Which of the following accounting principles states that a company's financial statements should report enough information for users to make informed decisions?Matching PrincipleRevenue Recognition PrincipleMateriality PrincipleFull Disclosure PrincipleD) Full Disclosure PrincipleThe Full Disclosure Principle requires that all information that could influence the decisions of financial statement users must be included in the financial statements or in the notes accompanying them.
What does "depreciation" relate to in accounting?The decrease in the market value of an asset.The allocation of the cost of a tangible asset over its useful life.The reduction in inventory due to theft.The loss incurred from selling an asset.B) The allocation of the cost of a tangible asset over its useful life.In accounting, depreciation is an expense that reduces the value of a tangible asset over time due to wear and tear, obsolescence, or usage. It's a method of allocating the asset's cost over its economic life, not its market value.
Which type of account increases with a debit and decreases with a credit?Revenue accountsLiability accounts Expense accounts Equity accountsC) Expense accountsIn double-entry accounting, assets and expenses typically increase with a debit, while liabilities, equity, and revenues typically increase with a credit.
What is the primary purpose of the "Statement of Cash Flows"?To show a company's financial position at a specific point in time.To report revenues and expenses over a period.To show how cash is generated and used by a company over a period.To detail changes in owner's equity.C) To show how cash is generated and used by a company over a period.The Statement of Cash Flows reports the cash generated and used by a company over a period, categorized into operating, investing, and financing activities. It provides insights into a company's liquidity and solvency.
What does the accounting concept of "Materiality" imply? All transactions, no matter how small, must be recorded.Only transactions involving physical materials should be recorded.Financial information is important if its omission or misstatement could influence users' economic decisions.Financial statements must be prepared using material-based costing. C) Financial information is important if its omission or misstatement could influence users' economic decisions. The materiality principle states that an accountant must record all information that could have a significant impact on financial statements or on the users of these statements. Small, insignificant items do not need to be rigorously tracked if they wouldn't affect decisions.
Which ratio measures how efficiently a company is using its assets to generate sales?Debt-to-Asset RatioReturn on Equity (ROE)Asset Turnover RatioGross Profit Margin C) Asset Turnover RatioThe Asset Turnover Ratio measures a company's efficiency in using its assets to generate revenue. It's calculated as Net Sales / Average Total Assets.
What is the normal balance of a revenue account?DebitCreditDepends on the type of revenueZeroB) CreditIn the double-entry accounting system, revenue accounts normally have a credit balance. This means that revenue increases with a credit and decreases with a debit.
Which type of audit is conducted by employees of the organization being audited? External auditGovernment auditInternal audit Forensic auditC) Internal auditAn internal audit is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes
What does the "Matching Principle" in accounting require?That revenues be matched with the cash received in the same period.That expenses be recorded in the same accounting period as the revenues they helped generate. That assets be matched with liabilities.That all transactions be recorded at their market value.B) That expenses be recorded in the same accounting period as the revenues they helped generate.The matching principle dictates that expenses should be recognized and recorded in the same accounting period as the revenues that those expenses helped to generate. This ensures a true picture of profitability for that period.
Which financial statement provides a detailed breakdown of a company's equity components, including common stock, retained earnings, and other comprehensive income?Balance SheetIncome StatementStatement of Cash FlowsStatement of Changes in EquityD) Statement of Changes in Equity The Statement of Changes in Equity (or Statement of Owner's Equity/Shareholders' Equity) reports the changes in total equity during a specific accounting period, detailing contributions from owners, net income, dividends, and other items affecting equity.
What is "Allowance for Doubtful Accounts" used for in accounting?To estimate the amount of inventory that will be lost.To reduce the value of accounts receivable for amounts unlikely to be collected.To set aside cash for unexpected expenses.To record bad debts that have already been written off.B) To reduce the value of accounts receivable for amounts unlikely to be collected.The Allowance for Doubtful Accounts is a contra-asset account used to reduce the gross accounts receivable to the net amount expected to be collected. It reflects the estimated portion of receivables that a company anticipates will not be paid.
