accounting_flashcards

Question 1

What is the definition of accounting?

Answer 1

Accounting is the systematic recording, measuring, and communication of financial transactions to support decision-making.

Question 2

What are the core accounting principles?

Answer 2

Accruals, Going Concern, Prudence, Comparability, Materiality, Business Entity, Substance over Form, and Double Entry Concept.

Question 3

What is the Income Statement?

Answer 3

A financial statement summarizing revenues and expenses over a defined period, determining net profit or loss.

Question 4

What is the Balance Sheet?

Answer 4

A snapshot of the financial position of a business at a specific point in time, showing assets, liabilities, and equity.

Question 5

What is the purpose of the Cash Flow Statement?

Answer 5

To track cash inflows and outflows categorized as operating, investing, and financing activities.

Question 6

What is the Accruals Concept?

Answer 6

Revenue and costs are recognized when earned or incurred, not when cash is exchanged.

Question 7

How is depreciation calculated using the Straight-Line Method?

Answer 7

(Cost − Residual Value) ÷ Useful Life.

Question 8

What is Marginal Costing?

Answer 8

A costing technique that divides costs into fixed and variable components to analyze profitability and decision-making.

Question 9

What is the Break-Even Point?

Answer 9

The level of sales where total revenue equals total costs, calculated as Fixed Costs ÷ Contribution per Unit.

Question 10

What is Contribution per Unit in Marginal Analysis?

Answer 10

Selling Price − Variable Cost per Unit.

Question 11

What are Current Assets?

Answer 11

Assets expected to be converted into cash within one year, such as stock, debtors, and cash.

Question 12

What are Fixed Assets?

Answer 12

Long-term assets used in operations, such as buildings, equipment, and machinery.

Question 13

What is the purpose of Bank Reconciliation?

Answer 13

To ensure the bank statement aligns with the company’s cash book by accounting for timing differences and errors.

Question 14

What is the Prudence Concept?

Answer 14

Revenues and profits are recorded only when realized, while liabilities and expenses are recognized when probable.

Question 15

What is the purpose of Financial Ratios?

Answer 15

To analyze a company’s performance, financial position, and investment potential through key metrics like profitability and liquidity ratios.

Question 16

How is the Gross Profit Margin calculated?

Answer 16

(Gross Profit ÷ Revenue) × 100.

Question 17

What does the Current Ratio measure?

Answer 17

The company’s ability to pay short-term obligations, calculated as Current Assets ÷ Current Liabilities.

Question 18

What is the Return on Capital Employed (ROCE)?

Answer 18

A profitability ratio measuring efficiency in using capital to generate profits, calculated as (Operating Profit ÷ Capital Employed) × 100.

Question 19

What are the components of a Cash Flow Statement?

Answer 19

Operating Activities, Investing Activities, and Financing Activities.

Question 20

What is Gearing?

Answer 20

The proportion of a company’s financing that comes from debt compared to equity, calculated as Debt ÷ (Debt + Equity) × 100.

Question 21

What is Dividend Yield?

Answer 21

The return on a share investment, calculated as (Dividend per Share ÷ Share Price) × 100.

Question 22

How is stock valued in accounting?

Answer 22

At the lower of cost and net realizable value.

Question 23

What are the advantages of Budgeting?

Answer 23

Provides advance warning of problems, encourages cost control, and aligns departmental objectives.

Question 24

What is the purpose of the Sales Budget?

Answer 24

To forecast sales quantities and revenues, forming the basis for other budgets.

Question 25

What is the Acid Test Ratio?

Answer 25

A measure of liquidity excluding inventory, calculated as (Current Assets − Stock) ÷ Current Liabilities.