Principles of Financial Accounting Flashcards

What does GAAP stand for in U.S. accounting?

Answer: Generally Accepted Accounting Principles

GAAP stands for Generally Accepted Accounting Principles, the standard framework for financial accounting in the United States.

Which of the following best describes a liability?

Answer: An obligation the company owes to outside parties

A liability is a present obligation of the entity arising from past events, expected to result in an outflow of economic resources.

Which type of account is increased with a credit entry?

Answer: Liability

Liability accounts carry a normal credit balance, so they are increased by credit entries and decreased by debit entries.

Goodwill is recorded on the balance sheet only when a company does what?

Answer: Acquires another business for more than the fair value of its net assets

Under U.S. GAAP, goodwill arises only in a business combination when the purchase price exceeds the fair value of the acquired company's identifiable net assets.

An adjusting entry to record accrued salaries would include which entry?

Answer: Debit Salaries Expense; Credit Salaries Payable

Recording accrued salaries increases the expense (debit Salaries Expense) and recognizes the liability owed to employees (credit Salaries Payable).

The gross profit margin is calculated as gross profit divided by what?

Answer: Net sales revenue

Gross profit margin = Gross Profit ÷ Net Sales Revenue, measuring how efficiently a company produces goods relative to its sales.