What is the "accounting equation"?Revenue - Expenses = Net IncomeAssets = Liabilities + Equity Cash Inflows - Cash Outflows = Net Cash FlowTotal Debits = Total Credits B) Assets = Liabilities + EquityThe accounting equation is the foundation of the double-entry accounting system. It states that a company's total assets must be equal to the sum of its liabilities and its shareholder's equity.
Which of the following is an "operating activity" on the Statement of Cash Flows?Selling a building.Issuing new stock.Cash received from customers for sales. Paying back a long-term loan.C) Cash received from customers for sales. The Statement of Cash Flows is divided into three sections: operating, investing, and financing. Operating activities are the day-to-day cash transactions related to a company's primary business operations, such as cash from sales and payments to suppliers.
What is "depreciation" in accounting?The process of selling an asset at a loss.The decrease in the market value of a company's stock. The systematic allocation of the cost of a tangible asset over its useful life. The loss of cash due to inflation. C) The systematic allocation of the cost of a tangible asset over its useful life.Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life to match the expense of the asset to the revenue it helps generate. It is a non-cash expense.
What is the purpose of the "General Ledger"?To summarize all of a company's financial transactions in one place.To track individual accounts receivable and payable. To provide a chronological record of all transactions. To prepare the annual tax return.A) To summarize all of a company's financial transactions in one place.The General Ledger is the master record of a company's financial transactions. It contains all the accounts needed to prepare the balance sheet and income statement, with a summary of the debit and credit totals for each account.
What is the "Current Ratio"? A profitability ratio that measures net income to total revenue. A liquidity ratio that measures a company's ability to pay its short-term obligations.A solvency ratio that measures a company's long-term debt.An efficiency ratio that measures how quickly a company can sell its inventory. B) A liquidity ratio that measures a company's ability to pay its short-term obligations.The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations. It is calculated by dividing current assets by current liabilities, and a higher ratio generally indicates better financial health.
A "liability" is:A company's assets.An amount of money owed by the company. A company's revenue.A company's profit.B) An amount of money owed by the company.A liability is a company's legal financial debts or obligations that arise during the course of business operations.
Which financial statement shows the changes in a company's cash and cash equivalents over a period of time?Income StatementBalance Sheet Statement of Cash FlowsStatement of Retained EarningsC) Statement of Cash Flows The statement of cash flows provides details about how a company generated and used cash during a specific period.
"Revenue" is:The amount of money a company spends.The income generated from normal business operations.The profit after all expenses are paid.The total assets of a company.B) The income generated from normal business operations. Revenue is the total amount of money a business takes in from its business activities, such as selling goods or services.
What is the purpose of "bookkeeping"?To manage a company's human resources.To forecast a company's future financial performance.To systematically record, classify, and summarize financial transactions.To create a company's marketing plan.C) To systematically record, classify, and summarize financial transactions.Bookkeeping is the process of recording financial transactions and is a part of the accounting process.
What is the purpose of a "trial balance"?To prepare a company's balance sheet.To test the mathematical equality of debits and credits in the ledger.To prepare a company's income statement.To record all financial transactions chronologically. B) To test the mathematical equality of debits and credits in the ledger. A trial balance is a list of all the general ledger accounts contained in the ledger of a business, which helps in identifying any errors in the accounting records
The term "asset" refers to:Something the company owes. Something the company owns that has value.The money a company makes.The money a company spends. B) Something the company owns that has value. B) Something the company owns that has value.
What is the purpose of a "depreciation schedule"?To track the amount of cash a company has. To calculate the profit a company makes.To show how the value of a company's assets will decline over time. To track a company's debt.C) To show how the value of a company's assets will decline over time.A depreciation schedule is a list of a company's assets that will be depreciated, along with their values, useful lives, and the amount of depreciation to be taken each accounting period.
The term "retained earnings" refers to:The total revenue of a company.The portion of a company's profits that are not distributed to shareholders as dividends.The total expenses of a company.The total assets of a company.B) The portion of a company's profits that are not distributed to shareholders as dividends.Retained earnings are the cumulative net earnings or profit of a company after accounting for dividends.
