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Accounting Assistant > Accounting Basics > Flashcards

Accounting Basics Flashcards

1
Q

What are the basic accounting terms one should learn?

A

Revenues, Expenses, Assets, Liabilities, Income Statement, Balance Sheet, Statement of Cash Flows

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2
Q

What are the two basic accounting principles that assure a company’s income statement reports profitability?

A

Revenue Recognition Principle, Matching Principle

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3
Q

Fill in the blank: An income statement shows how _______ a company has been during a specific time interval.

A

profitable

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4
Q

What does the term ‘revenues’ refer to in accounting?

A

The amount earned for delivering services or goods

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5
Q

Under which accounting method are revenues recorded when they are earned?

A

Accrual Basis of Accounting

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6
Q

True or False: Expenses are recorded when they are actually paid, regardless of when they are incurred.

A

False

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7
Q

What is the purpose of the matching principle in accounting?

A

To match expenses with the revenues they help generate

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8
Q

What is a balance sheet?

A

A financial statement that reports a company’s assets, liabilities, and stockholders’ equity at a specific point in time

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9
Q

What are assets?

A

Things that a company owns and uses in its operations

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10
Q

Fill in the blank: The unexpired portion of prepaid expenses is reported as an asset on the _______.

A

Balance Sheet

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11
Q

What is the cost principle in accounting?

A

Assets are recorded at their original cost and not adjusted for fair market value increases

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12
Q

What is depreciation?

A

The allocation of the cost of an asset over its useful life

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13
Q

Fill in the blank: An income statement does not report cash coming in but rather reports _______ and expenses incurred.

A

revenues earned

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14
Q

What is the difference between net income and net loss?

A

Net income is when revenues exceed expenses; net loss is when expenses exceed revenues

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15
Q

What is Accounts Receivable?

A

An asset representing money owed to a company for services delivered but not yet paid for

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16
Q

True or False: The balance sheet provides a ‘snapshot’ of a company’s financial position at a specific moment.

A

True

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17
Q

What types of items might be included under assets on a balance sheet?

A

Cash, Vehicles, Supplies, Equipment, Accounts Receivable, Prepaid Insurance

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18
Q

What should Joe do if the net realizable value of his inventory is less than the original recorded cost?

A

Report the lower amount as the asset’s value on the balance sheet

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19
Q

Fill in the blank: The bottom line of an income statement is labeled as either _______ or Net Loss.

A

Net Income

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20
Q

What is an example of a prepaid expense?

A

Insurance premium paid in advance

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21
Q

What kind of costs should be matched with revenues according to the matching principle?

A

Expenses necessary to earn the revenues

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22
Q

What is the carrying amount of an asset when its expected useful life is zero?

A

Zero

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23
Q

How are long-term assets reported on the balance sheet?

A

At their cost minus accumulated Depreciation Expense

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24
Q

True or False: The balance sheet shows assets at their fair market value.

A

False

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25
Q

What is the market value of land on the balance sheet?

A

Reported at its original cost

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26
Q

Short-term assets are likely to be close to what value?

A

Their market values

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27
Q

What does the balance sheet report regarding a company’s reputation?

A

It is not listed as an asset

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28
Q

What are liabilities?

A

Obligations of the company; amounts owed to others

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29
Q

Give an example of a liability.

A
  • Notes Payable
  • Accounts Payable
  • Wages Payable
30
Q

What is Unearned Revenue?

A

Money received in advance of earning it

31
Q

What accounts are involved when Direct Delivery receives $600 in advance for deliveries?

A
  • Cash (increased)
  • Unearned Revenue (increased)
32
Q

How does stockholders’ equity relate to assets and liabilities?

A

It is the difference between asset amounts and liability amounts

33
Q

What accounts might you find in the Stockholders’ Equity section?

A
  • Common Stock
  • Retained Earnings
  • Preferred Stock
34
Q

What does the Statement of Cash Flows show?

A

How cash amounts have changed during a specific time interval

35
Q

What is the double-entry system in accounting?

