Assets & Liabilities
This is an economic resource owned by a business that is expected to provide future benefit.
What is an asset?
Write the basic accounting equation.
What is Assets=Liabilities+Equity?
Which financial statement shows a company's revenues and expenses over a period and results in net income or loss?
What is the income statement?
Revenue earned from selling products is recorded when the product is delivered under the revenue recognition principle. What is this principle called?
What is revenue recognition?
The first place transactions are recorded chronologically is called this.
What is the journal (general journal)?
These are obligations a business must pay in the future, often listed on the right side of the balance sheet.
What are liabilities?
If a company’s assets are $150,000 and liabilities are $60,000, what is owners' equity?
What is $90,000?
Which financial statement reports assets, liabilities, and equity at a specific point in time?
What is the balance sheet?
The matching principle requires that expenses be recorded in the same period as the revenues they helped generate. Give an example.
What is "recording the cost of goods sold in the same period the related sales are recognized"?
After posting journal entries, transactions are summarized in accounts in this record.
What is the ledger (general ledger)?
When a company buys equipment with cash, how do assets and liabilities change?
What is "one asset increases (equipment) and another asset decreases (cash)"?
How does issuing common stock for cash affect the accounting equation?
What is "assets increase and equity increases"?
Where on the financial statements would you find retained earnings and how is it affected?
What is "the statement of retained earnings (or equity); retained earnings increase by net income and decrease by dividends"?
A business prepays insurance for the coming year. Initially recorded as a prepaid asset, what adjusting entry is needed monthly?
What is "debit insurance expense and credit prepaid insurance" (to record monthly expense)?
For the following transaction: Owner invests $5,000 cash into the business. Provide the journal entry (accounts and debit/credit).
What is "Debit Cash $5,000; Credit Owner's Capital (or Common Stock) $5,000"?
This type of liability is due within one year and includes items such as accounts payable and short-term loans.
What is a current liability?
A business pays off a long-term loan early. Explain the effect on the accounting equation.
What is "liabilities decrease and assets decrease" (cash reduced)?
Explain why the cash flow statement is important even if a company reports net income on the income statement.
What is "it shows actual cash inflows and outflows, revealing liquidity and cash position that net income (accrual-based) may not show"?
Explain the difference between accrual basis and cash basis accounting in one sentence.
What is "accrual basis records revenues and expenses when earned or incurred; cash basis records when cash is received or paid"?
What is a trial balance and what is its main purpose?
What is "a list of all ledger account balances at a point in time to verify that total debits equal total credits and to detect posting errors"?
Name and define the principle that requires recording assets at their original purchase cost rather than current market value.
What is the historical cost principle (assets recorded at acquisition cost)?
A company records net income of $12,000 and pays dividends of $3,000. How does equity change from these transactions alone?
What is "equity increases by $9,000" (net income increases equity; dividends decrease equity)?
A company overstates revenue in year 1 by $10,000 and corrects the error in year 2. Explain how this affects year 1 and year 2 financial statements and retained earnings
What is "year 1 net income and retained earnings are overstated by $10,000; year 2 must restate or record a correcting entry reducing retained earnings and revenue, so year 2 net income is adjusted accordingly"?
A company receives $6,000 in cash in December for services to be performed over the next 6 months. How is this recorded initially and how is it recognized over time?
What is "initially record as unearned revenue (liability); each month recognize $1,000 as revenue and reduce the liability"?
Explain and give an example of a compound journal entry.
What is "an entry that involves more than two accounts; e.g., purchase supplies for $1,200 with $200 cash and $1,000 on account: Debit Supplies $1,200; Credit Cash $200; Credit Accounts Payable $1,000"?