Accounting Fundamentals Flashcards

Goodwill as an intangible asset arises when:

Answer: A company acquires another company for more than the fair value of its net assets

Goodwill is recorded only in a business acquisition and represents the excess of the purchase price over the fair market value of the acquired company's identifiable net assets.

Which financial statement reports the inflows and outflows of cash during an accounting period?

Answer: Statement of Cash Flows

The Statement of Cash Flows categorizes cash movements into operating, investing, and financing activities, showing how a company generated and used cash.

Under the lower of cost or net realizable value (LCNRV) rule, inventory is written down when:

Answer: The inventory's net realizable value falls below its recorded cost

LCNRV requires inventory to be reported at the lower of its original cost or its net realizable value, ensuring assets are not overstated on the balance sheet.

Which of the following best describes the purpose of a trial balance?

Answer: To verify that total debits equal total credits in the ledger

A trial balance lists all ledger accounts with their debit or credit balances to verify the mathematical equality of total debits and total credits after journalizing.

Accounts receivable on the balance sheet represent:

Answer: Amounts owed to the company by customers for goods or services delivered

Accounts receivable are current assets representing money customers owe to the company for credit sales of goods or services already delivered.

The debt-to-equity ratio is used to evaluate a company's:

Answer: Financial leverage and capital structure

The debt-to-equity ratio (Total Debt ÷ Total Equity) indicates how much a company relies on debt financing relative to equity, measuring its financial leverage.

Which of the following is an example of a contra-asset account?

Answer: Accumulated depreciation

Accumulated depreciation is a contra-asset account with a credit balance that offsets the related asset account (e.g., equipment), reducing its net book value on the balance sheet.