Fundamentals of Accounting

What are the basic principles of accounting?

• Entity Principle and Profit Maximization Principle

• The basic principles of accounting are the Entity Principle, Going Concern Principle, Matching Principle, Revenue Recognition Principle, and Cost Principle.

• Cost Principle and Inflation Adjustment Principle

• Revenue Recognition Principle and Taxation Principle

What is the purpose of journal entries in accounting?

• The purpose of journal entries in accounting is to systematically record financial transactions.

• To summarize financial statements

• To calculate tax liabilities

• To prepare budgets for future expenses

How do you prepare a balance sheet?

• A balance sheet is prepared by only listing liabilities and ignoring assets.

• A balance sheet is prepared by listing assets, liabilities, and equity to ensure that total assets equal total liabilities plus equity.

• You prepare a balance sheet by calculating net income and expenses only.

• A balance sheet is created by summarizing cash flow statements.

What information is included in an income statement?

• An income statement includes total revenue, cost of goods sold, gross profit, operating expenses, operating income, other income and expenses, and net income.

• Total assets and liabilities

• Cash flow from investing activities

• Shareholder equity and dividends

What is the difference between assets and liabilities?

• Liabilities are resources owned; assets are debts owed.

• Assets and liabilities are the same thing.

• Assets are always more valuable than liabilities.

• Assets are resources owned; liabilities are debts owed.