Podcast
Questions and Answers
Which accounting principle allows for immediate expense recognition of low-cost items?
Which accounting principle allows for immediate expense recognition of low-cost items?
- Consistency Principle
- Revenue Recognition Principle
- Materiality Principle (correct)
- Matching Principle
When should revenue be recognized according to the revenue recognition principle?
When should revenue be recognized according to the revenue recognition principle?
- When goods or services are delivered (correct)
- When cash is received from sales
- At the beginning of the fiscal year
- Once the contract is signed
What is the correct sequence of accounting entries leading to financial statements?
What is the correct sequence of accounting entries leading to financial statements?
- Journal Entries, General Ledger, Trial Balance, Financial Statement (correct)
- General Ledger, Journal Entries, Trial Balance, Financial Statement
- Trial Balance, Financial Statement, General Ledger, Journal Entries
- Financial Statement, Trial Balance, Journal Entries, General Ledger
Which of the following is NOT included in the financial statements?
Which of the following is NOT included in the financial statements?
What does the consistency principle require in financial reporting?
What does the consistency principle require in financial reporting?
What is the result of a debit entry for an asset account?
What is the result of a debit entry for an asset account?
Which entry represents an increase in liabilities?
Which entry represents an increase in liabilities?
In the accounting equation, what represents equity?
In the accounting equation, what represents equity?
What does a credit entry typically do to income accounts?
What does a credit entry typically do to income accounts?
When an expense is recorded, which of the following describes the accounting entry?
When an expense is recorded, which of the following describes the accounting entry?
If a company borrows money, what effect does this have on the accounting entries?
If a company borrows money, what effect does this have on the accounting entries?
Which of the following best describes a liability?
Which of the following best describes a liability?
What is the primary principle behind the double-entry accounting system?
What is the primary principle behind the double-entry accounting system?
Which of the following actions results in a credit to the Income account?
Which of the following actions results in a credit to the Income account?
Which category best describes an asset like goodwill?
Which category best describes an asset like goodwill?
What type of asset is inventory classified as?
What type of asset is inventory classified as?
Which of the following best defines a liability?
Which of the following best defines a liability?
Which of the following correctly describes the debit and credit rule for expenses?
Which of the following correctly describes the debit and credit rule for expenses?
Which of the following is considered a current liability?
Which of the following is considered a current liability?
Which asset category includes cash and cash equivalents?
Which asset category includes cash and cash equivalents?
Which of the following statements correctly describes equity?
Which of the following statements correctly describes equity?
Flashcards
Accounting
Accounting
The language of business, recording business transactions.
Debit
Debit
In accounting, an entry that increases asset or expense accounts, and decreases liability, equity, and income accounts.
Credit
Credit
In accounting, an entry that increases liability, equity, and income accounts, and decreases asset and expense accounts
Asset
Asset
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Liability
Liability
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Double-entry bookkeeping
Double-entry bookkeeping
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Accounting Equation
Accounting Equation
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Expense
Expense
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Income
Income
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Equity
Equity
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Materiality Principle
Materiality Principle
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Revenue Recognition Principle
Revenue Recognition Principle
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Consistency Principle
Consistency Principle
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Journal Entries
Journal Entries
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General Ledger
General Ledger
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Trial Balance
Trial Balance
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Financial Statements
Financial Statements
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Balance Sheet
Balance Sheet
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Income Statement
Income Statement
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Cash Flow Statement
Cash Flow Statement
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Equity
Equity
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Income
Income
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Expense
Expense
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Asset
Asset
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Current Asset
Current Asset
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Non-Current Asset
Non-Current Asset
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Liability
Liability
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Intangible Asset
Intangible Asset
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Tangible Asset
Tangible Asset
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Accounts Receivable
Accounts Receivable
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Prepaid payments
Prepaid payments
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Investments
Investments
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Goodwill
Goodwill
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Study Notes
What is Accounting?
- Accounting is the language of business
- It records all business actions
Examples of Financial Transactions
- A fast-food restaurant buys buns for $300
- FFR pays $100 for electricity
- They buy a computer for $1000
Debit and Credit
- Each transaction has consequences (debit and credit)
- An exception is when no debit and credit are involved
Purchase of Buns
- Non-accounting entry (single entry): $300 cost of buns
- Accounting entry (double entry):
- Debit - Buns Inventory (asset): $300
- Credit - Cash paid (asset): $300
Key Rules in Accounting
- Think of each transaction in terms of two consequences (debit/credit)
- Each transaction results in one of the following:
- Assets
- Liabilities
- Equity
- Income
- Expenses
Purchase of a Computer
- Non-accounting entry (single entry): $1000 Cost of computer
- Accounting entry (double entry):
- Debit - Computer (asset): $1000
- Credit - Cash (asset): $1000
Rules of Debit and Credit
-
Non-accounting entry (single entry): Cost of electricity $100
-
Accounting entry (double entry):
- Debit - Electricity (Expense): $100
- Credit - Cash (Asset): $100
-
Non-accounting entry (single entry): Cost of computer $1000
-
Accounting entry (double entry):
- Debit - Computer (Asset): $1000
- Credit - Cash (Asset): $1000
Types of Assets
-
Current Assets: Cash, cash equivalents, expected to be converted to cash in 12 months or less, expected to be sold or consumed within a normal operating cycle
-
Non-Current Assets: Assets beyond current assets
-
Tangible Assets: Physical items (buildings, equipment)
-
Intangible Assets: Non-physical items (patents, trademarks)
What is a Liability?
- Something the company owes
Examples of Liabilities
- Accounts payable
- Accrued liabilities (e.g. electricity, salaries)
- Accrued salaries and wages
- Taxes payable
- Long-term debt/loans
- Portions of long-term debt payable
- Deferred revenue
- Bank overdrafts
Types of Liabilities
-
Current Liabilities: Short-term obligations
-
Non-current Liabilities: Long-term obligations
What is Equity?
- Represents ownership of a company
- Equity = Assets - Liabilities
Income Statement, Balance Sheet
- Income and expenses are recorded, tracked, and summarized
- These are tracked to calculate the profitability of an entity
Accounting Principles
- Accrual Principle: Record transactions when they occur, not when cash is exchanged.
- Matching Principle: Match revenues and expenses in the same period.
- Cost Principle: Record assets at their original cost, not market value.
- Going Concern Principle: Assume the business will continue operating.
- Materiality Principle: Significant events influence decisions, insignificant events do not.
- Consistency Principle: Apply accounting methods consistently.
- Revenue Recognition Principle: Record revenue when earned.
Flow of Accounting Entries
- Journal Entries: Record all business transactions chronologically
- General Ledger: Summarizes all transactions per account type
- Trial Balance: Lists all accounts with their balances
- Financial Statements: Summarize the performance of the entity (Balance Sheet, Income Statement, Cashflow Statement)
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Description
Explore the basics of accounting through this quiz. Understand essential terms such as debit and credit, and learn how financial transactions are recorded. Ideal for beginners looking to grasp fundamental accounting principles.