Fundamental Accounting Principles Flashcards
What is the primary purpose of accounting?
To provide financial information about a business to various users.
True or False: The accounting equation is Assets = Liabilities + Equity.
True
Fill in the blank: The principle that requires expenses to be matched with revenues is called the _____ principle.
matching
What does GAAP stand for?
Generally Accepted Accounting Principles
Multiple Choice: Which of the following is NOT a component of the accounting equation? A) Assets B) Liabilities C) Revenues D) Equity
C) Revenues
What is the definition of ‘assets’?
Resources owned by a business that have economic value.
True or False: A company must recognize revenue when it is earned, regardless of when the cash is received.
True
What is the purpose of the double-entry accounting system?
To ensure that the accounting equation remains balanced.
Fill in the blank: The _____ principle states that financial statements should be based on actual transactions and events.
revenue recognition
Multiple Choice: Which accounting principle requires that financial statements be prepared consistently from one period to the next? A) Conservatism B) Consistency C) Materiality D) Full Disclosure
B) Consistency
What does the term ‘liabilities’ refer to?
Obligations or debts that a business owes to outside parties.
True or False: The cost principle dictates that assets should be recorded at their current market value.
False
What is the definition of ‘equity’ in accounting?
The residual interest in the assets of an entity after deducting liabilities.
Fill in the blank: The _____ principle requires that all relevant information be disclosed in financial statements.
full disclosure
Multiple Choice: Which of the following is an example of a current asset? A) Equipment B) Accounts Receivable C) Long-term Investments D) Patents
B) Accounts Receivable
What is the purpose of the conservatism principle in accounting?
To ensure that uncertainties and risks are adequately considered in financial reporting.
True or False: The materiality principle allows accountants to ignore certain accounting rules for small transactions.
True
What is the role of the accounting cycle?
To standardize the process of recording and reporting financial transactions.
Fill in the blank: The _____ principle states that the financial information should be reported in the currency of the country where the business operates.
monetary unit
Multiple Choice: Which financial statement shows a company’s revenues and expenses over a specific period? A) Balance Sheet B) Statement of Cash Flows C) Income Statement D) Statement of Changes in Equity
C) Income Statement
What does the term ‘accrual accounting’ mean?
Recognizing revenues and expenses when they are incurred, regardless of cash flow.
True or False: Depreciation is used to allocate the cost of tangible assets over their useful lives.
True
What is the definition of ‘financial statements’?
Formal records of the financial activities and position of a business, person, or entity.
Fill in the blank: The _____ accounting principle emphasizes that the business will continue to operate in the foreseeable future.
going concern
Multiple Choice: Which principle ensures that financial statements are not misleading? A) Prudence B) Consistency C) Full Disclosure D) All of the above
D) All of the above
What is the primary difference between cash basis and accrual basis accounting?
Cash basis recognizes revenues and expenses only when cash is exchanged, while accrual basis recognizes them when incurred.
