Take this short quiz to assess your knowledge of basic accounting. The 35 questions include many topics covered in a typical Accounting 101 class. Answers with explanations are at the end of the test.
35 Basic Accounting Test Questions
Which of the following is not a core financial statement?
- The Income Statement
- Statement of Cash Flows
- The Trial Balance
- The Balance Sheet
The income statement, which presents the results of operations, can be prepared in many forms including:
- Single Step Income Statement
- Condensed Income Statement
- Common Sized Income Statement
- All of the above
Which of the following account types increase by debits in double-entry accounting?
- Assets, Expenses, Losses
- Assets, Revenue, Gains
- Expenses, Liabilities, Losses
- Gains, Expenses, Liabilities
Which of the following is true?
- Accounts receivable are found in the current asset section of a balance sheet.
- Accounts receivable increase by credits.
- Accounts receivable are generated when a customer makes payments.
- Accounts receivable become more valuable over time.
A company that uses the cash basis of accounting will:
- Record revenue when it is collected.
- Record revenue when it is earned.
- Record revenue at the same time as accounts receivable.
- Record bad debt expense on the income statement.
What are the main sections on a balance sheet?
- Assets, liabilities, income
- Assets, liabilities, equity
- Assets, liabilities, expenses
- Assets, gains, revenue
How are a company’s financial statements used?
- For internal analysis
- For external negotiation
- For compliance
- All of the above
Which of the following scenarios increases accounts payable?
- A customer fails to pay an invoice.
- A supplier delivers raw materials on credit.
- Office supplies are purchased with cash.
- None of the above
Which of the following must a certified public accountant (CPA) have in-depth knowledge of to pass the CPA licensing exam? (Check all that apply.)
- Accounting software packages
- International banking laws
What is the result of the following transaction for Company A? Company A’s customer is unable to pay for a previous credit sale in accordance with Company A’s 90-day payment terms. The customer makes a promissory note to Company A that extends payment over a 24-month term including 5% interest.
- No result because the customer didn’t pay.
- Accounts receivable increases because of the interest.
- A note receivable is recorded in non-current assets.
- Company A records the loan as a liability.
When are liabilities recorded under the accrual basis of accounting?
- When incurred
- When paid
- At the end of the fiscal year
- When bank accounts are reconciled
Which is true about time in accounting?
- Current liabilities are debts payable within 2 years.
- Balance sheets reflect a company’s financial position at a certain point in time.
- The time value of money is a finance concept, not relevant in accounting.
- Accounts receivable are more easily collected as time passes.
When a company purchases property, plant, and equipment, how is it reflected on the statement of cash flows?
- As a source of cash in the "cash from investing activities" section
- As a source of cash in the "cash from financing activities" section.
- As a use of cash in the "cash from investing activities" section.
- As a use of cash in the "cash from operating activities" section.
What would the journal entry be for a company that takes out a five-year, $100,000 business loan?
- Debit $100,000 non-current asset, Credit $100,000 non-current liabilities
- Debit $100,000 current asset, Credit $100,000 non-current liabilities
- Debit $100,000 non-current liabilities, Credit $100,000 non-current assets
- Debit $100,000 current liabilities, Credit $100,000 current assets
Which accounts are associated with cost of goods sold?(Video) Accounting Quiz Questions and Answers: The Basic Accounting Equation
- Accrued interest
Which organizations are involved in development of US Generally Accepted Accounting Principles (GAAP)? (Check all that apply.)
- Financial Accounting Standards Board (FASB)
- Government Accounting Standards Board (GASB)
- Securities and Exchange Commission (SEC)
- Federal Accounting Standards Advisory Board (FASAB)
Which inventory valuation method reflects the most current market value for inventory on hand?
- Last-in-First-Out (LIFO)
- Average Costs
- First-in-First-Out (FIFO)
- Specific Identification
Which of the following statements is not true about intercompany accounting?
- Intercompany transactions are between two units within the same legal entity.
- Intercompany transactions are eliminated in consolidated parent financial statements.
- They can significantly impact taxes.
- Intercompany transactions are between different legal entities under the same parent control.
Which is the method of depreciation used for US tax returns that is not GAAP-compliant?
- Straight-line method
- Modified accelerated cost recovery systems
- Double-declining balance method
- Units of production method
What is the most-used method to amortize intangible assets on a company’s financial statements?
