Accounting Made Simple 01

Question 1

1. The LIABILITY for one person is in fact an:

Answer 1

ASSET for another. If you have a loan with your bank, the loan is a LIABILITY to you but an ASSET to the bank.

Question 2

2. What is a BALANCE SHEET?

Answer 2

It shows a company’s financial situation at a given point in time. It is simply a formal presentation of the accounting equation.

Question 3

3. What is INVENTORY?

Answer 3

Goods kept in stock, available for sale.

Question 4

4. What are ACCOUNTS RECEIVABLE?

Answer 4

Amounts due from customers for goods or services that have already been delivered.

Question 5

5. What is PROPERTY, PLANT AND EQUIPMENT?

Answer 5

Assets that cannot be readily converted into cash, such as computers, manufacturing equipment, vehicles, etc.

Question 6

6. What are ACCOUNTS PAYABLE?

Answer 6

A LIABILITY. Amounts due to suppliers for goods or services that have already been received.

Question 7

7. What are NOTES PAYABLE?

Answer 7

LIABILITY. Contractual obligations due to lenders.

Question 8

8. What is COMMON STOCK?

Answer 8

Owner’s Equity. Amounts invested by the owners of the company.

Question 9

9. What are RETAINED EARNINGS?

Answer 9

OWNER’S EQUITY. The SUM of all Net Income over the life of the business that has not been distributed to owners in the form of a dividend.