Accounting basics

Question 1

What is the definition of assets?

Answer 1

Assets are resources owned by a business that have economic value.

Question 2

True or False: Liabilities represent the debts and obligations of a business.

Answer 2

True

Question 3

Fill in the blank: The accounting equation is _____ = Liabilities + Equity.

Answer 3

Assets

Question 4

What do we call the income generated from normal business operations?

Answer 4

Revenue

Question 5

Multiple Choice: Which of the following is a type of liability? A) Cash B) Accounts Payable C) Inventory

Answer 5

B) Accounts Payable

Question 6

What are expenses?

Answer 6

Expenses are costs incurred in the process of earning revenue.

Question 7

True or False: Equity is the residual interest in the assets of the entity after deducting liabilities.

Answer 7

True

Question 8

What is the purpose of a balance sheet?

Answer 8

To provide a snapshot of a company’s financial position at a specific point in time.

Question 9

Fill in the blank: The _____ shows the profitability of a company over a specific period.

Answer 9

Income Statement

Question 10

Multiple Choice: Which of the following is not an asset? A) Land B) Buildings C) Accounts Payable

Answer 10

C) Accounts Payable

Question 11

What is the definition of cash flow?

Answer 11

Cash flow refers to the total amount of money being transferred into and out of a business.

Question 12

True or False: Depreciation is the allocation of the cost of a tangible asset over its useful life.

Answer 12

True

Question 13

What is a journal in accounting?

Answer 13

A journal is a detailed account that records all the financial transactions of a business.

Question 14

Fill in the blank: A _____ is a summary of all the transactions that have occurred in a specific account.

Answer 14

Ledger

Question 15

Multiple Choice: What does GAAP stand for? A) Generally Accepted Accounting Principles B) General Accounting and Auditing Practices C) Governmental Accounting and Analysis Procedures

Answer 15

A) Generally Accepted Accounting Principles

Question 16

What is the role of an auditor?

Answer 16

An auditor examines financial statements to ensure accuracy and compliance with accounting standards.

Question 17

True or False: A trial balance is used to verify that total debits equal total credits.

Answer 17

True

Question 18

What is accrual accounting?

Answer 18

Accrual accounting recognizes revenues and expenses when they are incurred, regardless of cash flow.

Question 19

Fill in the blank: _____ is the process of allocating the cost of an intangible asset over its useful life.

Answer 19

Amortization

Question 20

Multiple Choice: Which of the following is a current asset? A) Equipment B) Cash C) Bonds Payable

Answer 20

B) Cash

Question 21

What is the purpose of financial statements?

Answer 21

To provide information about the financial performance and position of a business.

Question 22

True or False: The matching principle requires that expenses be matched with the revenues they help to generate.

Answer 22

True

Question 23

What does the term ‘liquidity’ refer to?

Answer 23

Liquidity refers to how quickly an asset can be converted into cash.

Question 24

Fill in the blank: The _____ method records revenues and expenses when cash is received or paid.

Answer 24

Cash

Question 25

Multiple Choice: Which of the following is considered an operating expense? A) Rent B) Dividends C) Loans

Answer 25

A) Rent

Question 26

What is the difference between gross profit and net profit?

Answer 26

Gross profit is revenue minus cost of goods sold; net profit is gross profit minus all other expenses.