- Straight-line method
- Sum of the years’ digits method
- Double-declining balance method
- Units of production method
Which financial statement is a report of a company’s revenues and expenses during a certain time period?
- Statement of Changes in Equity
- Income Statement
- Statement Of Cash Flows
After making a sale of $3,000, where $1,200 is paid in cash and $1,800 is sold on credit, how would a company go about updating its balance sheet?
- $1,800 debit in accounts receivable; $3,000 credit in retained earnings; $1,200 debit in cash
- $3,000 debit in retained earnings; $1,200 credit in cash; $1,800 credit in accounts receivable
- $1,800 debit in accounts payable; $1,200 debit in cash; $3,000 credit in retained earnings
- $1,200 credit in cash; $1,800 credit in accounts payable; $3,000 debit in retained earnings
Which is not an example of financing cash flow?
- Paying off a debt of $25,000
- Investing in equipment worth $90,000
- Paying $12,000 worth of dividends to shareholders
- Issuing $42,000 worth of shares
Which side of the ledger account are debits recorded on?
- Depends on the debit
Are assets on the balance sheet recorded at their estimated fair market value?
- Sometimes; it’s situational
Increasing an asset involves crediting the account.
Unearned revenues are recorded on a company’s balance sheet under which kind of account?
- Current asset
- Owners’ or stockholders’ equity
- Non-current asset
What is the minimum number of accounts that accounting entries can have?
The listing of all the financial accounts within a company’s general ledger is called the _____.
- Chart of accounts
- Journal entry
- Balance sheet
- P&L statement
Which is not classified as a current asset?
- Product inventory
- Liquid assets
- Prepaid liabilities
Which formula is used to calculate operating income?(Video) Accounting Quiz Questions and Answers: Recording Process debit and credit
- Revenue + Direct Operating Cost = Operating Income
- Indirect Operating Cost - Revenue = Operating Income
- Gross Income - Operating Expenses = Operating Income
- Gross Profit - Indirect Operating Cost = Operating Income
Which of these statements about accrual accounting is true?
- Revenue is recorded only when payments are received, while expenses are recognized when they're incurred.
- All revenue from prepayments should be recognized when the payment is received, while expenses accrue over the life of the obligation.
- If the business has provided the goods or services and can reasonably expect to receive cash, it can recognize the revenue in that period.
- The matching principle dictates that expenses should be recognized when they are incurred, regardless of when revenue is recognized.
In a journal entry, a debit decreases which of the following accounts?
- Accounts Payable
- Supplies Expense
- Both a and c
Which describes the double-declining balance depreciation method?
- Estimated salvage value is greater at the end of the assets’ useful life than with straight-line depreciation.
- It yields reports of higher income in the early years and lower income later on.
- This method decreases the useful life of the asset and disposal costs by half.
- The depreciation expense is larger in the first few years and gets smaller as time goes on.
Which one of these WILL NOT yield earnings before interest and taxes (EBIT)?
- Revenue - Cost of goods sold - Operating expenses
- Net income + Tax expense + Interest expense
- Sales + Taxes + Interest
- Gross profit - Operating expenses
Answer Key With Explanations
C — Running a trial balance is an intermediary step in the financial close, not a core financial statement. Core financial statements are: the income statement, the balance sheet, statement of cash flows, statement of retained earnings and the notes to the financial statements.
D — All are correct. A single step income statement has a section for revenue and expenses and only requires one subtraction to arrive at net income/loss. A condensed income statement only includes summary totals. Common sized income statements add a column to show the calculation of each line item as a percentage of revenue.
A — Assets, expenses and losses increase with debits. Revenue, liabilities and gains increase with credits.
A — Accounts receivable is a short-term asset included in the current asset section of a balance sheet and increases by debits. They come about when customer sales are made on credit, not cash. Accounts receivable become harder to collect, and therefore less valuable, as they age.
A — Cash basis accounting records revenue when paid. Accrual accounting reflects revenue when it is earned. Accounts receivable and its related bad debt are part of accrual accounting only.
B — Assets, liabilities and equity are found on the balance sheet. Revenue (or sales), expenses, gains, losses and net income (or earnings) are income statement accounts.
