Bookkeeping and Accounting Flashcards

Which inventory costing method assumes the oldest inventory items are sold first?

Answer: FIFO

FIFO (First-In, First-Out) assumes the first items purchased are the first items sold.

Depreciation is best described as:

Answer: The allocation of an asset's cost over its useful life

Depreciation systematically allocates the cost of a long-term asset over the periods it provides economic benefit.

If a company's total assets are $80,000 and total liabilities are $30,000, what is owners' equity?

Answer: $50,000

Using the accounting equation: Owners' Equity = Assets − Liabilities = $80,000 − $30,000 = $50,000.

A petty cash fund is used to:

Answer: Pay small, miscellaneous business expenses

Petty cash funds provide a convenient way to pay for minor expenses without writing a check.

What does the term 'net income' represent?

Answer: Revenues minus expenses for the period

Net income is calculated as total revenues minus total expenses for an accounting period.

When a business pays rent in advance, the prepayment is initially recorded as:

Answer: Prepaid Rent (an asset)

Prepaid rent is an asset because the business has paid for a future benefit — the right to use property.

Which of the following best describes 'posting' in the accounting cycle?

Answer: Transferring journal entries to the general ledger accounts

Posting is the process of transferring debit and credit amounts from the journal to the individual ledger accounts.