What is the difference between a "cash basis" and an "accrual basis" of accounting?Cash basis records revenues and expenses when cash is received or paid, while accrual basis records them when they are earned or incurred.Cash basis records revenues when they are earned, while accrual basis records them when cash is received. Cash basis records expenses when they are incurred, while accrual basis records them when cash is paid.They are the same.A) Cash basis records revenues and expenses when cash is received or paid, while accrual basis records them when they are earned or incurred.Cash basis accounting is simpler, while accrual basis provides a more accurate picture of a company's financial performance over a given period.
What is an "income statement"?A financial statement that reports a company's assets, liabilities, and equity.A financial statement that reports a company's revenues, expenses, gains, and losses over a period of time.A financial statement that reports a company's cash inflows and outflows.A financial statement that reports a company's retained earnings. B) A financial statement that reports a company's revenues, expenses, gains, and losses over a period of time. The income statement, also known as the profit and loss statement, is one of the three major financial statements that shows a company's profitability.
The term "trial balance" is a statement that:Lists a company's assets and liabilities.Lists all of a company's accounts with their debit and credit balances.Lists a company's revenues and expenses. Lists a company's cash flows.B) Lists all of a company's accounts with their debit and credit balances.The purpose of a trial balance is to ensure that the total of all debits equals the total of all credits, which helps to identify any errors in the ledger.
What is "goodwill" in accounting?The total assets of a company.An intangible asset that arises from the acquisition of one company by another. The total debt of a company.The total revenue of a company.B) An intangible asset that arises from the acquisition of one company by another.Goodwill is an intangible asset that represents the value of a company's brand name, customer base, and good reputation.
The term "book value" refers to:The market value of a company's assets.The value of an asset as it is recorded on the balance sheet. The value of a company's liabilities.The value of a company's revenue.B) The value of an asset as it is recorded on the balance sheet.Book value is the value of a company's assets minus its liabilities, as shown on its balance sheet.
What is "amortization"?The process of allocating the cost of a tangible asset over its useful life.The process of allocating the cost of an intangible asset over its useful life.The process of increasing the value of an asset.The process of calculating a company's profits. B) The process of allocating the cost of an intangible asset over its useful life.Amortization is an accounting method that systematically reduces the book value of an intangible asset over its useful life.
What is a "balance sheet"?A financial statement that reports a company's assets, liabilities, and owners' equity at a specific point in time.A financial statement that reports a company's revenues and expenses.A financial statement that reports a company's cash inflows and outflows.A financial statement that reports a company's retained earnings.A) A financial statement that reports a company's assets, liabilities, and owners' equity at a specific point in time.The balance sheet provides a snapshot of a company's financial condition. The fundamental equation is Assets = Liabilities + Owners' Equity.
The term "double-entry bookkeeping" refers to a system where: Each financial transaction is recorded once.Each financial transaction is recorded twice, once as a debit and once as a credit.Only cash transactions are recorded. Only credit transactions are recorded. B) Each financial transaction is recorded twice, once as a debit and once as a credit. Double-entry bookkeeping is based on the concept that every financial transaction has an equal and opposite effect in at least two different accounts.
What is "revenue"?The total amount of money a company spends.The money generated from normal business operations, such as the sale of goods and services.The total assets of a company. The total debt of a company.B) The money generated from normal business operations, such as the sale of goods and services.Revenue is the income that a business has from its normal business activities, usually from the sale of goods and services to customers.
The term "ledger" refers to:A financial statement that reports a company's revenues and expenses.A book or collection of accounts in which financial transactions are recorded.A document that outlines the tasks, duties, and responsibilities of a job.A document that lists the salary and benefits of a job.B) A book or collection of accounts in which financial transactions are recorded.The ledger is the main source of financial information used to prepare a company's financial statements.
