ACCT 2102 - Conceptual Questions (Test
1) [Farmer] | Latest Version | 2024/2025 |
Graded A+
Define the accounting equation.
Assets = Liabilities + Equity.
What is the role of generally accepted accounting principles (GAAP)?
GAAP provides a framework for consistent financial reporting.
...
ACCT 2102 - Conceptual Questions (Test
1) [Farmer] | Latest Version | 2024/2025 |
Graded A+
Define the accounting equation.
✔✔Assets = Liabilities + Equity.
What is the role of generally accepted accounting principles (GAAP)?
✔✔GAAP provides a framework for consistent financial reporting.
What is the difference between cash basis and accrual basis accounting?
✔✔Cash basis recognizes revenue and expenses when cash is exchanged, while accrual basis
recognizes them when they are earned or incurred.
What does the term "liquidity" refer to in accounting?
✔✔Liquidity refers to a company's ability to meet its short-term obligations.
Explain what a journal entry is.
✔✔A journal entry is a record of a financial transaction in the accounting system.
1
,What is the purpose of a trial balance?
✔✔A trial balance is used to ensure that debits equal credits in the accounting records.
What are current assets? Give examples.
✔✔Current assets are assets expected to be converted to cash or used within one year, such as
cash, accounts receivable, and inventory.
Define "depreciation."
✔✔Depreciation is the systematic allocation of the cost of a tangible asset over its useful life.
What is the function of the income statement?
✔✔The income statement summarizes a company's revenues and expenses to show its
profitability over a specific period.
What are intangible assets? Provide examples.
✔✔Intangible assets are non-physical assets, such as patents, trademarks, and goodwill.
2
, What is the purpose of the statement of cash flows?
✔✔The statement of cash flows provides information about a company's cash inflows and
outflows during a specific period.
Explain the difference between fixed costs and variable costs.
✔✔Fixed costs do not change with the level of production, while variable costs fluctuate with
production volume.
What is working capital, and how is it calculated?
✔✔Working capital is the difference between current assets and current liabilities, indicating a
company's short-term financial health.
What does "revenue recognition" mean?
✔✔Revenue recognition is the accounting principle that dictates when revenue is recognized in
the financial statements.
What is a contra asset account?
✔✔A contra asset account is used to reduce the value of a related asset account, such as
accumulated depreciation reducing the value of equipment.
3
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