Definition

Question 1

What is an income statement and what is its purpose?

Answer 1

An income statement is a table that outlines the profit and losses of a company, which follows financial statements to show a company’s financial position at a specific point in time.

Question 2

What is the accounting equation?

Answer 2

Asset = liability + Owner’s Equity

Question 3

What is a balance sheet and what is its purpose?

Answer 3

A balance sheet includes information about a company’s assets and liabilities and the stakeholders that results in balanced finances.

Question 4

Define debit and credit and provide two exaples of each?

Answer 4

Debits and credits are notations used to record increases and decreases in account balances. The rules for debits and credits depend on the type of account.

A debit is an accounting entry that increases the asset account or expenses account and decreases a liability account of owners equity

A credit is an accounting entry that increases a Liability account, revenue account or owner’s equity account and decreases and asset account