What is "working capital"?The amount of money a company owes to its creditors.The money a company has on hand for day-to-day operations.The amount of money a company has in its savings account.The amount of money a company makes from its sales. B) The money a company has on hand for day-to-day operations.Working capital is a measure of a company's liquidity, efficiency, and overall financial health. It is calculated as Current Assets - Current Liabilities.
What is "accrual basis accounting"?An accounting method where revenue and expenses are recorded when cash is exchanged.An accounting method where revenue and expenses are recorded when they are earned or incurred.An accounting method where only cash transactions are recorded.An accounting method where only credit transactions are recorded.B) An accounting method where revenue and expenses are recorded when they are earned or incurred.Accrual basis accounting is an accounting method that records revenues and expenses when they are earned or incurred, regardless of when cash is exchanged.
The term "depreciation" refers to: An increase in the value of a company's assets.The process of allocating the cost of a tangible asset over its useful life.An increase in a company's revenue.A method of calculating a company's profits.B) The process of allocating the cost of a tangible asset over its useful life.Depreciation is a non-cash expense that reduces the value of a tangible asset over time.
What is the purpose of a "journal entry"?To summarize all financial transactions in separate accounts. To record all financial transactions chronologically.To prepare a company's income statement. To prepare a company's balance sheet.B) To record all financial transactions chronologically. A journal entry is the first step in the accounting cycle, where a company records all of its financial transactions.
The term "liquidity ratio" is a measure of a company's ability to:Generate revenue.Pay its short-term debts.Pay its long-term debts.Generate profits. B) Pay its short-term debts. Liquidity ratios measure a company's ability to pay off its short-term debt obligations.
What is "revenue recognition"?A principle that dictates when revenue should be recorded.A principle that dictates when expenses should be recorded. A principle that dictates when assets should be recorded.A principle that dictates when liabilities should be recorded.A) A principle that dictates when revenue should be recorded.The revenue recognition principle states that revenue should be recognized in the accounting records when it is earned, not necessarily when cash is received.
The term "working capital" is a measure of:A company's long-term assets.A company's long-term liabilities.A company's short-term liquidity.A company's long-term profitability.C) A company's short-term liquidity.Working capital is a measure of a company's financial health, calculated as current assets minus current liabilities.
What is "retained earnings"?The total revenue of a company.The portion of a company's profits that are not distributed to shareholders as dividends.The total expenses of a company.The total assets of a company.B) The portion of a company's profits that are not distributed to shareholders as dividends.Retained earnings are the cumulative net earnings or profits of a company after accounting for dividends.
What is "auditing"?The process of preparing a company's financial statements. The process of selling a company's assets. An independent examination of a company's financial records to determine if they are fair and accurate.The process of calculating a company's profits.C) An independent examination of a company's financial records to determine if they are fair and accurate.Auditing is the process of examining an organization's financial records to ensure they are accurate and in compliance with regulations.
What is the "double-entry accounting system"?An accounting system where each transaction is recorded once.An accounting system where each transaction is recorded twice, in two separate accounts.An accounting system where only cash transactions are recorded.An accounting system where only credit transactions are recorded. B) An accounting system where each transaction is recorded twice, in two separate accounts.The double-entry system is a fundamental concept in accounting where for every debit transaction, there must be a corresponding credit transaction of the same amount.
The term "financial statement analysis" refers to:The process of preparing a company's financial statements.The process of assessing a company's financial health by analyzing its financial statements.The process of selling a company's assets.The process of calculating a company's profits.B) The process of assessing a company's financial health by analyzing its financial statements. Financial statement analysis is the process of reviewing and analyzing a company's financial statements to make better economic decisions.
What is the main purpose of the "income statement"?A financial statement that reports a company's assets, liabilities, and equity.A financial statement that reports a company's revenues, expenses, and net income over a period of time.A financial statement that reports a company's cash flowsA financial statement that reports a company's profits. B) A financial statement that reports a company's revenues, expenses, and net income over a period of time.The income statement, also known as the profit and loss statement, provides a summary of a company's financial performance.
