Recording Transactions in Accounting Quiz

Assets are resources owned by a company that have future economic value.

Debit refers to the left side of an account where assets increase and liabilities and equity decrease.

The matching principle dictates that expenses should be recognized in the same period as the revenue they help to generate.

Paying cash for rent decreases the company's assets (cash) and decreases its equity.

The double-entry system records every transaction in at least two accounts to maintain accuracy and balance.

Accumulated depreciation is a contra asset account that offsets the value of the related asset.

A trial balance is prepared to ensure that debits equal credits and to identify any errors in recording transactions.

The general ledger records all financial transactions, classified by accounts, providing a complete record of a company's financial activities.

Retained earnings are permanent accounts and would appear on the post-closing trial balance.

Adjusting entries like accruing interest expense are made to ensure that accounts reflect the correct amounts at the end of an accounting period.

The statement of cash flows shows the sources and uses of cash during a specific period, providing insight into a company's liquidity.

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

Closing entries transfer balances from temporary accounts to permanent accounts, preparing the accounts for the next accounting period.

Accrual accounting recognizes revenue and expenses when they are earned or incurred, regardless of when cash transactions occur, providing a more accurate representation of a company's financial performance.