Accounting Basics

What is the primary purpose of a Balance Sheet?

• To provide a snapshot of a company's financial position

• To analyze customer satisfaction levels

• To predict future financial performance

• To track daily sales transactions

Explain the difference between operating cash flow and investing cash flow.

• Operating cash flow is used for long-term investments, while investing cash flow is used for short-term expenses.

• Operating cash flow is related to day-to-day business activities, while investing cash flow involves capital expenditures and acquisitions.

• Operating cash flow is only applicable to manufacturing companies, while investing cash flow is only applicable to service companies.

• Operating cash flow is calculated annually, while investing cash flow is calculated monthly.

What is the accrual basis of accounting?

• The accrual basis of accounting recognizes revenue only when cash is received and expenses only when cash is paid.

• The accrual basis of accounting recognizes revenue when it is earned and expenses when they are incurred, regardless of when cash is exchanged.

• The accrual basis of accounting recognizes revenue and expenses at the end of the accounting period.

• The accrual basis of accounting recognizes revenue when cash is exchanged and expenses when they are incurred.

List three fundamental accounting principles.

• Accrual principle, Going concern principle, Matching principle

• Cash basis principle

• Materiality principle

• Consistency principle

How is the Cash Flow Statement different from the Income Statement?

• The Cash Flow Statement includes only expenses, while the Income Statement includes only revenues.

• The Cash Flow Statement is prepared annually, while the Income Statement is prepared monthly.

• The Cash Flow Statement focuses on actual cash movements, while the Income Statement focuses on revenues and expenses.

• The Cash Flow Statement does not consider non-cash items, while the Income Statement includes all transactions.

Define the term 'double-entry accounting'.

• A system where every transaction is recorded in at least two accounts to ensure the accounting equation remains balanced.

• A system where transactions are recorded only once

• A method of accounting that focuses solely on expenses

• A process where assets and liabilities are not considered

Why is the Balance Sheet considered a 'snapshot' of a company's financial position?

• It provides a snapshot of the company's financial position at a specific point in time.

• It shows future financial projections

• It is updated in real-time

• It only includes revenue information

What is the formula to calculate Net Income?

• Net Income = Total Revenue - Total Expenses

• Net Income = Total Revenue / Total Expenses

• Net Income = Total Revenue + Total Expenses

• Net Income = Total Revenue x Total Expenses

Explain the concept of 'matching principle' in accounting.

• The matching principle in accounting is about finding a perfect match on a dating app

• The matching principle in accounting refers to pairing socks in the laundry

• The matching principle in accounting is the concept that expenses should be matched with the revenues they generate in the same accounting period.

• The matching principle in accounting means expenses should be matched with the weather forecast

How does the Cash Flow Statement help in assessing a company's liquidity?

• The Cash Flow Statement only focuses on non-cash transactions

• The Cash Flow Statement provides information on long-term investments

• The Cash Flow Statement is not relevant for assessing liquidity

• The Cash Flow Statement provides insights into the actual cash flow of a company, helping to assess its liquidity position.