Principles of Financial Accounting Flashcards

Which financial statement reports a company's revenues and expenses over a specific period?

Answer: Income Statement

The income statement summarizes a company's revenues and expenses to show net income or loss for a given period.

In double-entry bookkeeping, every transaction affects at least how many accounts?

Answer: Two

Double-entry bookkeeping requires every transaction to be recorded as a debit in one account and a credit in another.

Which accounting principle states that revenue should be recognized when earned, regardless of when cash is received?

Answer: Revenue Recognition Principle

The revenue recognition principle under accrual accounting requires revenue to be recorded when it is earned, not when cash is collected.

What is the accounting equation?

Answer: Assets = Liabilities + Owner's Equity

The fundamental accounting equation, Assets = Liabilities + Owner's Equity, must always remain in balance.

Which inventory valuation method assumes the most recently purchased goods are sold first?

Answer: LIFO

LIFO (Last-In, First-Out) assumes the last units purchased are the first units sold.

Accumulated depreciation on the balance sheet is classified as which type of account?

Answer: Contra-asset

Accumulated depreciation is a contra-asset account that reduces the book value of the related fixed asset on the balance sheet.