Accounting Basics Flashcards
7 cards from real Accounting Online Program practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Accounting Basics flashcards as text
Which type of business organization offers limited liability to all its owners?
Answer: Corporation
A corporation's shareholders enjoy limited liability, meaning they are not personally responsible for the company's debts beyond their investment.
What does 'double-entry bookkeeping' mean?
Answer: Every transaction affects at least two accounts with equal debits and credits
Double-entry bookkeeping requires each transaction to affect at least two accounts so that total debits always equal total credits.
Which of the following would be classified as an intangible asset?
Answer: Patent
A patent is an intangible asset — it has value but lacks physical substance and provides legal rights to the holder.
The closing process at the end of an accounting period transfers balances from temporary accounts to:
Answer: Retained Earnings (or Owner's Capital)
Closing entries zero out temporary accounts (revenues, expenses, dividends) by transferring their net balances to Retained Earnings or Owner's Capital.
If a company collects cash in advance for services not yet performed, this is recorded as:
Answer: A liability called Unearned Revenue
Cash collected before the service is performed creates an Unearned Revenue liability until the company fulfills its obligation.
Which financial statement reports a company's assets, liabilities, and owner's equity at a specific point in time?
Answer: Balance sheet
The balance sheet is a snapshot of the company's financial position — its assets, liabilities, and equity — on a specific date.
Which accounting concept states that insignificant items do not need to be disclosed separately if they would not influence a user's decision?
Answer: Materiality
The materiality concept allows accountants to disregard strict accounting rules for items whose omission would not affect decision-making.