Accounting Principles Review

Flashcards reviewing accounting principles, journal entries, and financial statements.

What journal entry is made when buying equipment with cash?

Debit Equipment; Credit Cash

What type of account is Unearned Revenue?

Liability (money received before service is performed)

What is the Matching Principle?

Expenses should be recorded in the same period as the revenues they helped generate

What is the Revenue Recognition Principle?

Revenue should be recorded when it is earned and realizable, not when cash is received

What type of account is Prepaid Insurance?

Asset (a future benefit)

How does paying off a liability affect the accounting equation?

Assets decrease; Liabilities decrease

What is the purpose of a Trial Balance?

To verify that total debits equal total credits

Which account normally has a credit balance?

Service Revenue

When are adjusting entries made?

At the end of the accounting period before financial statements are prepared

What is the first step in the accounting cycle?

Analyze transactions

What journal entry is made when receiving cash before performing a service?

Debit Cash; Credit Unearned Revenue

What is the purpose of a Balance Sheet?

Shows financial position (Assets = Liabilities + Equity) on a specific date

What is the purpose of an Income Statement?

Reports revenues and expenses over a period to show profit or loss

What is the purpose of the Statement of Retained Earnings?

Shows changes in retained earnings over a period

What is the purpose of the Statement of Cash Flows?

Shows cash inflows and outflows from operating, investing, and financing activities

What is Accrual Basis Accounting?

Revenues are recorded when earned; expenses when incurred (regardless of cash flow)

What is the journal entry for paying a liability with cash?

Debit Liability (e.g., Accounts Payable); Credit Cash

What is the adjusting entry for monthly insurance expense?

Debit Insurance Expense; Credit Prepaid Insurance

What is the Cost Principle?

Assets are recorded at their historical (purchase) cost

What is Skimming Pricing Strategy?

Setting a high initial price and lowering it over time

Debit Equipment; Credit Cash

What journal entry is made when buying equipment with cash?

Liability (money received before service is performed)

What type of account is Unearned Revenue?

What is the Matching Principle?

Expenses should be recorded in the same period as the revenues they helped generate

What is the Revenue Recognition Principle?

Revenue should be recorded when it is earned and realizable, not when cash is received

What type of account is Prepaid Insurance?

Asset (a future benefit)

How does paying off a liability affect the accounting equation?

Assets decrease; Liabilities decrease

What is the purpose of a Trial Balance?

To verify that total debits equal total credits

Which account normally has a credit balance?

Service Revenue

When are adjusting entries made?

At the end of the accounting period before financial statements are prepared

What is the first step in the accounting cycle?

Analyze transactions

What journal entry is made when receiving cash before performing a service?

Debit Cash; Credit Unearned Revenue

What is the purpose of a Balance Sheet?

Shows financial position (Assets = Liabilities + Equity) on a specific date

What is the purpose of an Income Statement?

Reports revenues and expenses over a period to show profit or loss

What is the purpose of the Statement of Retained Earnings?

Shows changes in retained earnings over a period

What is the purpose of the Statement of Cash Flows?

Shows cash inflows and outflows from operating, investing, and financing activities

What is Accrual Basis Accounting?

Revenues are recorded when earned; expenses when incurred (regardless of cash flow)

What is the journal entry for paying a liability with cash?

Debit Liability (e.g., Accounts Payable); Credit Cash

What is the adjusting entry for monthly insurance expense?

Debit Insurance Expense; Credit Prepaid Insurance

What is the Cost Principle?

Assets are recorded at their historical (purchase) cost

What is Skimming Pricing Strategy?

Setting a high initial price and lowering it over time

What is the Economic Entity Assumption?

The business is separate and distinct from its owners.

What is the Going Concern Assumption?

Assumes the business will continue operating in the foreseeable future.

Financial information