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Questions and Answers
What is accounting?
What is accounting?
Accounting is a system that records, summarizes, and reports on a business's financial activities.
What is the purpose of accounting?
What is the purpose of accounting?
Accounting helps businesses estimate future sales and expenses.
Accounting helps businesses estimate future sales and expenses.
True
What are financial statements?
What are financial statements?
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Who are the internal users of financial information?
Who are the internal users of financial information?
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The balance sheet equation is Assets + Liabilities = Owner's Equity.
The balance sheet equation is Assets + Liabilities = Owner's Equity.
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What are assets?
What are assets?
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What are liabilities?
What are liabilities?
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What is owner's equity?
What is owner's equity?
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What are the three components of a balance sheet heading?
What are the three components of a balance sheet heading?
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Assets are typically listed on the right side of a balance sheet.
Assets are typically listed on the right side of a balance sheet.
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What is the difference between short-term assets and long-term assets?
What is the difference between short-term assets and long-term assets?
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Liabilities are typically listed on the left side of a balance sheet.
Liabilities are typically listed on the left side of a balance sheet.
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What is accounts payable?
What is accounts payable?
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Owner's equity is typically listed on the left side of a balance sheet.
Owner's equity is typically listed on the left side of a balance sheet.
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What is accounts receivable?
What is accounts receivable?
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Accounts receivable is typically due within 30-60 days.
Accounts receivable is typically due within 30-60 days.
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Accounts payable is typically due within 30-60 days.
Accounts payable is typically due within 30-60 days.
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Study Notes
What is Accounting?
- Accounting is a system that records, summarizes, and reports a business's financial activities.
- Its purpose is to summarize information using financial statements and provide data for decision-making.
Why is Accounting Important?
- Accountability & Transparency: Ensures those handling cash are responsible and financial activities of public corporations are reviewed.
- Budgeting: Helps estimate future sales and expenses.
- Taxation: Records must be maintained to calculate and pay taxes.
Financial Statements
- Definition: Reports summarizing a business's financial performance and health.
- Examples: Annual reports, shared with shareholders and potential investors.
Users of Financial Information
- Internal: Business owners, managers.
- External: Government, bankers/lenders, potential investors.
The Balance Sheet Equation
- Assets = Liabilities + Owner's Equity
- Or, Assets - Liabilities = Owner's Equity
Key Terms Explained
- Assets: Items of value owned by a business or person. (Examples: Cash, House, Car)
- Liabilities: Debts owed by a business or person. (Examples: Credit Card, Bank Loan)
- Owner's Equity: The difference between total assets and liabilities, representing net worth.
Steps to Create a Balance Sheet
- Heading: Include the business/individual's name, "Balance Sheet," and the date.
- Assets Section: List short-term (e.g., Cash, Accounts Receivable) and long-term assets (e.g., Land, Buildings) in a specific order.
- Liabilities Section: List liabilities (e.g., Accounts Payable, Mortgage) in order of due date
- Owner's Equity: List owner's capital.
Example Balance Sheet Data (Indra Nooyi, 2023)
- Assets: Cash 2,000,HouseholdItems2,000, Household Items 2,000,HouseholdItems5,000, Car 5,000,House5,000, House 5,000,House300,000. Total Assets: $312,000.
- Liabilities: Credit Card 2,000,CarLoan2,000, Car Loan 2,000,CarLoan500, Bank Loan 20,000,Mortgage20,000, Mortgage 20,000,Mortgage200,000. Total Liabilities: $222,500.
- Owner's Equity: Indra Nooyi, Capital 89,500.TotalLiabilitiesandEquity:89,500. Total Liabilities and Equity: 89,500.TotalLiabilitiesandEquity:312,000.
Additional Terms
- Accounts Receivable: Money owed to a business by customers for goods/services sold, typically due in 30-60 days.
- Accounts Payable: Money owed by a business to creditors for goods/services purchased, typically due in 30-60 days.
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Description
Test your knowledge on the basics of accounting with this quiz. Explore topics such as the importance of accounting, financial statements, and the balance sheet equation. Perfect for beginners looking to understand business finance.
