Financial Accounting - Balance Sheets & Double Entry Flashcards

Question 1

Accounting Equation

Accepted Answer

The foundational equation of financial accounting: $	ext{Assets} = 	ext{Liabilities} + 	ext{Owner's Equity}$. The balance sheet must always maintain this equilibrium.

Question 2

Asset

Accepted Answer

A resource owned or controlled by a business entity as a result of past events, from which future economic benefits are expected to flow (e.g., Cash, Accounts Receivable, Inventory).

Question 3

Liability

Accepted Answer

A present legal or constructive obligation of an entity arising from past events, expected to be settled through an outflow of economic resources (e.g., Accounts Payable, Loans, Unearned Revenue).

Question 4

Equity (Owner's Equity / Shareholder's Equity)

Accepted Answer

The residual interest in the assets of an entity after deducting all of its liabilities: $	ext{Equity} = 	ext{Assets} - 	ext{Liabilities}$.

Question 5

Debit (Dr.) Rules

Accepted Answer

An entry made on the left side of a T-account. Debits **increase** Asset and Expense accounts, and **decrease** Liability, Equity, and Revenue accounts.

Question 6

Credit (Cr.) Rules

Accepted Answer

An entry made on the right side of a T-account. Credits **increase** Liability, Equity, and Revenue accounts, and **decrease** Asset and Expense accounts.

Question 7

T-Account

Accepted Answer

A visual tool used to track individual account balances, shaped like a 'T' with the account title at the top, Debits on the left, and Credits on the right.

Question 8

Accrual Accounting

Accepted Answer

An accounting method where transactions are recorded when revenues are earned and expenses are incurred, regardless of when cash is actually exchanged.

Question 9

Cash-Basis Accounting

Accepted Answer

An accounting method where revenue is recognized only when cash is received, and expenses are recognized only when cash is paid out.

Question 10

Revenue Recognition Principle

Accepted Answer

A core accounting rule stating that revenue must be recognized in the accounting period in which the performance obligation is satisfied (when control of goods or services is transferred to the customer).

Question 11

Matching Principle

Accepted Answer

The practice of recognizing expenses in the same period as the revenues they helped generate, ensuring accurate net income measurement.

Question 12

Contra-Account

Accepted Answer

An account paired with a primary account that carries an opposite normal balance, reducing the primary account's reported net value (e.g., Accumulated Depreciation against Equipment).

Question 13

Straight-Line Depreciation

Accepted Answer

A method that distributes depreciation equally over an asset's useful life: $	ext{Annual Depreciation} = \frac{	ext{Cost} - 	ext{Salvage Value}}{	ext{Useful Life}}$.

Question 14

Double-Declining Balance Depreciation

Accepted Answer

An accelerated depreciation method that charges higher depreciation in early years: $	ext{Depreciation Expense} = 2 	imes \left(\frac{1}{	ext{Useful Life}}ight) 	imes 	ext{Book Value at Beginning of Period}$.

Question 15

Accumulated Depreciation

Accepted Answer

A contra-asset account on the balance sheet that represents the total cumulative depreciation charged against a fixed asset over its operating life.

Question 16

Unearned Revenue

Accepted Answer

A liability recorded when a company receives cash from a customer before delivering the corresponding goods or services.

Question 17

Accounts Receivable vs. Accounts Payable

Accepted Answer

**Accounts Receivable** (Asset) represents money owed *to* the business by customers on credit. **Accounts Payable** (Liability) represents money owed *by* the business to suppliers.

Question 18

Cash Flow Statement: Operating Activities

Accepted Answer

Section reflecting cash generated or consumed by core business operations, such as customer payments, supplier costs, and employee payroll.

Question 19

Cash Flow Statement: Investing Activities

Accepted Answer

Section reflecting cash spent on or generated from long-term capital investments, such as purchasing equipment, real estate, or marketable securities.

Question 20

Cash Flow Statement: Financing Activities

Accepted Answer

Section reflecting cash transactions between the company and its capital providers, such as issuing stock, paying dividends, or borrowing/repaying principal on debt.

Question 21

Retained Earnings Connection

Accepted Answer

The link connecting the Income Statement to the Balance Sheet: $	ext{Ending Retained Earnings} = 	ext{Beginning Retained Earnings} + 	ext{Net Income} - 	ext{Dividends}$.

Financial Accounting - Balance Sheets & Double Entry

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