Intuit Certified Bookkeeping - Domain 1, Lesson 1
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Questions and Answers

What is the primary difference between a transaction journal and a general ledger?

  • The transaction journal records individual transactions, while the general ledger summarizes accounts. (correct)
  • The general ledger is updated daily, whereas the transaction journal is updated weekly.
  • The transaction journal requires a reference number, but the general ledger does not.
  • The transaction journal is used only for sales, while the general ledger is used for all types of transactions.

When recording cash sales in the transaction journal, which entry represents the cash received?

  • Credit to Sales account
  • Debit to Cash account (correct)
  • Debit to Sales account
  • Credit to Cash account

In double-entry accounting, when an expense is recorded, which account is typically credited?

  • Assets or Liabilities
  • Cash or Accounts Payable (correct)
  • Revenue or Income
  • Equity or Owner's Capital

What does the term 'post reference number' indicate in a transaction journal?

<p>A reference to the page of the general ledger where the transaction is recorded (C)</p> Signup and view all the answers

How would you categorize a payment for a utility expense in the accounting records?

<p>As an expense increase (A)</p> Signup and view all the answers

When cash is paid for a utility expense in the transaction journal, which account is debited?

<p>Utility Expense account (B)</p> Signup and view all the answers

In the context of double-entry accounting, what does 'debit' signify?

<p>An increase in assets or expenses (C)</p> Signup and view all the answers

What information is crucial when recording a transaction in the transaction journal?

<p>The date, description, and the accounts involved (C)</p> Signup and view all the answers

What does the accounting equation Assets = Liabilities + Owner's Equity represent?

<p>The relationships between assets, liabilities, and owner's equity (A)</p> Signup and view all the answers

If a company's total assets are $100,000 and liabilities are $40,000, what is the owner's equity?

<p>$60,000 (A)</p> Signup and view all the answers

Which statement correctly describes assets in the context of the accounting equation?

<p>Assets are the resources a company uses to generate income (D)</p> Signup and view all the answers

What happens to the owner's equity if a company incurs more liabilities without increasing its assets?

<p>Owner's equity decreases (C)</p> Signup and view all the answers

In which situation would the owner's equity equal zero?

<p>When assets and liabilities are equal (D)</p> Signup and view all the answers

What must a company do with its liabilities if it is dissolved?

<p>Sell its assets to pay off the liabilities (A)</p> Signup and view all the answers

Which of the following components is NOT included in the accounting equation?

<p>Market Share (A)</p> Signup and view all the answers

If a company has $50,000 in assets and $20,000 in owner's equity, what are its liabilities?

<p>$30,000 (B)</p> Signup and view all the answers

What is the fundamental requirement of double-entry accounting?

<p>It needs at least two entries for each transaction. (A)</p> Signup and view all the answers

What must be true about the entries for debits and credits in double-entry accounting?

<p>Debits and credits must equal. (C)</p> Signup and view all the answers

When Pencil Pros sells ten printed packages for $100, what are the entries recorded?

<p>A $100 debit to cash and a $100 credit to sales revenue. (C)</p> Signup and view all the answers

What does the double-entry accounting method primarily help to achieve?

<p>Ensuring all transactions are recorded with a debit and a credit. (C)</p> Signup and view all the answers

If Pencil Pros records $200 in credit sales to Sherman Oaks, what is the appropriate credit entry?

<p>Sales Revenue for $200. (D)</p> Signup and view all the answers

In the context of T-accounts, what does the left side represent?

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

Which of the following statements is true regarding T-accounts?

<p>Each T-account has two sides, one for debits and one for credits. (C)</p> Signup and view all the answers

What is the purpose of double-entry accounting in financial reporting?

<p>To provide a complete and accurate picture of financial transactions. (C)</p> Signup and view all the answers

What financial report should be prepared to determine whether to use cash or credit for a large purchase?

<p>Statement of cash flows (B)</p> Signup and view all the answers

Which report would be most appropriate for presenting profits and losses over the last three years?

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

To find out the worth of an investment at the fiscal year-end, which financial report should be generated?

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

Which report is necessary to present the company’s assets as of the current date?

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

What is the primary purpose of T-Accounts in accounting?

<p>To visualize double-entry accounting (D)</p> Signup and view all the answers

What will the owner's equity be if Carla closes the business with assets of $6,000 and liabilities of $4,000?

<p>$2,000 (C)</p> Signup and view all the answers

After investing an additional $10,000, what will Carla’s total assets be?

<p>$16,000 (D)</p> Signup and view all the answers

If Carla takes out a loan to add a kiosk costing $5,000, what will be her total liabilities?

