materiality Principle: Significant information is reported, while minor details can be omitted.
Conservatism Principle: Potential losses are anticipated, but not gains. Expenses and liabilities are recorded as soon as possible.

Presents a snapshot of an organization's financial position at a specific date.
Shows assets (what the company owns), liabilities (what the company owes), and equity (the owner's stake).
Equation: Assets = Liabilities + Equity

Reports an organization's financial performance over a specific period (usually a year or quarter).
Highlights revenue, expenses, and ultimately, the profit or loss.
Key components include revenue, Cost of Goods Sold (COGS), Gross Profit, Operating Income, and Net Income.

Tracks the movement of cash into (inflows) and out of (outflows) an organization over a period.
Categorizes cash flows into operating activities (day-to-day operations), investing activities (buying/selling assets), and financing activities (obtaining/repaying funds).

Summarizes the changes in an organization's equity during a period.
Includes contributions from shareholders, net income, and other comprehensive income.

Double-Entry Accounting: Each transaction affects at least two accounts, one debit and one credit.
Chart of Accounts: A systematic list of all accounts used by an organization, arranged by asset, liability, equity, revenue, and expense categories.
Journal Entries: The formal recording of financial transactions in accounting books, specifying the accounts involved and the amounts.
Trial Balance: A report that lists the balances of all accounts to ensure that total debits equal total credits.

Facilitates informed decision-making by various stakeholders, including investors, management, and creditors.
Enhances transparency and accountability in financial reporting.