The Accounting Equation
What is the Accounting Equation?
Assets = Liabilities + Owner’s Equity
This expense represents the cost of paying employees for their work.
Wages or Salary Expense
What is the first step in the accounting cycle where business transactions are identified and analyzed?
Identifying Transactions
Which financial document reflects a company’s performance over a specified period, detailing how revenues transform into net income or loss, often revealing trends in profitability?
Income Statement
This method of depreciation spreads the cost of an asset evenly over its useful life.
Straight-line Depreciation
Fill in the blank:
The Accounting Equation must always ____________.
BALANCE!
These assets are expected to be converted into cash within one year, including inventory and accounts receivable.
Current Assets
What happens if you add the ending balances of all T-Accounts?
Total of all Debits = Total of all Credits
Under U.S. GAAP, goodwill is tested for impairment rather than being amortized over time, but under what international standard, it is treated similarly?
IFRS (International Financial Reporting Standards)
What type of assets are converted into an expense over time using Amortization?
Intangible Assets
When a company purchases equipment by taking out a loan, this part of the accounting equation increases.
Both Assets and Liabilities
Accounts Payable, Interest Payable, and Notes Payable are all examples of what account?
Liabilities Account
Which type of journal entry is made to correct errors that were discovered after transactions have been posted?
Adjusting entry
What is the balance of Nominal Accounts at the beginning of every accounting period?
This term refers to the total amount of depreciation expensed on an asset since its acquisition.
Accumulated Depreciation
If a company’s liabilities are $100,000 and its equity is $50,000, its assets will equal this amount.
$150,000
This type of revenue arises from financial transactions that are not part of the company’s main business activities.
Other Income
A business recording a transaction when they have sold goods to a customer, even though payment from the customer won’t come until later is an example of what?
Accrual Accounting
What should businesses use to make sure that the total amount of money coming in (debits) equals the total amount going out (credits).
The Trial Balance!
A company acquired a patent for $100,000 that has a legal life of 20 years but will be amortized over its useful life of 10 years. What is the annual amortization expense?
$10,000
To get his business going, Cardullo needed to buy equipment for his deli. One of the items he purchased was store shelving. Suppose he purchased shelving for $5,000 in cash. How would this impact the accounting equation?
There is a $5,000 increase in Assets because the shelving (an asset) is recorded. But there is also a $5,000 decrease in Assets because their cash was reduced by the $5,000 purchase.
What expense account encapsulates the direct costs attributable to a company's core operational activities, including expenditures related to raw materials and labor?
Cost of Goods Sold (COGS)
Instead of looking at data one transaction at a time, as in a journal entry, we collect all transactions that impact a particular account and show the overall effect on that account using ________?
T-accounts
In analyzing the appropriateness of a firm's capital structure, financial analysts frequently examine the proportion of long-term liabilities relative to shareholder equity, utilizing data primarily sourced from which statement?
Balance Sheet
What is the rearranged Straight-Line Depreciation equation when solving for Salvage Value?
Salvage Value=
Cost - (Depreciation Expense×Useful Life)