Bookkeeping

Question 1

Assets

Answer 1

Things you own (Probable economic benefits obtained or controlled by a particular entity as a result of past transactions or events).

Question 2

Liabilities

Answer 2

Things you owe (Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events).

Question 3

Equity

Answer 3

What’s left over after subtracting liabilities from assets (The residual interest in the assets of an entity that remains after deducting its liabilities).

Question 4

Accounting Equation

Answer 4

Assets = Liabilities + Equity

Question 5

T-Account

Answer 5

A visual representation of an account. A T-table listing the debits on the left and the credits on the right of a specific account and the sum total of these at the bottom

Question 6

Debits are increases to which types of accounts?

Answer 6

Assets and expenses

Question 7

Credits are increases to which types of accounts?

Answer 7

Liabilities, Equity, and Revenue/income

Question 8

Double-entry accounting

Answer 8

Accounting in which every transaction is recorded twice: as a debit in one account and as a credit in another account

Question 9

The General Ledger

Answer 9

A list of the transactions in each account. Visually represented by T-account

Question 10

Chart of Accounts

Answer 10

A list of all the accounts used by the business to record and classify financial transactions. The accounts are broken into 5 categories and are listed in this order: Assets, Liabilities, Equity, Revenue/Income, and Costs/Expenses

Question 11

The Trial Balance

Answer 11

A two-column summary of all the debits and credits in each account in the chart of accounts. The sum of the debits should equal the sum of the credits. This is not a financial statement, but an internal report.

Question 12

Economic Entity Assumption

Answer 12

A generally accepted accounting principle (GAAP). The business and its financial transactions are separate and distinct from the owner’s personal financial transactions.

Question 13

Monetary Unit Assumption

Answer 13

A generally accepted accounting principle (GAAP). Financial transactions are measured in US dollars.

Question 14

Time Period Assumption

Answer 14

A generally accepted accounting principle (GAAP). The financial reports and statements cover a specific span of time and that is clearly shown on all financial reports and statements.

Question 15

Cost Principle

Answer 15

A generally accepted accounting principle (GAAP). Financial transactions are shown, forever, as the original and historical cost.

Question 16

Full Disclosure Principle

Answer 16

A generally accepted accounting principle (GAAP). All pertinent information must be disclosed on the financial statements.

Question 17

Going Concern Principle

Answer 17

A generally accepted accounting principle (GAAP). We assume the business is going to continue to exist into the foreseeable future.

Question 18

Matching Principle

Answer 18

A generally accepted accounting principle (GAAP). Expenses are matched with revenue. For example, sales commission is recorded when the sales are made, not when the commission is actually paid. (i.e. use the accrual basis of accounting)

Question 19

Revenue Recognition Principle

Answer 19

A generally accepted accounting principle (GAAP). Revenue is shown in the financial statements when a service is performed or a good is sold, even if payment for that good/service isn’t received until later.

Question 20

Materiality Principle

Answer 20

A generally accepted accounting principle (GAAP). Use your judgement to record what is significant (material) and don’t worry about what isn’t. For example, if you don’t record a 50 cent transaction, it’s okay.

Question 21

Conservatism Principle

Answer 21

A generally accepted accounting principle (GAAP). When faced with a choice on financial statements, choose the option that reflects a more conservative view of the business, i.e., a decrease in net income or assets or an increase in liabilities.

Question 22

Who governs the generally accepted accounting principles?

Answer 22

The Financial Accounting Standards Board (FASB)

Question 23

Balance Sheet

Answer 23

One of the “Big 3” financial statements. The accounting equation in financial statement form. Shows a list of assets and their total, then lists liabilities, and then equity, and then totals liabilities and equity. It’s a snapshot as of a specific date.

Question 24

Current assets

Answer 24

Assets that are expected to become cash within a year (e.g. checking/savings accounts, accounts receivable, inventory)

Question 25

Accounts Receivable

Answer 25

The money owed to the business by its debtors

Question 26

Accounts Payable

Answer 26

The money the business owes to its creditors

Question 27

Non-current assets

Answer 27

Assets that the business expects to use for a number of years (i.e. assets that aren’t expected to turn into cash within a year). Ex: Equipment, furniture, buildings, vehicles.

Question 28

Current liabilities

Answer 28

Liabilities the business will need to pay within a year

Question 29

Non-current liabilities

Answer 29

Liabilities the business won’t need to pay within a year

Question 30

The “Big 3” financial statements

Answer 30

Balance Sheet, Income Statement, Statement of Cash Flows

Question 31

Income Statement

Answer 31

One of the “Big 3” financial statements. Shows income and expenses for a specific time range and concludes with net income (income - expenses).

Question 32

Statement of Cash Flows

Answer 32

One of the “Big 3” financial statements. Shows the balance changes of the accounts over a specific period of time.

Question 33

3 categories in Statement of Cash Flows

Answer 33

Operating, Investing, Financing

Question 34

Operating category in Statement of Cash Flows

Answer 34

Shows changes in the balances of current asset and current liability accounts. Corresponding to day-to-day operating activities of the business.

Question 35

Investing category in Statement of Cash Flows

Answer 35

Shows changes in the balances of long-term asset accounts. Corresponds to investments in things like equipment, land, vehicles, etc.

Question 36

Financing category in Statement of Cash Flows

Answer 36

Shows changes in the balances of long-term liability accounts. Corresponds to borrowing and repayments.

Question 37

Bookkeeping Cycle

Answer 37

Financial Transactions -> Journal -> Ledger -> Trial Balance -> Financial Statements -> Closing Entries

Question 38

The Journal

Answer 38

Where financial transactions are first recorded. Aka “book of original entry.”

Question 39

Posting

Answer 39

Taking transactions from the journal and putting them in the ledger

Question 40

Special Journals

Answer 40

Journals for grouping repetitive transactions. Includes: Cash receipts journal, cash disbursements journal, purchases journal, and sales journal.

Question 41

Sales journal

Answer 41

A special journal for sales made “on account” - no cash received right now

Question 42

Subsidiary Ledgers

Answer 42

Aka special ledgers. Used to group transactions to make the general ledger simpler (akin to how special journals make the general journal simpler). Most common ones: Accounts Receivable (A/R) and Accounts Payable (A/P).

Question 43

Cash Receipts Journal

Answer 43

A special journal for recording all receipts of cash (cash/checks/credit card payments/etc). Transactions can be cash sales (not on account) or payment received for previous sales made on account (which were recorded in sales journal).

Question 44

Cash Disbursements Journal

Answer 44

A special journal for recording all payments of cash (cash/checks/credit card payments/etc). Transactions can be cash purchases (not on account) or payments made for previous purchases on account.