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1
Question
What accounts are increased by recording a credit?
Answer
D. Notes Payable and Service Revenue. Typically, credits increase liabilities and revenue accounts.
2
Question
What is the primary purpose of a journal in accounting?
Answer
A journal is the book of original entry where transactions are first recorded in chronological order.
3
Question
What distinguishes a ledger from a journal?
Answer
A ledger is the book where all accounts are maintained, summarizing all transactions related to each account, while the journal is used for chronological transaction recording.
4
Question
What is the accounting equation?
Answer
The accounting equation is Assets = Liabilities + Equity. This fundamental equation reflects the relationship between a company’s assets, liabilities, and shareholders' equity.
5
Question
What are financial statements? Name the main types.
Answer
Financial statements are formal records of the financial activities of a business, person, or entity. The main types are: 1. Balance Sheet 2. Income Statement 3. Cash Flow Statement 4. Statement of Changes in Equity.
6
Question
Explain the accounting cycle.
Answer
The accounting cycle is the collective process of identifying, analyzing, and recording accounting events. It includes steps such as recording transactions, posting to ledgers, preparing trial balances, and preparing financial statements.
7
Question
Define 'Accounts Receivable'.
Answer
Accounts Receivable refers to the money owed to a company by its customers for goods or services delivered but not yet paid for.
8
Question
Define 'Accounts Payable'.
Answer
Accounts Payable represents the amount a company owes to its suppliers for purchases made on credit.
9
Question
What do financial ratios measure? Provide examples.
Answer
Financial ratios measure the relationship between different financial statement items, helping analysts evaluate a company's performance. Examples include: 1. Current Ratio (Current Assets/Current Liabilities) 2. Debt to Equity Ratio (Total Debt/Total Equity) 3. Return on Equity (Net Income/Shareholder’s Equity).
10
Question
What is the difference between cash basis and accrual basis accounting?
Answer
Cash basis accounting recognizes revenues and expenses when cash is actually received or paid, while accrual basis accounting recognizes revenues and expenses when they are incurred, regardless of cash transactions.
11
Question
How is Net Income calculated?
Answer
Net Income is calculated as Total Revenue - Total Expenses. It is the profit of a company after all expenses and taxes have been deducted from total revenue.
12
Question
What is a Trial Balance?
Answer
A Trial Balance is a report that lists the balances of all accounts in the general ledger at a particular point in time. It is used to verify that total debits equal total credits.
13
Question
What is the purpose of an Audit?
Answer
The purpose of an audit is to provide an independent assessment of financial statements, ensuring they are accurate and comply with accounting standards and regulations.
14
Question
Explain the term 'Liquidity'.
Answer
Liquidity refers to how easily an asset can be converted into cash without significantly affecting its value. It is vital for meeting short-term financial obligations.
15
Question
What are Direct and Indirect Costs?
Answer
Direct costs are expenses that can be directly traced to a product or service (e.g., materials, labor). Indirect costs are expenses that cannot be directly traced to a specific product (e.g., utilities, rent).
16
Question
Define 'Inventory'.
Answer
Inventory includes all the goods and materials a business holds for the purpose of resale or production. It is a current asset recorded on the balance sheet.
17
Question
What is depreciation?
Answer
Depreciation is the method of allocating the cost of a tangible asset over its useful life. It accounts for wear and tear, usage, or obsolescence.
18
Question
Explain the term 'Fixed Assets'.
Answer
Fixed Assets are long-term tangible properties such as land, buildings, and equipment that a company owns, used in the production of goods and services.
19
Question
What is a Cash Flow Statement?
Answer
A Cash Flow Statement reports the cash generated and used during a specific time period. It is separated into three sections: operating, investing, and financing activities.
20
Question
Define 'Equity'.
Answer
Equity represents the ownership value in an asset after deducting liabilities. In a corporation, it includes common stock, preferred stock, and retained earnings.
21
Question
What is Reconciliation in accounting?
Answer
Reconciliation is the process of matching and comparing figures from accounting records in order to ensure consistency and accuracy among different financial records.
22
Question
What is a General Ledger?
Answer
A General Ledger is a complete record of all financial transactions over the life of an organization, categorized by account.
23
Question
What does the term 'Diversification' mean in finance?
Answer
Diversification is an investment strategy aimed at reducing risk by allocating funds among a variety of financial instruments, industries, and other categories.
24
Question
What is the purpose of budgeting in accounting?
Answer
Budgeting in accounting helps organizations plan for future financial activities, establish financial goals, and monitor spending and revenues.
25
Question
What are 'Operating Expenses'?
Answer
Operating Expenses are costs incurred in the normal operation of a business, excluding the cost of goods sold. Examples include rent, utilities, and salaries.
26
Question
What is the significance of the Statement of Changes in Equity?
Answer
The Statement of Changes in Equity shows how equity changes over a time period, detailing contributions, distributions, and profit/loss, providing insights into the company's financial health.
27
Question
Define the concept of 'Break-even Point'.
Answer
The Break-even Point is where total revenues equal total costs, resulting in no net loss or gain. It is crucial for determining profitability.
28
Question
Explain 'Accounts Payable Turnover Ratio'.
Answer
The Accounts Payable Turnover Ratio measures how quickly a company pays off its suppliers. It is calculated by dividing total purchases by average accounts payable.
29
Question
What are 'Current Liabilities'? Provide examples.
Answer
Current Liabilities are obligations due within one year. Examples include accounts payable, short-term loans, and accrued expenses.
30
Question
What does the term 'Asset Management' refer to?
Answer
Asset Management refers to the systematic process of developing, operating, maintaining, and selling assets in a cost-effective manner, aimed at maximizing returns.