Bookkeeping Workbook for Dummies

Vocabulary flashcards covering key bookkeeping concepts and terms.

Bookkeeping

The recording of financial transactions for a business.

Accounts Receivable

An account that tracks money due from customers for credit sales.

Accounts Payable

An account that tracks money owed to suppliers and creditors.

Asset

Anything a company owns that holds value, such as cash, inventory, and equipment.

Liability

An obligation or debt that a company owes to others.

Equity

The ownership interest in a company, representing the owners' residual claims on assets after liabilities.

Revenue

Income generated from normal business operations, typically from sales of goods or services.

Cost of Goods Sold (COGS)

The direct costs attributable to the production of the goods sold by a company.

Cash Flow

The total amount of money being transferred into and out of a business.

Depreciation

The reduction in the value of an asset over time, used for accounting purposes.

FIFO (First In, First Out)

An inventory valuation method where the oldest inventory items are used up first.

LIFO (Last In, First Out)

An inventory valuation method where the most recently purchased items are used up first.

Accrual Accounting

An accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged.

Cash-Basis Accounting

An accounting method that records revenues and expenses only when cash is exchanged.

Trial Balance

A worksheet that lists the balances of all ledger accounts to verify that total debits equal total credits.

Sales Tax

A consumption tax imposed on the sale of goods and services.

Chart of Accounts

A list of all accounts used by a business to record financial transactions.

Payroll

The total amount of money that a company pays to its employees for a certain period.

Interest Expense

The cost incurred by an entity for borrowed funds.

Budget

An estimate of income and expenditure for a future period of time.

Financial Statement

Formal record of the financial activities and position of a business.

What is the fundamental accounting equation that balances a company's books?

Answer: $Assets = Liabilities + Equity$

If a business has total assets worth $150,000$ and total liabilities worth $90,000$, what is the total Equity?

Answer: $150,000 - 90,000 = 60,000$

Under which accounting method is revenue recorded when a service is performed, even if the cash has not yet been received?

Answer: Accrual Accounting

A company generates $50,000$ in Revenue, has a Cost of Goods Sold (COGS) of $20,000$, and operating expenses of $10,000$. What is the Net Income?

Answer: $50,000 - 20,000 - 10,000 = 20,000$

In a period of rising prices, which inventory valuation method (FIFO or LIFO) typically results in a lower Cost of Goods Sold and a higher ending inventory value?

Answer: FIFO (First In, First Out)

If a company sells goods worth $5,000$ on credit and later receives a payment of $2,000$, what is the remaining balance in Accounts Receivable?

Answer: $5,000 - 2,000 = 3,000$

What is the primary function of a Trial Balance in the bookkeeping cycle?

Answer: To verify that the total dollar amount of debits equals the total dollar amount of credits across all ledger accounts.

A customer purchases an item for $200$ in a jurisdiction with a $7\%$ sales tax. What is the total amount the customer owes?

Answer: $200 + (200 \times 0.07) = 214$

Classify the following items as either an Asset or a Liability:

1. Overdraft at the bank

2. Inventory

3. Loan from a bank

4. Machinery

Answer:

1. Liability

2. Asset

3. Liability

4. Asset

Why do accountants record depreciation rather than charging the full cost of an equipment purchase to a single year's expenses?

Answer: To apply the matching principle, spreading the cost of the asset over its useful life as it contributes to generating revenue.

A company borrows $10,000$ at an annual interest rate of $5\%$. How much is the Interest Expense for one full year?

Answer: $10,000 \times 0.05 = 500$

A company receives a cash deposit of $1,000$ in December for a service to be performed in January. In a Cash-Basis system, when is the revenue recorded?

Answer: December (when the cash is received).

Given the following data:

• Beginning Inventory: $5,000$

• Purchases: $15,000$

• Ending Inventory: $3,000$
  What is the Cost of Goods Sold (COGS)?

Answer: $5,000 + 15,000 - 3,000 = 17,000$

True or False: The Chart of Accounts is a financial statement that shows the profit and loss of a business.

Answer: False. It is a structured list of all accounts used to record transactions, not a summary of profit and loss.

Starting with a cash balance of $2,000$, a business has cash inflows of $8,000$ and cash outflows of $6,500$. What is the ending cash balance?

Answer: $2,000 + 8,000 - 6,500 = 3,500$