<p>$9,000 (D)</p> Signup and view all the answers

What will the owner’s equity be after recording a $2,000 bathroom installation bill that increases the liabilities?

<p>$10,000 (C)</p> Signup and view all the answers

Which financial report shows a company's net worth?

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

What aspect of the accounting equation does the balance sheet represent?

<p>Assets minus liabilities (D)</p> Signup and view all the answers

If the business had assets of $21,000 after all transactions, what is the maximum possible owner’s equity based on an increase in liabilities to $11,000?

<p>$10,000 (C)</p> Signup and view all the answers

Which additional report is NOT mentioned as one of the four important financial reports?

<p>Statement of retained earnings (A)</p> Signup and view all the answers

What is the primary purpose of the statement of equity?

<p>To expose changes in equity over a given period (B)</p> Signup and view all the answers

Which financial statement is used to predict future cash flow issues?

<p>Statement of cash flows (B)</p> Signup and view all the answers

What financial statement may indicate that a company is 'cash poor'?

<p>Statement of cash flows (D)</p> Signup and view all the answers

Which component is NOT a part of the statement of equity?

<p>Total liabilities (A)</p> Signup and view all the answers

How do income statements present company financial performance?

<p>By placing revenues and expenses side-by-side (B)</p> Signup and view all the answers

What impacts the closing balance in the statement of equity?

<p>Net income/loss, stock issues, and withdrawals (C)</p> Signup and view all the answers

Accounts receivable are considered what type of asset?

<p>Non-cash assets (D)</p> Signup and view all the answers

Which of the following financial statements does NOT explicitly show revenue?

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

Flashcards

Transaction Journal

A record of every financial transaction, showing debits and credits.

General Ledger

A comprehensive summary of all accounts in the business.

Debit

An accounting entry that increases asset or expense accounts, or decreases liability or owner's equity accounts.

Credit

An accounting entry that increases liability or owner's equity accounts, or decreases asset or expense accounts.

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Double-Entry Accounting

An accounting method where every transaction affects at least two accounts, ensuring that debits always equal credits.

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Reference Numbers (Transaction Journal)

Numbers used to link transaction journal entries to their corresponding entries in the general ledger.

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Post Reference

A reference from a transaction journal to the location of that entry on the general ledger.

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Accounting Equation

A formula used to determine a company's financial balance. It states: Assets = Liabilities + Owner's Equity.

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Assets

Anything of value a company owns.

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Liabilities

Things of value a company owes to others.

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Owner's Equity

The value of a company that is left after all liabilities have been paid. It belongs to the owners or shareholders.

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Double-Entry Accounting

An accounting method where every transaction is recorded with at least two entries, one debit and one credit, that must be equal.

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Accounting Equation Purpose

Provides a clear picture of a company's financial health.

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Debit

An accounting entry that increases asset, expense, and dividend accounts, and decreases liability, owner's equity, and revenue accounts.

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Credit

An accounting entry that increases liability, owner's equity, and revenue accounts, and decreases asset, expense, and dividend accounts.

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T-Account

A visual representation of an account, with debit entries on one side and credit entries on the other. Used in bookkeeping.

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Equal Debits and Credits

A fundamental principle of double-entry bookkeeping where the total debits must always equal the total credits.

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Accounting Equation

Assets = Liabilities + Equity

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Accounting Equation

Assets = Liabilities + Owner's Equity

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Assets

Resources owned by a business

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Liabilities

Amounts owed to others

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Owner's Equity

The owner's stake in the business

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Balance Sheet

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

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Retire

To leave a job or business.

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Invest

Put money into something expecting a return or gain in value.

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Loan

Money borrowed with the requirement to pay it back with interest.

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Balance Sheet Order

Assets, then liabilities, and finally owner's equity are listed in a balance sheet.

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Statement of Equity

A report detailing changes in a company's equity over a specific time period.It includes beginning balance, income/loss, stock changes, investments, and withdrawals.

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Income Statement

A document summarizing a company's profit or loss over a period. It compares revenues and expenses.

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Cash Flow Statement

A statement showing why cash inflow and outflow occurred in a business. A useful tool for predicting future cash needs.

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Accounts Receivable

Amounts owed to a company by its customers for goods or services delivered but not yet paid for.

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Cash Poor

A situation where a company makes a profit but lacks enough cash to cover its immediate financial needs.

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Financial Report for Mobile Copy Station Purchase

Statement of Cash Flows is the financial report Sally should prepare to help Carla decide if cash or credit is better for financing a large purchase.

