Introduction to Accounting Principles
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Questions and Answers

What is the primary function of accounting?

  • To manage human resources
  • To create marketing strategies
  • To oversee production processes
  • To provide financial information for decision-making (correct)

Which of the following is considered an asset?

  • Accounts payable
  • Cash (correct)
  • Salaries payable
  • Loans payable

What does the term 'liabilities' refer to in accounting?

  • Owners' stake in the company
  • Increases in economic benefits
  • Obligations of the company (correct)
  • Resources owned by the company

What is the definition of 'equity'?

<p>The residual interest in the assets of the company after deducting liabilities (D)</p> Signup and view all the answers

Which of the following increases equity?

<p>Revenue (D)</p> Signup and view all the answers

What accounting principle assumes a business will continue to operate in the foreseeable future?

<p>Going Concern Principle (C)</p> Signup and view all the answers

Which principle states that expenses should be recognized in the same period as the revenues they helped generate?

<p>Matching Principle (A)</p> Signup and view all the answers

The historical cost principle states that assets should be recorded at:

<p>Their original cost when acquired (D)</p> Signup and view all the answers

What is the primary purpose of internal controls?

<p>To safeguard assets and prevent fraud (A)</p> Signup and view all the answers

Which of the following is a key component of internal control?

<p>Risk assessment (D)</p> Signup and view all the answers

What do liquidity ratios measure?

<p>A company's ability to pay short-term obligations (D)</p> Signup and view all the answers

Which ratio indicates a company's ability to meet its long-term obligations?

<p>Debt-to-equity ratio (D)</p> Signup and view all the answers

Why is ethical behavior important in accounting?

<p>To maintain trust and credibility (C)</p> Signup and view all the answers

When is revenue typically recognized under accrual accounting?

<p>When goods are delivered or services are provided (D)</p> Signup and view all the answers

What principle states that all relevant information should be disclosed in financial statements?

<p>Full Disclosure Principle (D)</p> Signup and view all the answers

Which financial statement reports a company's financial position at a specific point in time?

<p>Balance Sheet (A)</p> Signup and view all the answers

What is the fundamental accounting equation?

<p>Assets = Liabilities + Equity (B)</p> Signup and view all the answers

What type of account do debits increase?

<p>Expense (D)</p> Signup and view all the answers

Which of the following is the first step in the accounting cycle?

<p>Identifying and analyzing transactions (A)</p> Signup and view all the answers

In cash accounting, when is revenue recognized?

<p>When cash is received (C)</p> Signup and view all the answers

What is depreciation?

<p>The allocation of the cost of a tangible asset over its useful life (B)</p> Signup and view all the answers

Which depreciation method allocates an equal amount of expense each year?

<p>Straight-line (D)</p> Signup and view all the answers

What does FIFO stand for in inventory valuation?

<p>First-in, first-out (A)</p> Signup and view all the answers

Which financial statement reconciles the beginning and ending balances of retained earnings?

<p>Statement of Retained Earnings (A)</p> Signup and view all the answers

What is the purpose of preparing a trial balance?

<p>To ensure debits equal credits (B)</p> Signup and view all the answers

What is the effect of a credit on liability accounts?

<p>Increases (C)</p> Signup and view all the answers

Which principle guides accountants to choose the option least likely to overstate assets?

<p>Conservatism (C)</p> Signup and view all the answers

Which statement classifies cash flows into operating, investing, and financing activities?

<p>Statement of Cash Flows (D)</p> Signup and view all the answers

Flashcards

What is Accounting?

Recording, classifying, summarizing and interpreting financial transactions and events.

Goal of accounting

Accurate and reliable financial information to help users make informed decisions.

Assets

Resources controlled by a company expected to provide future economic benefits.

Liabilities

Present obligations of a company that will result in an outflow of resources.

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Equity

The owner's stake in the company after deducting liabilities from assets.

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Revenue

Increases in economic benefits that result in increases in equity.

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Going Concern Principle

Operation in the foreseeable future.

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Matching Principle

Recognize expenses in the same period as the revenues they helped generate.

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Internal Controls

Processes to protect assets, prevent fraud, ensure accurate accounting data.

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Control Environment

Management's overall attitude and awareness of internal control importance.

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Financial Statement Analysis

Evaluating performance and financial health using financial statements.

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Liquidity Ratios

Ability to meet short-term debts

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Ethics in Accounting

Acting with honesty to ensure reliable financial reporting.

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Revenue Recognition Principle

Recognizes revenue when goods are delivered or services are provided, with reasonable assurance of collection.

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Full Disclosure Principle

Disclose all relevant information that could affect users' decisions in financial statements or notes.

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Conservatism Principle

Exercise caution when facing uncertainty; choose the option least likely to overstate assets or income.

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Income Statement

Reports revenues, expenses, and net income (or loss) for a specific period, showing profitability.

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Balance Sheet

Presents assets, liabilities, and equity at a specific point in time, showing financial position.

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Statement of Cash Flows

Reports cash inflows and outflows during a period, classified into operating, investing, and financing activities.

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Statement of Retained Earnings

Shows changes in retained earnings during a period, considering net income and dividends.

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Accounting Equation

Assets = Liabilities + Equity

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Debits (Dr)

Increase asset, expense, and dividend accounts; decrease liability, equity, and revenue accounts.

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Credits (Cr)

Increase liability, equity, and revenue accounts; decrease asset, expense, and dividend accounts.

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Journalizing Transactions

Recording transactions using debits and credits.

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Posting to the Ledger

Transferring journal entries to the general ledger accounts.

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Preparing a Trial Balance

Listing all general ledger accounts and their balances to ensure debits equal credits.

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Accrual Accounting

Recognizes revenue when earned and expenses when incurred, regardless of cash flow.

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Depreciation

Allocates the cost of a tangible asset over its useful life.

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Study Notes

The provided text is identical to the existing notes. Therefore, no updates or changes are needed.

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Description

Accounting involves recording, classifying, and interpreting financial transactions to aid business decisions. Often called the language of business, it communicates financial information to stakeholders. Its main goal is to provide reliable financial data for informed decision-making regarding resource allocation, investment, and compliance.

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