Basic Accounting Principles

Question 1

What is the Accounting equation?

Answer 1

Assets= Liabilities + Equity

ALE

Question 2

Debits record: increase in……… & ……… and decreases in ………. & ……….

Answer 2

Debits: + assets & expenses
- liabilities & equity

Question 3

Credits record increases in ……. & ……… and decreases in …….. & ………..

Answer 3

Credits: + liabilities & equity
- assets & expenses

Question 4

2 critical components of basic accounting procedures:

Answer 4

The Accounting Cycle and the Double-Entry System

Question 5

What are the 8 steps of the Accounting Cycle:

Answer 5

1. Analyse business transactions
2. Record transactions in the journal
3. Post transactions to the ledger
4. Prepare an Unadjusted trial balance
5. Adjusting Entries
6. Prepare an Adjusted Trial Balance
7. Prepare Financial Statements
8. Close the Books

Question 6

Sales Transactions, what is it and how is it recorded?

Answer 6

Sales of goods and services, recorded as revenue

Question 7

What is a Chart of Accounts?

Answer 7

It is a LIST of ALL ACCOUNTS used by a business to record financial transactions.

Question 8

What are the 3 main financial statements?

Answer 8

Income statement, balance sheet and cash flow statement

Question 9

What is the purpose of Income Statements Account?

Answer 9

To track REVENUE & EXPENSES.
Used to calculate net income or loss

Question 10

What is a Balance Sheet Account and what does it do?

Answer 10

Tracks assets, liabilities and equity.
Used to calculate the financial position of a business

Question 11

What is a Cash Flow Statement Account and what does it do?

Answer 11

Tracks cash inflows and outflows.
Used to calculate the cash position of a business.

Question 12

What is a cost of Goods Sold Accounts and what does it do?

Answer 12

Tracks the cost of producing goods or services.
Used to calculate gross profit

Question 13

What does FIFO stand for

Answer 13

First in, First Out: it is a method of inventory management: oldest goods sold first