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Financial Report for 3-Year Profit/Loss

Income Statement is the report Sally needs to show Carla's company profits and losses over the last three years.

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Financial Report for Investment Value

Statement of Equity is the report required to show Carla the value of her investment.

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Financial Report for Current Assets

Balance Sheet is the report showing the company's assets as of the current date.

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Double-Entry Accounting

Every transaction results in equal debits and credits. This maintains the balance of the accounting equation (Assets = Liabilities + Owner's Equity).

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T-Account

A visual representation of an account, where debits are on one side and credits are on another.

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Statement of Cash Flows

Tracks the movement of cash into and out of a business. It shows cash inflows and outflows related to operations, investing, and financing activities.

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Income Statement

A financial statement that reports a company's financial performance over a specific period.

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Statement of Equity

A financial statement that shows the changes in a company's equity over a period of time.

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Balance Sheet

A financial statement that presents a snapshot of a company's assets, liabilities, and equity at a specific point in time.

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Study Notes

Intuit Certified Bookkeeping Professional - Domain 1, Lesson 1

  • Ethical Responsibilities: Bookkeepers must use reliable sources and due diligence to ensure records are truthful. Confidentiality is key.
  • Accounting Equation: Shareholder's equity is what's left after paying bills.
  • Income Statement: Summarizes company revenues, costs, and expenses.
  • Double-Entry Accounting: Credit entries need corresponding debit entries. Liabilities, owner's equity, and revenue are on the credit side of T-accounts.
  • Transaction Journal: A chronological record of business transactions.
  • General Ledger: Contains records of posted transactions.
  • Post Reference Number: Links transactions with accounts.
  • Ethical Considerations: Bookkeepers must maintain confidentiality and disclose any suspicious or illegal activities.

Ethical Responsibilities - Step-by-Step Completion

  • Scenario: Sally, a bookkeeper, faces multiple client interactions and requests for financial information.
  • Ethical Analysis: Sally should not share financial information with those who have no right to access it.
  • Yes/No Examples:
  • Benny: No, as financial statements aren't open for disclosure with every casual interaction.
  • Carla (Owner): No, as the owner doesn't necessarily have the right to share financial information with every person.
  • Julie: No because she isn't involved with the business.
  • Reporter: No, if it involves investigations or sensitive information.
  • IRS Agent: No.
  • Sister: No, unless it's permissible according to the privacy guidelines.

Accounting Equation - Step-by-Step Completion

  • Scenario 1: Carla, Pencil Pros' owner, considers retiring.
  • Analysis: Assets (6,000)minusliabilities(6,000) minus liabilities (6,000)minusliabilities(4,000) equals Owner's Equity ($2,000).
  • Scenario 2: Carla invests more in Pencil Pros.
  • Impact: New assets (16,000),liabilities(16,000), liabilities (16,000),liabilities(4,000), and Owner's Equity ($12,000).
  • Scenario 3: Pencil Pros takes out a loan for a kiosk.
  • New Balances: Assets (21,000),Liabilities(21,000), Liabilities (21,000),Liabilities(9,000), and Owner's Equity ($12,000).
  • Scenario 4: New bathroom bill is recorded.
  • Updated Balances: Assets (21,000),Liabilities(21,000), Liabilities (21,000),Liabilities(11,000), and Owner's Equity ($10,000).

Important Financial Reports

  • Balance Sheet: Shows a company's net worth (assets = liabilities + equity).
  • Statement of Equity: Details changes in equity over time.
  • Income Statement: Shows profit or loss over a period.
  • Statement of Cash Flows: Tracks cash inflows and outflows.
  • Purpose: Understanding these reports helps you assess company health and predict future cash flow.

Double-Entry Accounting and T-Accounts

  • Double-Entry: Every transaction involves equal debits and credits.
  • T-Accounts: Visual representation of debits and credits.
  • Scenario: Pencil Pros transactions are recorded.
  • Debits/Credits in T-Account: Transactions are posted to increase or decrease relevant account balances (using debits/credits).

Transaction Journal and General Ledger

  • Transaction Journal: Records transactions in chronological order. Post references link transactions to the general ledger.
  • General Ledger: Maintains account balances. A general ledger is an accounting record of transactions in an organization and is the basis for the financial statements.
  • Purpose: Tracking transactions and creating accurate accounting records in accounting software (e.g., utility expense, sales, cash).

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Description

This quiz covers the key concepts from Domain 1, Lesson 1 of the Intuit Certified Bookkeeping Professional program. Learn about ethical responsibilities, accounting equations, the income statement, and the fundamentals of double-entry accounting. Test your knowledge of bookkeeping essentials and the importance of confidentiality.

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