accounting exam 1 Flashcards
What is the primary purpose of accounting?
To provide financial information that is useful for decision-making.
True or False: Assets = Liabilities + Equity.
True.
Fill in the blank: The accounting equation is __________.
Assets = Liabilities + Equity.
What are the two main types of accounting?
Financial accounting and managerial accounting.
What is GAAP?
Generally Accepted Accounting Principles.
True or False: Debits increase assets and decrease liabilities.
True.
What does the term ‘liability’ refer to?
A company’s legal debts or obligations.
What is the role of the balance sheet?
To provide a snapshot of a company’s financial position at a specific point in time.
Multiple Choice: Which of the following is not an asset? A) Cash B) Inventory C) Accounts Payable D) Equipment
C) Accounts Payable.
What is an example of a current asset?
Cash, accounts receivable, or inventory.
True or False: Revenue is recognized when cash is received.
False.
What is the definition of equity?
The residual interest in the assets of the entity after deducting liabilities.
What is a journal in accounting?
A record of all transactions in chronological order.
Multiple Choice: Which of the following is included in liabilities? A) Common Stock B) Notes Payable C) Retained Earnings D) Revenue
B) Notes Payable.
What is the purpose of a trial balance?
To ensure that total debits equal total credits.
True or False: The income statement shows a company’s profitability over a period of time.
True.
What is the formula for calculating net income?
Net Income = Revenues - Expenses.
What are operating expenses?
Expenses incurred in the normal course of business operations.
Fill in the blank: __________ lists the revenues and expenses for a specific period.
Income statement.
What does ‘double-entry accounting’ mean?
Every transaction affects at least two accounts, maintaining the accounting equation.
Multiple Choice: Which of the following is an example of a non-current asset? A) Cash B) Equipment C) Accounts Receivable D) Inventory
B) Equipment.
What is the main function of an accountant?
To record, classify, and summarize financial transactions.
True or False: The statement of cash flows provides information about cash inflows and outflows.
True.
What is depreciation?
The allocation of the cost of a tangible asset over its useful life.
Fill in the blank: __________ is the process of recording financial transactions.
Bookkeeping.
What does ‘accrual accounting’ recognize?
Revenues when earned and expenses when incurred, regardless of cash flow.
