Recording and Organizing Financial Transactions Quiz

An exchange of money for goods or services.

Accounts Payable is a liability representing money owed by a company.

Expenses are costs incurred to generate revenue, such as rent payments.

The balance sheet provides a snapshot of a company's financial position at a particular moment by listing its assets, liabilities, and equity.

The statement of cash flows does not include accrual activities but focuses on cash inflows and outflows from operating, investing, and financing activities.

Debit records increases in assets or expenses.

The income statement provides a summary of a company's revenues and expenses.

A liability represents an obligation to transfer economic benefits in the future.

Net income is calculated by subtracting expenses from revenue.

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

The general ledger records all financial transactions of a company in chronological order.

Reconciliation is the process of ensuring that the company's records match those of the bank.

Double-entry accounting ensures accuracy and reduces the risk of errors or fraud.

The revenue recognition principle dictates that revenue is recognized when it is earned, not necessarily when payment is received.

Accrual basis accounting records transactions when they occur, not necessarily when cash is exchanged, providing a more accurate representation of a company's financial position.