Financial Accounting & Reporting Flashcards

Under the accrual basis of accounting, revenue is recognized when:

Answer: It is earned and realizable, regardless of when cash is received

Accrual accounting requires revenue to be recognized when earned and realizable, not when cash changes hands.

Which financial statement shows a company's financial position at a specific point in time?

Answer: Balance Sheet

The Balance Sheet (Statement of Financial Position) reports assets, liabilities, and equity as of a specific date.

If a company has total assets of $500,000 and total liabilities of $180,000, what is the owner's equity?

Answer: $320,000

Using the accounting equation: Equity = Assets − Liabilities = $500,000 − $180,000 = $320,000.

What does the term 'contra account' mean?

Answer: An account with a balance opposite to its paired account, reducing its net value

A contra account carries a balance opposite to its related account to reduce the carrying value (e.g., Accumulated Depreciation reduces Equipment).

Which inventory costing method assumes the most recently purchased items are sold first?

Answer: LIFO

LIFO (Last-In, First-Out) assumes the most recently acquired inventory units are the first to be sold.

Prepaid insurance appearing on the balance sheet is classified as:

Answer: A current asset

Prepaid insurance is a current asset because it represents a future economic benefit to be consumed within one year.

Which of the following best describes 'depreciation' in accounting?

Answer: The systematic allocation of a tangible asset's cost over its useful life

Depreciation is the process of systematically expensing the cost of a long-lived tangible asset over its estimated useful life.