D103 Intermediate Accounting I - Set 5 - Part 1

Correct Answer:

Financial accounting focuses on creating reports and statements that communicate the financial position and performance of a company to external stakeholders like investors and creditors.

Correct Answer:

Accrual basis accounting records revenues and expenses when they are earned or incurred, not when cash is exchanged.

Correct Answer:

Accounts receivable represent outstanding invoices or amounts customers owe to the company for goods or services provided.

Correct Answer:

Depreciation accounts for the wear and tear or obsolescence of tangible assets over their useful lives.

Correct Answer:

The balance sheet provides a snapshot of a company's assets, liabilities, and equity at a specific date.

Correct Answer:

Liquidity measures how easily an asset can be converted into cash without significantly affecting its price.

Correct Answer:

The accounting equation represents the relationship between a company's assets, liabilities, and shareholders' equity, and it must always be in balance.

Correct Answer:

Current assets are expected to be converted into cash or used up within one year, and inventory is included in this category.

Correct Answer:

A trial balance lists all account balances to verify that total debits equal total credits, ensuring the accuracy of the ledger.

Correct Answer:

The current ratio compares a company's current assets to its current liabilities, indicating its ability to meet short-term financial obligations.

Correct Answer:

Accumulated depreciation is a contra asset account that reduces the book value of fixed assets on the balance sheet.

Correct Answer:

The matching principle ensures that expenses are recorded in the same period as the revenues they contribute to, providing a more accurate financial picture.

Correct Answer:

The balance sheet summarizes a company's assets, liabilities, and equity at a specific point in time, while revenue is reported on the income statement.

Correct Answer:

Managerial accounting provides financial and non-financial information to managers for decision-making, planning, and controlling operations.

Correct Answer:

The income statement provides information about a company's profitability by summarizing revenues and expenses over a specific period.

Correct Answer:

Fixed expenses do not change with the level of production or sales; they remain constant over a certain period.

Correct Answer:

Solvency measures a company's capacity to meet its long-term debts and financial obligations.

Correct Answer:

Working capital is a measure of a company's short-term financial health, indicating its ability to cover short-term obligations with short-term assets.

Correct Answer:

The cost principle states that assets should be recorded on the balance sheet at their original purchase cost, regardless of their current market value.

Correct Answer:

Intangible assets are non-physical assets such as patents, trademarks, and goodwill that provide value to a company.