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What is the main purpose of accounting? start learning
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To measure, process, and communicate financial information to decision-makers.
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Who are the external users of financial accounting? start learning
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Investors, creditors, and taxing authorities.
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What is managerial accounting used for? start learning
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Providing financial information to internal decision-makers like managers.
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What are the types of accounting professions? start learning
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Certified Public Accountant (CPA), Certified Management Accountant (CMA).
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Who sets U.S. accounting standards? start learning
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The Financial Accounting Standards Board (FASB).
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What does GAAP stand for? start learning
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Generally Accepted Accounting Principles.
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What are the three main components of the accounting equation? start learning
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Assets, Liabilities, and Equity.
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start learning
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An economic resource expected to benefit the business in the future.
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start learning
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Owner contributions and revenues.
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start learning
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Owner withdrawals and expenses.
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What is the formula for the basic accounting equation? start learning
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Assets = Liabilities + Equity.
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What is the difference between cash and accrual accounting? start learning
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Cash records transactions when cash changes hands; accrual records when earned or incurred.
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Is cash basis accounting allowed under GAAP? start learning
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What does the time period concept refer to? start learning
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Dividing business operations into specific time periods for reporting.
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When should revenue be recorded under the revenue recognition principle? start learning
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What does the matching principle state? start learning
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Expenses should be recorded in the same period as the related revenues.
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start learning
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Transactions where cash is received or paid before the revenue or expense is recognized.
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start learning
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Transactions where revenue or expense is recognized before cash is received or paid.
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start learning
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Allocation of a plant asset’s cost over its useful life.
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What is the purpose of adjusting entries? start learning
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To update account balances before financial statements are prepared.
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What is the adjusted trial balance? start learning
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A list of all accounts and their adjusted balances.
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What financial statements are prepared at period end? start learning
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Income statement, statement of owner's equity, and balance sheet.
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What is the purpose of closing entries? start learning
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To reset temporary accounts for the next accounting period.
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Which accounts are considered temporary? start learning
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Revenues, expenses, and owner’s withdrawals.
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Which accounts are permanent? start learning
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Assets, liabilities, and owner’s capital.
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What is the Income Summary account used for? start learning
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To temporarily hold net income or loss before closing to capital.
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What is a post-closing trial balance? start learning
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A list of all permanent account balances after closing entries.
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What does the current ratio measure? start learning
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A company’s ability to pay current liabilities with current assets.
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What is the formula for current ratio? start learning
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Current Assets / Current Liabilities.
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What are reversing entries? start learning
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Optional entries to simplify next period accounting by reversing certain adjustments.
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