Financial Accounting Concepts and Transactions Quiz

Cash is a tangible asset representing physical currency or its equivalent.

The Income Statement summarizes a company's revenues and expenses to determine its net income or loss over a specific period.

Accounts payable represent short-term debts that a company owes to its suppliers or vendors.

A sole proprietorship is a business owned and operated by a single individual, who retains full control and responsibility for the business.

Interest expense is a cost incurred from borrowing money and is not directly related to the primary activities or operations of a business.

The Balance Sheet provides a snapshot of a company's financial position at a specific point in time, detailing its assets, liabilities, and owner's equity.

The accounting equation represents the fundamental relationship in accounting between a company's assets, liabilities, and owner's equity.

GAAP refers to a common set of accounting principles, standards, and procedures that companies use to compile their financial statements.

Double-entry accounting ensures that every financial transaction affects at least two accounts, maintaining the balance of debits and credits.

The current ratio measures a company's ability to pay its short-term obligations and is calculated by dividing current assets by current liabilities.

The statement of cash flows details the sources and uses of cash by a company during a specific period, categorizing cash flows into operating, investing, and financing activities.

Adjusting entries are made at the end of an accounting period to ensure that revenues and expenses are recognized in the period they are earned or incurred.

Accumulated depreciation is a contra account that offsets the value of an asset on the balance sheet.

The Conservatism Principle dictates that companies should recognize expenses and liabilities as soon as they are probable, but revenues and assets only when they are certain.

The Sarbanes-Oxley Act was enacted to improve corporate governance, increase transparency, and enhance the accuracy of financial reporting.

Accumulated Depreciation is a contra asset account that offsets the value of a tangible asset, reflecting its decrease in value over time.

The Matching Principle requires that expenses be recognized in the same accounting period as the related revenues, ensuring accurate matching of costs and revenues.