A

Each transaction results in an amount recorded in at least two accounts

36
Q

What is a chart of accounts?

A

A detailed listing of account names useful for reporting transactions

37
Q

Name one type of account found on the balance sheet.

A
  • Asset accounts
  • Liability accounts
  • Stockholders’ Equity accounts
38
Q

What is the basic accounting equation?

A

Assets = Liabilities + Stockholders’ Equity

39
Q

In the accounting equation, which side do assets appear on?

A

(debit side)

40
Q

What happens to the Cash account when a company receives cash?

A

The Cash account is debited

41
Q

What happens to the Cash account when a company pays cash?

A

The Cash account is credited

42
Q

Fill in the blank: To increase an asset account’s balance, you ______ the account.

A

debit

43
Q

Fill in the blank: To decrease a liability or equity account, you ______ the account.

A

debit

44
Q

What is a general journal entry?

A

Format used to indicate accounts and amounts for debits and credits

45
Q

What occurs in Sample Transaction #1 when Joe invests $20,000?

A
  • Cash increases by $20,000
  • Common Stock increases by $20,000
46
Q

After Joe’s investment, how does the balance sheet reflect this transaction?

A

Assets = Liabilities + Stockholders’ Equity remains balanced

47
Q

In Sample Transaction #2, what does Direct Delivery do with the delivery van?

A

Purchases it for $14,000 by writing a check

48
Q

What accounts are affected in Sample Transaction #2?

A
  • Vehicles (debited)
  • Cash (credited)
49
Q

What happens to the balance sheet after the vehicle transaction?

A

Assets remain balanced at $20,000

50
Q

What is the accounting equation?

A

Assets = Liabilities + Stockholders’ Equity

51
Q

What happens to the Cash account when Direct Delivery pays for insurance?

A

Cash is credited.

52
Q

When a company pays cash for an asset that does not expire in the current month, which account is debited?

A

Prepaid Insurance or another asset account.

53
Q

What principle states that revenues are recorded when earned, regardless of cash receipt?

A

Revenue recognition principle.

54
Q

In a transaction involving a service fee earned but not yet received, which account is debited?

A

Accounts Receivable.

55
Q

What is the journal entry format for receiving cash for services rendered?

A

Debit Cash, Credit Service Revenues.

56
Q

True or False: Expenses are almost always debited.

A

True.

57
Q

What happens to Stockholders’ Equity when net income increases?

A

Stockholders’ Equity increases.

58
Q

What is the journal entry for incurring an expense with a payable?

A

Debit Temporary Help Expense, Credit Accounts Payable.

59
Q

Fill in the blank: When a company receives cash for a service not yet performed, the account to be credited is ______.

A

Unearned Revenue.

60
Q

What is the cost principle in accounting?

A

Assets are shown at original cost or less, not current value.

61
Q

What is recorded as Service Revenues?

A

Revenue earned from services performed.

62
Q

What does the matching principle state regarding expenses?

A

Expenses are matched with revenues in the same period they are incurred.

63
Q

What is the balance sheet equation?

A

Total Assets = Total Liabilities + Total Stockholders’ Equity.

64
Q

What account is credited when cash is received from a customer for a previously delivered service?

A

Accounts Receivable.

65
Q

How is prepaid insurance treated in the accounting records?

A

It is treated as an asset.

66
Q

What happens to the revenue accounts at the end of the year?

A

They are closed and their balances transferred to Retained Earnings.

67
Q

When a company pays cash for an expense that will expire in the current month, which account is debited?

A

An expense account.

68
Q

What type of account is ‘Accounts Payable’?

A

A liability account.

69
Q

What is the effect on the balance sheet when a temporary help expense is incurred but not paid?

A

Increase in Accounts Payable and increase in Temporary Help Expense.

70
Q

Which account reflects the company’s obligation to pay for services received but not yet paid?

A

Accounts Payable.

Accounting Assistant (14 decks)

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