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Accounting Basics questions answered in right manner.
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Accounting Basics questions answered in right manner.
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Accounting Basics questions answeredin right manner.
Income Statement ANS - A financial document that shows how much money (revenues) came in and
how much money (expenses) was paid out. An income statement, does not report the cash coming in—
rather, its purpose is to (1) report the revenues earned by the company's efforts during the period, and
(2) report the expenses incurred by the company during the same period. The purpose of the income
statement is to show a company's profitability during a specific period of time. The difference (or "net")
between the revenues and expenses for the company is often referred to as the bottom line and it is
labeled as either Net Income of Net Loss. Also known as the Profit & Loss Statement.
Accrual basis of accounting ANS - Method of accounting in which income is recorded when earned and
expenses are recorded when incurred. Preferred method of accounting.
Revenue Recognition Principle ANS - The principle prescribing that revenue is recognized when earned.
Cash method basis of accounting ANS - Revenues are recorded in the period in which cash is received
and expenses are recorded in the period in which cash is paid. Less preferred than Accrual basis of
accounting.
Revenue ANS - All income that a business receives over a period of time
Service Revenue ANS - Ordinary revenue for a service business. Revenues accounts are credited when
the company earns a fee (or sells merchandise) regardless of whether cash is received at the time.
Accounts receivable ANS - The total amount of money owed to a business (before cash is actually
received).
Sales ANS - A temporary owner's equity account used to record the earning of revenue
Expenses ANS - An expense is an outflow of money to another person or group to pay for an item or
service, or for a category of costs. Expenses are costs that have expired (have been used up).
, Matching principle ANS - A concept of accounting in which expenses are matched with the revenue
generated during a period by those expenses.
Net Profit ANS - The difference between total revenue and total expenses when total revenue is
greater.
Net Loss ANS - The difference between total revenue and total expenses when total expenses are
greater
Balance Sheet ANS - A financial statement that reports assets, liabilities, and owner's (stockholder's)
equity on a specific date.
Assets ANS - What a company owns; anything of value owned by a business. Includes costs that are not
yet expired (used up). Vehicles, Cash, Equipment, Supplies, Accounts Receivable, Prepaid Expenses
(Insurance), Land, Office Equipment
Cost Principle ANS - The principle that states that, when purchased, all assets are recorded at their
actual cost regardless of market value.
Conservatism ANS - The accounting concept by which the least favorable figures are presented in the
financial statements - not overstating the value of an asset, or understating the value of a liability or
debt. So an accountant wouldn't increase the value of an asset because of market value, but they may
decrease it.
Depreciation Expense ANS - The portion of a plant asset's cost that is transferred to an expense account
in each fiscal period during a plant asset's useful life
Useful Life ANS - The period of time an asset can be productively used.
Carrying Amount ANS - The original cost of an asset less the accumulated depreciation
Liabilities ANS - What a company owes. Notes (loans) Payable, Wages Payable, Interest Payable,
Accounts Payable, Unearned Revenue
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