What is a "balance sheet"?A financial statement that reports a company's revenues, expenses, and net income.A financial statement that reports a company's assets, liabilities, and owner's equity at a specific point in time.A financial statement that reports a company's cash flows.A financial statement that reports a company's profits.B) A financial statement that reports a company's assets, liabilities, and owner's equity at a specific point in time.The balance sheet provides a snapshot of a company's financial position, following the equation: Assets = Liabilities + Owner's Equity.
The term "retained earnings" refers to:The total revenue of a company.The portion of a company's profits that are not distributed to shareholders as dividends.The total expenses of a company.The total assets of a company. B) The portion of a company's profits that are not distributed to shareholders as dividends.Retained earnings are the cumulative net earnings or profits of a company after accounting for dividends.
What is the main purpose of a "cash flow statement"?A financial statement that reports a company's assets, liabilities, and equity. A financial statement that reports a company's revenues and expenses. A financial statement that reports the cash generated and used by a company in a given period.A financial statement that reports a company's profits.C) A financial statement that reports the cash generated and used by a company in a given period. The cash flow statement provides a summary of all the cash that flows in and out of a company.
The term "accounts receivable" refers to:Money that a company owes to others. Money that a company has to receive from its customers.Money that a company has in its bank account. Money that a company has to pay to its employees.B) Money that a company has to receive from its customers.Accounts receivable is a legally enforceable claim for payment held by a business against its customers.
What is a "balance sheet"?A statement that reports a company's revenues and expenses. A statement that reports a company's financial position at a specific point in time.A statement that reports a company's cash flows. A statement that reports a company's profits.B) A statement that reports a company's financial position at a specific point in time. A balance sheet provides a snapshot of a company's assets, liabilities, and owner's equity.
The principle of "double-entry bookkeeping" states that every financial transaction has:One effect. Two effects.Three effects.Four effects. B) Two effects.The double-entry system states that for every debit there is an equal and opposite credit.
What is the main purpose of an "audit"?To check a company's sales.To check a company's profitability.To examine a company's financial records to ensure they are accurate and comply with regulations.To check a company's expenses.C) To examine a company's financial records to ensure they are accurate and comply with regulations.An audit is an official inspection of an individual's or organization's accounts, typically by an independent body.
The accounting equation is:Assets = Liabilities - Owner's EquityAssets = Liabilities + Owner's EquityAssets - Liabilities = Owner's Equity Assets + Liabilities = Owner's EquityB) Assets = Liabilities + Owner's EquityThe basic accounting equation states that a company's assets must be equal to the sum of its liabilities and its owner's equity.
The "double-entry system" of bookkeeping means that every transaction has:One entry. Two entries, a debit and a credit.Three entries. Four entries.B) Two entries, a debit and a credit.The double-entry system is a fundamental concept of accounting where every financial transaction has equal and opposite effects in at least two different accounts.
What is the main purpose of a "ledger"?To record transactions chronologically. To summarize all of a company's accounts.To calculate a company's profits.To calculate a company's total assets. B) To summarize all of a company's accounts.A ledger is a book or collection of accounts in which account transactions are recorded.
The term "revenue" refers to:The costs a company incurs.The income a company generates from its business activities. The money a company owes to others.The total assets of a company. B) The income a company generates from its business activities. Revenue is the income generated from a company's primary business operations.
"Depreciation" is the process of allocating the cost of a tangible asset over its:Market value. Useful life.Profitability. Total cost.B) Useful life.Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life.
What is a "journal" in accounting?A document that reports a company's revenues and expenses.A book of original entry where financial transactions are recorded chronologically.A document that reports a company's assets and liabilities.A document that reports a company's cash flow.B) A book of original entry where financial transactions are recorded chronologically.A journal is a book or computer file in which a company's financial transactions are recorded, usually in a chronological order.
The term "liabilities" refers to:The money a company owns.The money a company owes to others. The total revenue of a company. The total expenses of a company.B) The money a company owes to others. Liabilities are a company's debts or obligations arising from past transactions that are expected to result in an outflow of economic benefits.
