Fundamental Accounting Principles Quiz

The accounting equation is a fundamental principle that states that assets are equal to the sum of liabilities and equity. It helps to understand how financial transactions affect a company's financial position.

A debit entry increases the balance of asset accounts and expense accounts. It decreases the balance of liability accounts, equity accounts, and revenue accounts.

A credit entry increases the balance of liability accounts, equity accounts, and revenue accounts. It decreases the balance of asset accounts and expense accounts.

A T-account is a visual representation of an individual account used in double-entry bookkeeping. It has two sides: debit and credit.

The cost of goods sold (COGS) represents the direct costs associated with producing the goods that were sold during a specific period. It includes the cost of raw materials, direct labor, and manufacturing overhead.

A sale on account is a transaction where a customer purchases goods or services but doesn't pay immediately. They agree to pay later, creating an accounts receivable (A/R).

Retained earnings represent the accumulated profits that a company has earned over time and not distributed to shareholders. It's part of equity.

A journal entry records each financial transaction in chronological order. It includes the date, the accounts affected, and the amounts for debits and credits.

A business transaction where a company sells goods or services and receives cash immediately.

A business transaction where a company sells goods or services but receives payment later.

The process of recording financial transactions in a company's accounting records.

A financial statement summarizing a company's financial position at a specific point in time.

The difference between the selling price of a product and its cost.

A financial statement summarizing a company's revenues, expenses, and net income over a specific period.

A financial statement that summarizes a company's cash inflows and outflows over a specific period.

A financial statement that summarizes a company's changes in equity over a specific period.

A type of account that represents something the business owns. Common examples include cash, accounts receivables, and inventory.

A type of account that represents something the business owes to others. Common examples include accounts payable and loans.

A type of account that shows the owner's investment in their business. Common examples include retained earnings and capital stock.

They represent transactions where money is received from customers for goods or services sold on credit. They are expected to be collected in the future. They are generally recorded as a debit.

They represent transactions where the business owes money to suppliers for goods or services purchased on credit. They are generally recorded as a credit.

A record of the net income earned by a company over time, minus any dividends paid to shareholders.

They represent the value of goods that a business has on hand for sale. They are generally recorded as a debit.

A financial statement showing a company's assets, liabilities, and equity at a specific point in time.

Items owned by a company that have a monetary value.

Obligations of a company to pay others.

The owners' stake in a company.

Assets that can be easily converted into cash within a short period of time.

Liabilities that are due within a short period of time.

The accounting equation states that assets equal the sum of liabilities and equity.

A statement of financial position must always balance, meaning the total assets must equal the sum of total liabilities and equity.

A tool used to track the changes in individual accounts, often visually depicted as a 'T' with debits on the left and credits on the right.

The amount of money a company owes to its suppliers or creditors for goods or services received but not yet paid for.

The amount of money a company is owed by its customers for goods or services sold but not yet paid for.

Tangible assets used in a business's operations for an extended period. Include buildings, machinery, vehicles, and equipment.

Represents the current value of goods readily available for sale in a business. Items are usually purchased with the intention of selling them within a short period.

The amount of cash that a company has on hand at a specific point in time.

A promise to repay a specified amount of money at a certain future date, usually with interest.