Fundamentals of Accounting

What is the accounting equation?

• Assets + Liabilities = Equity

• Assets = Liabilities + Equity

• Assets - Liabilities = Equity

• Equity = Assets - Liabilities

Define assets in accounting.

• Assets are expenses incurred by a business.

• Assets are liabilities that decrease a company's value.

• Assets are temporary accounts used for tracking income.

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

What are liabilities?

• Liabilities are cash reserves held by a business.

• Liabilities are assets owned by a company.

• Liabilities are financial obligations or debts owed to external parties.

• Liabilities are profits generated from investments.

What is equity in accounting terms?

• Equity is the total assets of an entity.

• Equity refers to the total revenue generated by a business.

• Equity is the amount of cash held by a company.

• Equity is the residual interest in the assets of an entity after deducting liabilities.

Name the three main types of accounts.

• Personal accounts, real accounts, nominal accounts

• Debit accounts, credit accounts, loan accounts

• Savings accounts, checking accounts, investment accounts

• Corporate accounts, government accounts, trust accounts

What is the purpose of a ledger?

• The purpose of a ledger is to maintain a systematic record of all financial transactions.

• To calculate taxes owed by a business.

• To store employee records and personal information.

• To track inventory levels and stock movements.

Explain the concept of double-entry accounting.

• Double-entry accounting is a method where every transaction affects at least two accounts, maintaining balance in the accounting equation.

• It is a method that does not require balancing accounts.

• Double-entry accounting only affects one account per transaction.

• Double-entry accounting is only used for cash transactions.

What does the term 'debit' mean?

• A debit is a type of credit transaction.

• A debit reduces expenses and increases revenue.

• A debit is an accounting entry that increases assets or expenses and decreases liabilities or equity.

• A debit is an entry that only affects cash flow.

What does the term 'credit' mean?

• A financial term that refers to savings accounts.

• A type of loan that must be repaid immediately.

• A measure of a person's income level.

• The term 'credit' means the ability to borrow money or access goods/services with the promise to pay later.

Identify one example of an asset account.

• Cash

• Prepaid Expenses

• Accounts Payable

• Inventory