Basic Financial Accounting Concepts! Quiz

A double entry bookkeeping posting requires a minimum of two accounts because this system follows the principle that every transaction has two equal and opposite effects. Each transaction is recorded in two accounts - one account is debited and the other account is credited. This ensures that the accounting equation (Assets = Liabilities + Equity) remains balanced. Therefore, at least two accounts are needed to record the dual effects of each transaction.

The income statement is a financial statement that shows a company's revenue, expenses, and net income or loss over a specific period of time. It provides information about the company's ability to generate profit by comparing its income (revenue) with its expenses. Therefore, the correct answer is "Income and expenses."

Equity is shown on the balance sheet. The balance sheet provides a snapshot of a company's financial position at a specific point in time. It includes assets, liabilities, and equity. Equity represents the ownership interest in a company and is calculated as the difference between the company's assets and liabilities. It is an important component of the balance sheet as it reflects the shareholders' claims on the company's assets after all liabilities have been settled. Therefore, equity is reported on the balance sheet.

Inventory and accounts receivable are classified in the balance sheet as current assets because they are expected to be converted into cash or used up within one year or the operating cycle of the business, whichever is longer. Current assets are important for assessing a company's liquidity and ability to meet short-term obligations. They include assets that are readily convertible into cash, such as inventory that will be sold and accounts receivable that will be collected from customers.

A listing of the account names and account codes is called a chart of accounts. This document provides a systematic and organized overview of all the accounts used by a company or organization. It helps in categorizing and classifying financial transactions, making it easier to track and analyze financial data. The chart of accounts is an essential tool for financial reporting and ensuring accuracy in the recording of financial information.

The balance sheet is a financial statement that lists assets from current to long term. It provides a snapshot of a company's financial position at a specific point in time by showing its assets, liabilities, and shareholders' equity. Assets are typically listed in order of liquidity, with current assets such as cash and accounts receivable listed first, followed by long-term assets such as property, plant, and equipment. Therefore, the balance sheet is the correct answer for this question.

Gross profit is a measure of a company's profitability and is calculated by subtracting the cost of goods sold from revenue. It represents the amount of money a company has left after deducting the direct costs associated with producing or purchasing the goods it sells. Therefore, the correct answer is "Cost of goods sold" because it is subtracted from revenue to calculate gross profit.

The terms operating, financing, and investing are used to categorize the different types of cash flows. Operating cash flow refers to the cash generated or used in the normal course of business operations. Financing cash flow represents the cash generated or used from activities related to raising or repaying capital, such as issuing or buying back stocks or bonds. Investing cash flow represents the cash generated or used from activities related to acquiring or selling long-term assets, such as property, equipment, or investments. Therefore, the correct answer is cash flow.

A listing of the balances on all accounts is called a trial balance. This is a financial statement that summarizes the closing balances of all accounts in the general ledger. It is used to ensure that the total debit balances equal the total credit balances, thus verifying the accuracy of the recorded transactions. The trial balance helps in identifying any errors or discrepancies in the accounting records before preparing the final financial statements.

When a company issues stock, it does not have a direct impact on the income statement. The income statement reflects the company's revenues, expenses, and net income, which are not directly affected by stock issuance. Instead, the issuance of stock affects the balance sheet by increasing the company's equity and cash or other assets, depending on the terms of the stock issuance. Therefore, the correct answer is that there is no income statement effect, and the impact is purely on the balance sheet.