D103 Intermediate Accounting I - Set 3 - Part 1

Correct Answer:

The revenue recognition principle dictates that revenue should be recognized in the accounting period when it is earned, not necessarily when cash is received.

Correct Answer:

Equipment is classified as a non-current asset because it is expected to provide economic benefits for more than one year.

Correct Answer:

Accounts payable represent obligations to pay suppliers for goods or services purchased on credit, classifying it as a liability.

Correct Answer:

The balance sheet shows the company's assets, liabilities, and equity at a specific date, providing a snapshot of its financial position.

Correct Answer:

Liquidity indicates how quickly and easily assets can be converted into cash to meet short-term obligations.

Correct Answer:

Gross profit is calculated by subtracting the cost of goods sold from total revenue, indicating how much money is made from sales before operating expenses are deducted.

Correct Answer:

Deferred revenue refers to cash received for goods or services that have not yet been delivered, requiring recognition as a liability until earned.

Correct Answer:

Accrual basis accounting records transactions when they occur, providing a more accurate picture of financial performance over time.

Correct Answer:

Net working capital measures a company's operational liquidity, indicating the difference between current assets and current liabilities.

Correct Answer:

The current ratio assesses the company's ability to pay short-term obligations with its short-term assets.

Correct Answer:

The cash flow statement tracks the sources and uses of cash, helping stakeholders understand the company's liquidity and financial health.

Correct Answer:

Capital expenditures are funds used to acquire or upgrade physical assets, intended to benefit the company over a long period.

Correct Answer:

Intangible assets include non-physical items like patents, copyrights, and trademarks that provide long-term value to the company.

Correct Answer:

ROE measures a company's profitability by revealing how much profit is generated with shareholders' equity.

Correct Answer:

Negative cash flow indicates that a company's cash outflows exceed its cash inflows, leading to a decrease in available cash.

Correct Answer:

The statement of changes in equity outlines movements in equity accounts, including new capital and distributions to shareholders.

Correct Answer:

Operating activities encompass the primary revenue-generating activities of a business, including cash payments for salaries and other operational expenses.

Correct Answer:

Materiality refers to the importance of information that could influence the decisions of users of financial statements.

Correct Answer:

The full disclosure principle mandates that all pertinent information must be included in financial statements to inform users effectively.

Correct Answer:

Managerial accounting emphasizes generating data and reports to assist management in making informed business decisions.