Accounting Basics
What is accounting often called because it communicates financial information about a business?
The language of business.
What account represents something of value owned or controlled by the business?
Asset
Complete the equation: Assets = Liabilities + _____
Owner's Equity
Which side normally increases an asset account?
Debit.
Which financial statement is described as a “snapshot” of a company's financial position?
Balance Sheet.
What are the two basic methods of accounting discussed in the source?
Cash basis and accrual basis
What account represents amounts the business owes to others?
Liability
If a business has $50,000 in assets and $20,000 in liabilities, what is owner's equity?
$30,000
Which side normally increases a liability?
Credit
Which statement shows income earned and expenses incurred during a period?
Income Statement / Profit & Loss.
Under accrual accounting, when is revenue recognized?
When it is earned.
What is the difference between Accounts Receivable and Accounts Payable?
Accounts Receivable is money customers owe the business; Accounts Payable is money the business owes suppliers/lenders.
A business receives a $5,000 bank loan. What happens to assets and liabilities?
Both increase by $5,000.
Which two account types normally increase with a debit?
Assets and Expenses.
Which financial statement answers the question, “How much did we earn?
Income Statement / Net Income Statement.
What accounting principle says expenses should be matched with the revenues they helped generate in the same period?
Matching Principle
Name the three major categories of assets discussed in the source.
Current assets, fixed assets, and intangible assets.
If liabilities increase by $10,000 while assets remain unchanged, what must happen to owner's equity to maintain the equation?
Owner's equity must decrease by $10,000
Revenue increases with a _____, while expenses increase with a _____.
Credit; Debit
What three major types of information are presented by the Income Statement, Balance Sheet, and Cash Flow Statement?
Profit/loss, financial position, and cash inflows/outflows.
Why does double-entry accounting require two offsetting sides for every transaction?
To keep the accounting equation in balance.
A customer has received services but has not yet paid. Which asset records the amount owed?
Accounts Receivable
A business has $100,000 assets and $40,000 liabilities. It then earns $10,000 revenue and incurs $4,000 expenses. Assuming no other changes, what is ending owner's equity?
$66,000
An expense decreases by $1,000. Is the $1,000 recorded as a debit or credit?
Credit
Why are the Income Statement and Balance Sheet often studied together?
The Income Statement shows what happened during a period, while the Balance Sheet shows the resulting financial condition; net profit/loss connects to equity.