Fundamentals of Accounting Terminology Quiz

Cash is classified as an asset because it represents a company's liquid resources.

The accounting equation illustrates the relationship between a company's assets, liabilities, and equity.

The Chart of Accounts is a list of all the accounts a company uses to record transactions.

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

Accrual Basis Accounting records revenue and expenses when they are incurred, rather than when cash is exchanged.

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

Net income is calculated by subtracting total expenses from total revenues.

The balance sheet summarizes a company's assets, liabilities, and equity at a specific date.

Double-entry accounting records every transaction as both a debit and a credit to ensure the books remain balanced.

The Full Disclosure Principle requires companies to disclose all material information that could impact financial statement users' decisions.

The Matching Principle dictates that expenses should be recorded in the same period as the revenues they helped to generate.

A trial balance is prepared to ensure that the total of all debit balances equals the total of all credit balances.

Depreciation is the systematic allocation of the cost of a tangible asset over its useful life.

The Statement of Cash Flows reports on a company's cash inflows and outflows from operating, investing, and financing activities.

Accrual basis accounting records revenue and expenses when they are earned or incurred, regardless of when cash is received or paid.