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Journal Entries and Financial Statements Quiz
31 Questions
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Journal Entries and Financial Statements Quiz

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@MindBlowingJade

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Questions and Answers

Which method of accounting recognizes revenues when cash is received, and expenses when they are paid?

  • Double entry bookkeeping
  • Accrual basis
  • General ledger
  • Cash basis (correct)

    • Which method of accounting records income and expenses once the firm has given or received benefit from a transaction, even if it has not paid or received cash yet?

  • General ledger
  • Accrual basis (correct)
  • Double entry bookkeeping
  • Cash basis

    • Why do many small businesses opt to use the cash basis of accounting?

  • To ensure accurate recording of monetary transactions
  • To simplify the tracking of receivables and payables
  • To accurately determine the exact resources at their disposal
  • To avoid paying taxes on income until it's in the bank (correct)

    • Which financial statement summarizes the revenue from journal entries?

    <p>Income statement</p> Signup and view all the answers

    Which criteria are used to record relevant transactions in journal entries?

    <p>Chronologic criteria</p> Signup and view all the answers

    How is the ledger balanced in the view of preparing the financial statements?

    <p>By taking the total of the two sides</p> Signup and view all the answers

    When does the account of the balance sheet need to be re-opened?

    <p>At the beginning of the new year</p> Signup and view all the answers

    Which term refers to the daily record of business transactions where every posting is recorded first?

    <p>Journal</p> Signup and view all the answers

    What are the three rules of accounting?

    <p>All of the above</p> Signup and view all the answers

    According to the double-entry bookkeeping system, how many entries must be made in the accounts for every business transaction?

    <p>Two</p> Signup and view all the answers

    What is the process of transferring the entries from the journal to the ledger called?

    <p>Posting</p> Signup and view all the answers

    Accrual accounting records revenues and expenses when they are earned, regardless of when the money is actually received or paid.

    <p>Accrual accounting records revenues and expenses when they are earned, regardless of when the money is actually received or paid.</p> Signup and view all the answers

    Accrual accounting provides a long-term picture of the business by considering cash flow.

    <p>False</p> Signup and view all the answers

    Under accrual accounting, if a service is paid for in December but provided in January, the transaction is recorded in December.

    <p>False</p> Signup and view all the answers

    Double entry is an accounting system that records each business transaction in only one account.

    <p>False</p> Signup and view all the answers

    Which book of accounting records transactions in a chronological order?

    <p>Journal</p> Signup and view all the answers

    Which book of accounting is used to create the trial balance?

    <p>Ledger</p> Signup and view all the answers

    Which book of accounting summarizes and records financial transactions as per the double entry system?

    <p>Journal</p> Signup and view all the answers

    Which financial statement is prepared based on country-specific regulations?

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

    Which statement best describes the purpose of a ledger?

    <p>A ledger is used to classify and summarize information from journals.</p> Signup and view all the answers

    What are the columns included in a ledger?

    <p>Debit, credit, and balance</p> Signup and view all the answers

    What is the purpose of a trial balance?

    <p>To test the adequacy of double entry posting</p> Signup and view all the answers

    Why is it important for the debit and credit balances in a trial balance to be equal?

    <p>To identify errors in posting and totaling</p> Signup and view all the answers

    Which of the following is considered a current asset?

    <p>Accounts Payable</p> Signup and view all the answers

    Which of the following is considered a fixed asset?

    <p>Machinery</p> Signup and view all the answers

    Which of the following is a qualitative transaction?

    <p>Account receivable (created)</p> Signup and view all the answers

    According to the accrual basis of preparation of financial statements, when should transactions be recorded?

    <p>When they occur</p> Signup and view all the answers

    Which statement represents the value of a company's assets and liabilities at a specific point in time?

    <p>Statement of financial position</p> Signup and view all the answers

    Which statement represents the revenue, expenses, and net income of a firm over a period of time?

    <p>Statement of comprehensive income</p> Signup and view all the answers

    Which statement represents a company's cash receipts and cash payments made over a period of time?

    <p>Statement of cash flow</p> Signup and view all the answers

    Which statement represents the main events that gave rise to a change in the net worth of a company?

    <p>Statement of change in equity</p> Signup and view all the answers

    Study Notes

    Accounting Methods

    • The cash basis of accounting recognizes revenues when cash is received, and expenses when they are paid.
    • The accrual basis of accounting records income and expenses when the firm has given or received benefit from a transaction, even if it has not paid or received cash yet.

    Reasons for Choosing Accounting Methods

    • Many small businesses opt to use the cash basis of accounting.

    Financial Statements

    • The income statement summarizes the revenue from journal entries.
    • The balance sheet represents the value of a company's assets and liabilities at a specific point in time.
    • The income statement represents the revenue, expenses, and net income of a firm over a period of time.
    • The cash flow statement represents a company's cash receipts and cash payments made over a period of time.
    • The statement of changes in equity represents the main events that gave rise to a change in the net worth of a company.

    Journal Entries

    • The journal is the daily record of business transactions where every posting is recorded first.
    • The criteria used to record relevant transactions in journal entries are materiality, relevance, and reliability.
    • Journal entries are transferred to the ledger through a process called posting.

    Ledger

    • The ledger is used to create the trial balance.
    • The ledger summarizes and records financial transactions as per the double-entry system.
    • The ledger has columns including debit and credit columns.

    Trial Balance

    • The purpose of a trial balance is to ensure that the debit and credit balances are equal.
    • The trial balance is important because it ensures that the ledger is accurate and reliable.

    Accounting Rules

    • The three rules of accounting are: (1) debit what comes in, credit what goes out; (2) debit expenses and losses, credit incomes and gains; and (3) debit all decreases in asset accounts, credit all increases in asset accounts.
    • According to the double-entry bookkeeping system, two entries must be made in the accounts for every business transaction.

    Accounting Concepts

    • Accrual accounting provides a long-term picture of the business by considering cash flow.
    • Accrual accounting records revenues and expenses when they are earned, regardless of when the money is actually received or paid.

    Assets

    • Inventory is considered a current asset.
    • Land is considered a fixed asset.

    Transactions

    • A transaction is considered qualitative if it is an exchange of goods or services between entities.
    • According to the accrual basis of preparation of financial statements, transactions should be recorded when they are earned or incurred, regardless of when the payment is made.

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    Quiz Team

    Description

    Test your knowledge of journal entries, ledgers, trial balances, and financial statements with this quiz. Explore the impact of three transactions in a year and learn how quantitative and qualitative transactions affect the income statement and balance sheet. Gain a better understanding of current assets and their classification in the balance sheet.

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