Understanding Basic Accounting Concepts

What are assets in accounting?

• Assets are liabilities that a business owes.

• Assets are temporary accounts used for tracking income.

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

• Assets are expenses incurred by a business.

Define liabilities in the context of accounting.

• Liabilities are assets owned by a company.

• Liabilities are obligations or debts owed by a company to external parties.

• Liabilities refer to the company's revenue streams.

• Liabilities are profits generated from sales.

What is the formula for calculating net income?

• Net Income = Total Revenue - Total Expenses

• Net Income = Total Revenue + Total Expenses

• Net Income = Total Revenue - Operating Income

• Net Income = Total Revenue / Total Expenses

List three components of an income statement.

• assets

• cash flow

• liabilities

• revenues, expenses, net income

What does the balance sheet equation state?

• Assets + Liabilities = Shareholders' Equity

• Assets = Liabilities + Shareholders' Equity

• Assets = Shareholders' Equity - Liabilities

• Liabilities = Assets - Shareholders' Equity

Explain the difference between current and non-current assets.

• Current assets are short-term resources, while non-current assets are long-term investments.

• Current assets are always cash, while non-current assets are never cash.

• Current assets are only physical items, while non-current assets are only digital items.

• Current assets are investments in stocks, while non-current assets are investments in real estate.

What are operating expenses?

• Operating expenses are the ongoing costs for running a business that are not directly tied to producing a product or service.

• Operating expenses are the one-time costs for starting a business.

• Operating expenses are the profits generated from sales.

• Operating expenses are the costs associated with manufacturing a product.

Identify two types of liabilities.

• Fixed liabilities and contingent liabilities

• Operational liabilities and financial liabilities

• Current liabilities and long-term liabilities

• Short-term liabilities and deferred liabilities

What is the purpose of the income statement?

• To calculate the total assets of a company.

• The purpose of the income statement is to provide a summary of revenues and expenses to determine the net profit or loss over a specific period.

• To summarize the company's balance sheet at year-end.

• To provide a detailed breakdown of cash flow.

Describe the matching principle in accounting.

• The matching principle states that all expenses should be recorded at the end of the fiscal year.

• The matching principle allows for expenses to be recorded in any accounting period regardless of revenue.

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

• The matching principle requires that revenues be recognized before any expenses are recorded.