Principles of Accounts: Financial Statements Flashcards

The Balance Sheet shows:

Answer: Assets, liabilities, and owner's equity at a specific date

The Balance Sheet is a snapshot of a business's financial position — showing its assets, liabilities, and owner's equity at a specific point in time.

The fundamental accounting equation is:

Answer: Assets = Liabilities + Owner's Equity

The accounting equation Assets = Liabilities + Owner's Equity must always balance, forming the basis of double-entry bookkeeping.

Which of the following is a current asset?

Answer: Accounts receivable

Accounts receivable is a current asset because it is expected to be converted into cash within one year.

Which of the following is a non-current (fixed) asset?

Answer: Motor vehicles

Motor vehicles are non-current (fixed) assets because they are long-term assets used in business operations for more than one accounting period.

Owner's equity on the Balance Sheet increases when:

Answer: The business earns a net profit

Net profit increases retained earnings, which is a component of owner's equity, thereby increasing total equity on the Balance Sheet.

Accumulated depreciation on the Balance Sheet is shown as:

Answer: A deduction from the cost of non-current assets

Accumulated depreciation is subtracted from the cost of a non-current asset to give its net book value (carrying amount) on the Balance Sheet.

Which of the following is a long-term (non-current) liability?

Answer: Mortgage payable

A mortgage payable is a long-term liability because it is repaid over many years, extending beyond the current accounting period.