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Questions and Answers
What is the primary purpose of accounting?
What is the primary purpose of accounting?
- To eliminate financial risks
- To audit financial statements
- To provide a systematic record of financial transactions (correct)
- To ensure profit maximization
Which financial statement provides a snapshot of an organization’s financial position at a specific point in time?
Which financial statement provides a snapshot of an organization’s financial position at a specific point in time?
- Cash Flow Statement
- Balance Sheet (correct)
- Statement of Retained Earnings
- Income Statement
What does double-entry accounting require?
What does double-entry accounting require?
- Transactions must be recorded monthly
- Every transaction affects only one account
- Each transaction is recorded once
- All entries result in equal debits and credits (correct)
Which of the following is considered a liability?
Which of the following is considered a liability?
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Which accounting principle requires that expenses be matched with revenues in the period in which they are incurred?
Which accounting principle requires that expenses be matched with revenues in the period in which they are incurred?
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Study Notes
Purpose of Accounting
- To track, analyze, and communicate financial information about an organization.
- Helps make informed decisions about resource allocation, performance evaluation and financial reporting.
Financial Statements
- The balance sheet provides a snapshot of an organization's financial position at a specific point in time.
- Displays assets, liabilities, and equity.
Double-Entry Accounting
- Requires that every financial transaction be recorded in at least two accounts.
- Debits are recorded on the left side of an account and credits on the right, ensuring the accounting equation (Assets = Liabilities + Equity) always balances.
Liabilities
- Represent obligations or debts that an organization owes to others.
- Examples include accounts payable, salaries payable, and loans.
Matching Principle
- Requires that expenses be matched with revenues in the period in which they are incurred.
- This means that the costs associated with generating revenue are recognized in the same accounting period as the revenue itself.
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