Accounting Concepts and Principles
The Time Period Assumption states that the indefinite life of a company can be divided into equal periods for the purpose of preparing financial reports. What is a typical length for this period?
One Year
According to the Dual Aspect Concept, every transaction has two aspects. What are they?
Debit and Credit.
Unearned Revenue is classified as what type of account?
Liability
What is the fundamental principle of double-entry accounting?
That for every transaction, there must be at least one debit and one credit that equal each other.
Debits and credits are the foundation of double-entry accounting, and for every transaction, there must be at least one debit and one credit that equal each other.
What book of accounts is commonly referred to as the 'book of original entry'?
The Journal.
A journal functions as a financial diary and is commonly referred to as the book of original entry because it records transactions as they occur chronologically.
A school purchases an eraser with a useful life of three years. According to the Materiality Principle, how should the school record the eraser?
As an expense, because the eraser is immaterial relative to the school's total assets.
A business owner withdraws cash for personal use. What is the correct term for this transaction?
Drawing
When an owner withdraws cash for personal use, what account is affected and how?
It decreases Assets and decreases Capital.
A business purchases a computer unit on account. The 'Assets (Office Equipment)' account will be:
Debited
An increase in an asset is debited.
What type of journal is used to record the purchase of merchandise on account?
Purchase Journal.
The Purchase Journal is used to record the purchase of merchandise on account.
In a Cost Principle, when KFC purchases a new cash register, at what value should it be recorded initially?
At the price it was purchased for.
What is the effect of 'revenue' on the Owner's Equity?
It increases the Owner's Equity.
What distinguishes a tangible asset from an intangible asset?
Tangible assets can be touched and seen, while intangible assets are non-physical.
When a business purchases a computer unit on account, the 'Liability (Accounts Payable)' account will be:
Credited.
An increase in a liability is credited.
What is the primary use of a 'book of accounts'?
To prepare financial statements.
Books of accounts are used in the 'preparation of financial statements'.
According to the principle of Prudence, if a company is uncertain about the amount of a transaction, what should an accountant do?
Record expenses at a higher amount and revenue at a lower amount.
What happens to the accounting equation when a business purchases a motor vehicle for cash?
Assets increase, and Assets decrease.
An account that represents the use of a fixed asset or the expired cost of an asset is known as:
Accumulated Depreciation
Accumulated Depreciation is a contra-asset account that represents the expired cost of a fixed asset.
When a business pays an account in full, the 'Assets (Cash)' account will be:
Credited.
A decrease in an asset is credited.
What type of ledger is used to provide detailed information about a specific ledger account?
Subsidiary Ledger.
A Subsidiary Ledger is used to provide 'detailed information about a specific ledger account'.
In Monetary Unit Assumption, A company based in the Philippines has a store in the United States. According to the Monetary Unit Assumption, in which currency should the company's financial statements be reported?
In Philippine Pesos, which is the single monetary unit used by the parent company.
How do expenses affect the owner's equity?
They decrease the owner's equity.
A formal promise to pay a specific sum of money at a determinable future date, usually with periodic interest payments, is called:
Notes Payable
A formal promise to pay would be classified as Notes Payable.
A company rendered a service on account. The 'Revenue (Service Revenue)' account will be:
Credited. Right answer An increase in revenue is credited. Back Next
Credited.
An increase in revenue is credited.
What is the primary function of a General Ledger?
To accumulate and classify individual transactions from the journal.
A General Ledger is used to 'accumulate and classify individual transactions from the journal'.