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Questions and Answers
Which method of accounting recognizes revenues when cash is received, and expenses when they are paid?
Which method of accounting recognizes revenues when cash is received, and expenses when they are paid?
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?
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?
Why do many small businesses opt to use the cash basis of accounting?
Why do many small businesses opt to use the cash basis of accounting?
Which financial statement summarizes the revenue from journal entries?
Which financial statement summarizes the revenue from journal entries?
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Which criteria are used to record relevant transactions in journal entries?
Which criteria are used to record relevant transactions in journal entries?
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How is the ledger balanced in the view of preparing the financial statements?
How is the ledger balanced in the view of preparing the financial statements?
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When does the account of the balance sheet need to be re-opened?
When does the account of the balance sheet need to be re-opened?
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Which term refers to the daily record of business transactions where every posting is recorded first?
Which term refers to the daily record of business transactions where every posting is recorded first?
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What are the three rules of accounting?
What are the three rules of accounting?
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According to the double-entry bookkeeping system, how many entries must be made in the accounts for every business transaction?
According to the double-entry bookkeeping system, how many entries must be made in the accounts for every business transaction?
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What is the process of transferring the entries from the journal to the ledger called?
What is the process of transferring the entries from the journal to the ledger called?
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Accrual accounting records revenues and expenses when they are earned, regardless of when the money is actually received or paid.
Accrual accounting records revenues and expenses when they are earned, regardless of when the money is actually received or paid.
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Accrual accounting provides a long-term picture of the business by considering cash flow.
Accrual accounting provides a long-term picture of the business by considering cash flow.
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Under accrual accounting, if a service is paid for in December but provided in January, the transaction is recorded in December.
Under accrual accounting, if a service is paid for in December but provided in January, the transaction is recorded in December.
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Double entry is an accounting system that records each business transaction in only one account.
Double entry is an accounting system that records each business transaction in only one account.
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Which book of accounting records transactions in a chronological order?
Which book of accounting records transactions in a chronological order?
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Which book of accounting is used to create the trial balance?
Which book of accounting is used to create the trial balance?
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Which book of accounting summarizes and records financial transactions as per the double entry system?
Which book of accounting summarizes and records financial transactions as per the double entry system?
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Which financial statement is prepared based on country-specific regulations?
Which financial statement is prepared based on country-specific regulations?
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Which statement best describes the purpose of a ledger?
Which statement best describes the purpose of a ledger?
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What are the columns included in a ledger?
What are the columns included in a ledger?
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What is the purpose of a trial balance?
What is the purpose of a trial balance?
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Why is it important for the debit and credit balances in a trial balance to be equal?
Why is it important for the debit and credit balances in a trial balance to be equal?
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Which of the following is considered a current asset?
Which of the following is considered a current asset?
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Which of the following is considered a fixed asset?
Which of the following is considered a fixed asset?
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Which of the following is a qualitative transaction?
Which of the following is a qualitative transaction?
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According to the accrual basis of preparation of financial statements, when should transactions be recorded?
According to the accrual basis of preparation of financial statements, when should transactions be recorded?
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Which statement represents the value of a company's assets and liabilities at a specific point in time?
Which statement represents the value of a company's assets and liabilities at a specific point in time?
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Which statement represents the revenue, expenses, and net income of a firm over a period of time?
Which statement represents the revenue, expenses, and net income of a firm over a period of time?
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Which statement represents a company's cash receipts and cash payments made over a period of time?
Which statement represents a company's cash receipts and cash payments made over a period of time?
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Which statement represents the main events that gave rise to a change in the net worth of a company?
Which statement represents the main events that gave rise to a change in the net worth of a company?
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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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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.
