Accounting Basics

5 Written Questions

1. A word to describe whether a company is able to earn more revenues than expenses.
2. Fees earned from providing services and the amounts of merchandise sold.
3. This is the bottom line of the income statement. It is the mathematical result of revenues and gains minus the cost of goods sold and all expenses and losses (including income tax expense if the company is a regular corporation) provided the result is a positive amount.
4. Reports the revenues, gains, expenses, losses, net income and other totals for the period of time shown.
5. A current asset resulting from selling goods or services on credit (on account).

4 Multiple Choice Questions

1. Revenues are recognized when cash is received. Expenses are recognized when paid. (Not in compliance with Accounting's Matching Principle)
   1. net income
   2. cash basis of accounting
   3. revenues / income
   4. accrual basis of accounting
2. The bottom line of the income statement when revenues and gains are less than the aggregate amount of cost of goods sold, operating expenses, losses, and income taxes (if the company is a regular corporation).
   1. expenses
   2. net loss
   3. sales
   4. net income
3. Revenues are recognized when they are earned. Expenses are matched to revenues or the accounting period when they are incurred.
   1. accrual basis of accounting
   2. cash basis of accounting
   3. revenues / income
   4. accounts receivable
4. Costs that are matched with revenues on the income statement.
   1. net income
   2. expenses
   3. net loss
   4. sales

4 True/False Questions

1. interest expense → This account is a non-operating or "other" expense for the cost of borrowed money or other credit. The amount appearing on the income statement is the cost of the money that was used during the time interval shown in the heading of the income statement, not the amount of interest paid during that period of time.

   True        False

2. revenue recognition principle → The principle that requires a company to match expenses with related revenues in order to report a company's profitability during a specified time interval.

   True        False

3. matching principle → The principle that requires a company to match expenses with related revenues in order to report a company's profitability during a specified time interval.

   True        False

4. sales → The bottom line of the income statement when revenues and gains are less than the aggregate amount of cost of goods sold, operating expenses, losses, and income taxes (if the company is a regular corporation).

   True        False