Fundamentals of Accounting

What are the basic accounting principles?

• Liquidity, Solvency, Profitability

• Revenue Recognition, Matching, Cost, Full Disclosure, Objectivity

• Depreciation, Amortization, Capitalization

• Forecasting, Budgeting, Variance Analysis

How do you prepare a Profit & Loss account?

• List only the expenses without calculating totals

• Subtract total revenue from total expenses

• Calculate total revenue without listing expenses

• Prepare a Profit & Loss account by listing revenues, calculating total revenue, listing expenses, calculating total expenses, and subtracting total expenses from total revenue.

What is the purpose of a Balance Sheet?

• To summarize a company's cash flow over a period.

• To calculate a company's tax obligations.

• The purpose of a Balance Sheet is to show a company's financial position at a specific point in time.

• To forecast future sales and revenue.

Name three inventory valuation methods.

• FIFO, LIFO, Weighted Average Cost

• Standard Costing

• Average Costing

• Specific Identification

What is the Companies Act and its significance?

• The Companies Act is a key legislation that regulates corporate entities, ensuring legal compliance and protecting stakeholder interests.

• The Companies Act only applies to non-profit organizations.

• The Companies Act is a guideline for employee conduct.

• The Companies Act is a tax regulation for individuals.

How do you analyze income and expenses?

• Only track income without categorizing expenses.

• Ignore all expenses and focus only on income.

• Estimate future income based on last year's expenses.

• Analyze income and expenses by categorizing, calculating totals, and comparing net income or loss.

What is depreciation and why is it important?

• Depreciation is the process of selling an asset at a loss, significant for cash flow management.

• Depreciation is the allocation of an asset's cost over its useful life, important for accurate financial reporting and tax purposes.

• Depreciation refers to the physical wear and tear of an asset, important for maintenance schedules.

• Depreciation is the increase in an asset's value over time, which is crucial for investment decisions.

Explain the matching principle in accounting.

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

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

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

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

What is the difference between cash and accrual accounting?

• The main difference is the timing of when revenues and expenses are recognized.

• The main difference is the amount of cash on hand.

• Cash accounting records transactions only at year-end.

• Accrual accounting is only used by large corporations.

How do you calculate gross profit?

• Gross Profit = Total Revenue - Cost of Goods Sold

• Gross Profit = Total Revenue + Cost of Goods Sold

• Gross Profit = Cost of Goods Sold - Total Revenue

• Gross Profit = Total Revenue - Operating Expenses