Financial Accounting

Cards (24)

• 1
  Front

  What is the fundamental accounting equation?

  Back

  Assets = Liabilities + Equity

• 2
  Front

  If total assets equal $500,000 and total liabilities equal $200,000, what is equity?

  Back

  $300,000. Equity = Assets - Liabilities.

• 3
  Front

  What does a debit do to an asset account?

  Back

  A debit increases an asset account.

• 4
  Front

  What does a credit do to a liability account?

  Back

  A credit increases a liability account.

• 5
  Front

  What does a credit do to an expense account?

  Back

  A credit decreases an expense account. Expenses have a normal debit balance.

• 6
  Front

  What is the normal balance of a revenue account?

  Back

  Credit balance. Revenues are increased by credits and decreased by debits.

• 7
  Front

  What is a journal entry?

  Back

  A chronological record of a financial transaction showing which accounts are debited and credited, ensuring total debits equal total credits.

• 8
  Front

  What journal entry is recorded when a company pays $1,000 cash for rent?

  Back

  Debit Rent Expense $1,000; Credit Cash $1,000.

• 9
  Front

  What journal entry is recorded when a company purchases $500 of supplies on credit?

  Back

  Debit Supplies $500; Credit Accounts Payable $500.

• 10
  Front

  What are the four core financial statements?

  Back

  Income Statement, Balance Sheet, Statement of Cash Flows, and Statement of Changes in Equity (Stockholders' Equity).

• 11
  Front

  What does the Income Statement report?

  Back

  Revenues, expenses, and net income or net loss over a specific period of time.

• 12
  Front

  What does the Balance Sheet report?

  Back

  A company's assets, liabilities, and equity at a specific point in time.

• 13
  Front

  What are the three sections of the Statement of Cash Flows?

  Back

  Operating activities, investing activities, and financing activities.

• 14
  Front

  What does the Statement of Changes in Equity show?

  Back

  Changes in equity components (e.g., retained earnings, common stock) over a reporting period, including net income and dividends.

• 15
  Front

  What is the key principle of accrual accounting?

  Back

  Revenue is recognized when earned and expenses are recognized when incurred, regardless of when cash is received or paid.

• 16
  Front

  What is cash basis accounting?

  Back

  An accounting method that records revenues when cash is received and expenses when cash is paid.

• 17
  Front

  Which accounting basis is required under GAAP for most businesses?

  Back

  Accrual basis accounting.

• 18
  Front

  Under accrual accounting, when is revenue recorded for a service performed in December but paid for in January?

  Back

  In December, when the service was performed (earned), not in January when cash is received.

• 19
  Front

  What is depreciation in accounting?

  Back

  The systematic allocation of a tangible fixed asset's cost over its useful life as an expense.

• 20
  Front

  How is annual depreciation calculated using the straight-line method?

  Back

  Annual Depreciation = (Cost - Salvage Value) / Useful Life in Years.

• 21
  Front

  What characterizes the double-declining balance (DDB) depreciation method?

  Back

  It is an accelerated method that applies double the straight-line rate to the asset's remaining book value each year, resulting in higher depreciation expense early in the asset's life.

• 22
  Front

  How is depreciation calculated using the units-of-production method?

  Back

  Depreciation per unit = (Cost - Salvage Value) / Total Expected Units; then multiply by actual units produced in the period.

• 23
  Front

  What is accumulated depreciation?

  Back

  The total depreciation expense recorded for an asset since it was placed in service. It is a contra-asset account that reduces the asset's book value on the balance sheet.

• 24
  Front

  What is an asset's book value?

  Back

  Book Value = Original Cost - Accumulated Depreciation. It represents the asset's net carrying value on the balance sheet.