Podcast
Questions and Answers
Which of the following equations represents the fundamental accounting equation?
Which of the following equations represents the fundamental accounting equation?
- Assets + Liabilities = Owner's Equity
- Assets = Liabilities + Owner's Equity (correct)
- Liabilities = Assets + Owner's Equity
- Assets = Liabilities - Owner's Equity
According to the consistency principle, which of the following is required?
According to the consistency principle, which of the following is required?
- All companies within the same industry must use the same accounting rules.
- Accounting rules must be updated at least every 5 years.
- Companies must change their accounting methods every year.
- Although there are general accounting rules, there may be several ways to apply those rules. (correct)
Which of the following is the correct order of assets in a classified balance sheet?
Which of the following is the correct order of assets in a classified balance sheet?
- Building, Equipment, Inventory, Supplies, Accounts Receivable, Cash
- Equipment, Inventory, Accounts Receivable, Cash, Building, Supplies
- Supplies, Cash, Accounts Receivable, Inventory, Equipment, Building
- Cash, Accounts Receivable, Supplies, Inventory, Equipment, Building (correct)
In the income statement, what is calculated by subtracting the cost of goods sold (COGS) from revenue?
In the income statement, what is calculated by subtracting the cost of goods sold (COGS) from revenue?
If a company overstates its ending inventory, what is the effect on the cost of goods sold (COGS) and net income?
If a company overstates its ending inventory, what is the effect on the cost of goods sold (COGS) and net income?
Which of the following is NOT an adjustment to the bank reconciliation?
Which of the following is NOT an adjustment to the bank reconciliation?
A company performs services for cash, what is the correct accounting entry?
A company performs services for cash, what is the correct accounting entry?
Calculate the ending capital, given Beginning Capital of $10,000, Net Income of $5,000, and Drawings of $2,000.
Calculate the ending capital, given Beginning Capital of $10,000, Net Income of $5,000, and Drawings of $2,000.
Flashcards
What is the fundamental accounting equation?
What is the fundamental accounting equation?
The accounting equation states that a company's assets are equal to the sum of its liabilities and equity.
What is the double-entry accounting system?
What is the double-entry accounting system?
Every business transaction is recorded with both a debit and a credit entry, ensuring that the total debits always equal the total credits.
What is the cost principle?
What is the cost principle?
The cost principle states that all assets are initially recorded at their original cost. Even if the market value of an asset changes, the cost remains the same in the accounting records.
What is the going concern principle?
What is the going concern principle?
Signup and view all the flashcards
What is the monetary unit concept?
What is the monetary unit concept?
Signup and view all the flashcards
What is the economic entity concept?
What is the economic entity concept?
Signup and view all the flashcards
What does the balance sheet show?
What does the balance sheet show?
Signup and view all the flashcards
What does the income statement show?
What does the income statement show?
Signup and view all the flashcards
Study Notes
Fundamental Accounting Equation
- Assets = Liabilities + Owner's Equity
- This equation forms the basis of accounting.
Double-Entry Accounting System
- Every transaction has equal debits and credits.
- Total debits always equal total credits.
- This ensures the equation above remains balanced.
Accounting Standards (GAAP Principles)
Cost Principle
- Items are recorded and remain at their original cost.
Consistency Principle
- Consistent application of accounting rules is important.
Objectivity Principle
- Accounting is based on verifiable evidence.
Going Concern
- Businesses are assumed to continue operations indefinitely.
Monetary Unit
- Only data expressed in a stable monetary unit is recorded.
Economic Entity
- A business is distinct from its owner(s) and other businesses.
Time Period Assumption
- The life of a business is divided into reporting periods.
Balance Sheet
Order of Assets (Classified Balance Sheet)
-
Cash, Accounts Receivable, Supplies, Inventory, Equipment, Building.
-
This order is common but not a strict requirement.
-
Assets = Liabilities + Owner's Equity
Income Statement
Structure
- Revenue - Cost of Goods Sold (COGS) = Gross Profit.
- Gross Profit - Expenses = Net Income.
- Example heading: "Year Ended December 31, 20XX".
Cash Flow Statement
- Focuses on cash inflows and outflows
- No formula given in the text.
Effects of Errors (Inventory)
- Overstated Ending Inventory: COGS understated, Gross Profit overstated, Net Income overstated.
- Understated Ending Inventory: COGS overstated, Gross Profit understated, Net Income understated.
Merchandise Inventory
- Items ready for sale.
Adjustments
- NSF Cheques: Deduct from book balance.
- Outstanding Cheques: Deduct from bank statement balance.
- Bank Service Charges: Deduct from book balance.
- Late Deposits: Add to bank statement balance.
- Correct any errors in recording cheques or deposits.
Common Transactions/Examples
- Services performed for cash: Debit Cash, Credit Fees Earned.
- Petty Cash replenishment: Debit Expenses, Credit Bank.
- Purchases of merchandise: Debit Purchases, Credit Bank or Accounts Payable.
Errors
- Correcting entries are required for wrong postings.
Owner's Equity Formula
- Beginning Capital + Net Income - Drawings = Ending Capital
Liquidation Example
- Assets sold below book value, liabilities paid, remaining amount in Capital adjusted.
Core Accounting Definitions
- Asset: Resources owned (cash, accounts receivable, inventory).
- Liability: Obligations owed (loans, accounts payable).
- Equity: Owner's claim (capital, retained earnings).
- Revenue: Income (credit balance).
- Expenses: Costs (debit balance).
Amortization
- Allocation of an intangible asset's cost over its useful life (patents, trademarks).
- Similar to depreciation, but for intangible assets.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
