Bookkeeping 02

Question 1

The BASIC PRINCiPLE

behind DOUBLE ENTRY BOOKKEEPING is that

Answer 1

DEBITS and CREDITS must always balance.

This means that an item that is CREDITED in one place MUST BE DEBITED somewhere else.

Question 2

The BALANCE SHEET

shows:

Answer 2

What the business owns (ASSETS), what it owes (LIABILITIES), and what the owners would have left if the business paid everything it owes out of everything it owns (OWNER’S EQUITY).

Question 3

The OPERATING STATEMENT

(P&L) shows:

Answer 3

Income over a specified period, such as a year or quarter, and subtracts expenses over the same period to show whether a profit was earned or a loss incurred.

Question 4

An ASSET is:

Answer 4

any property the business OWNS, and any CLAIMS it has on the property of others.

Question 5

You list any business
property as an ASSET, regardless of whether it is fully paid for.
Any amount owed on it will be shown as:

Answer 5

a LIABILITY.

Question 6

When an asset is acquired,

how do you record it?

Answer 6

You record it in the dollar amount you paid for it, ex: “Ford delivery van, $23,500.00”

Question 7

The two main kinds of

ASSETS are:

Answer 7

a. CURRENT ASSETS

b. PLANT ASSETS (CAPITAL ASSETS)

Question 8

A PLANT ASSET is:

Answer 8

a permanent item used directly or indirectly to produce the product or service the business sells.

Question 9

CURRENT ASSETS are

Answer 9

INVENTORY (Stock of goods to be sold)

MATERIALS (Stock of raw material or components)

Question 10

CURRENT ASSETS are

listed on the BALANCE SHEET in order of:

Answer 10

LIQUIDITY (The speed with which they can be turned into cash).