D — All are correct. Financial statements are used for internal analysis, like trending and calculating key performance indicators. External negotiations, such as applying for loans and credit cards, require financials statements. Compliance agencies, such as the Securities & Exchange Commission (SEC), require financial statements from public companies.
B — When a supplier delivers raw material a liability is incurred. Customer payments relate to accounts receivable, not accounts payable. Expenses paid with cash do not generate accounts payable because the payment is made concurrent with incurring the liability.
B — The four sections of the CPA exam are Auditing and Attestation, Business Environment and Concepts, Financial Accounting and Reporting, and Regulation. While knowledge of accounting software, derivative financial instruments and international banking law are helpful, they are not mandatory for licensure.
C — Company A records a note receivable from its customer. It is a non-current asset because the term is greater than 12 months. A non-paying customer would cause accounts receivable to be written off. Interest payments are not recorded in accounts receivable. Company A is the payee of the promissory note, not the debtor, and has no liability.
A — Under the accrual basis of accounting, liabilities are recorded in the fiscal period that they are incurred or committed, regardless of when paid.
B — Balance sheets are prepared "as of" a specified date. Current liabilities are due within the next 12 months. Time value of money, or net present value, is often used by accountants such as for lease accounting. Accounts receivable become less likely to be paid as they age.(Video) Accounting Assessment Test: Questions and Answers
C — Acquisitions of property, plant and equipment are uses of cash/cash equivalents and categorized as an investing activity. The operating activities section of the statement of cash flows captures the inflow/outflows from business operations, such as sales or labor expenses, rather than investments.
B — The transaction increases cash, a current asset, via a debit. It also increases loans payable, which is a non-current liability because it is due in five years, via a credit.
D — Cost of goods sold is an interim step on the income statement and is calculated as: Beginning Inventory + Purchases - Ending Inventory = Cost of Goods Sold.
A, B, C & D — All of the organizations listed are involved in development of financial accounting standards.
C — The FIFO method assumes that the oldest inventory is sold first, and inventory on hand at the end of a period is the newest. The newest purchases reflect the most current market values.
C — The FIFO method assumes that the oldest inventory is sold first, and inventory on hand at the end of a period is the newest. The newest purchases reflect the most current market values.
B — The IRS requires the MACRS method for most fixed assets. MACRS is not GAAP-compliant because salvage values are ignored and because it relies on an IRS-determined table of useful lives that is inconsistent with GAAP principles.
A — The straight-line method is the only GAAP-compliant method for amortizing intangible assets.
B — An income statement is a financial report that documents a company’s earnings over a specific time period — yearly, quarterly or monthly — and records the expenses and costs associated with earning that revenue.
A — $1,800 debit in accounts receivable; $3,000 credit in retained earnings; $1,200 debit in cash. Cash is classified as a current asset and therefore expected to be consumed, sold or exhausted within a year, so it’s recorded on the balance sheet as a debit when it's received. When a customer makes a payment, cash is debited. Conversely, when a customer buys something on credit, the sale is documented in accounts receivable, where all funds owed to a company are accounted for. Retained earnings are a portion of the profits earned that are not used as dividends and are often reserved for reinvesting into the business.
B — Cash flow is defined as the movement of cash in and out of a business, and cash flow from financing activities (CFF) — or cash flow financing — is a section of the cash flow statement that includes transactions involving debt, equity and dividends. The purchase of plant, property and equipment (PP&E) would fall under cash flow from investing.
A — Debits are recorded on the left side of the ledger account because they decrease equity, liability and revenue and increase expense or asset accounts.
B — Assets are recorded at their historical cost values, which means that they are documented at their original cost and time acquired.
B — Increasing an asset involves debiting the account, because assets and expenses have natural debit balances.
D — Unearned revenues are incurred when businesses or individuals receive payment for a product or service that has yet to be delivered or provided. Until the item is delivered, these types of transactions are marked as liabilities.
D — All accounting entries must contain at least two accounts: one that is debited and another that is credited.(Video) Lesson 032 - Basic Accounting Multiple Choice Theory Questions
A — A chart of accounts helps companies break down all financial transactions made during a certain period into subcategories. That enables them to gain deeper insight into the profitability and effectiveness of various products, services or business units.
E — Considering that current assets are expected to be converted to cash within a year, property, which is a long-term asset often held for multiple years, would not be classified as such.
C — Gross Income - Operating Expenses = Operating Income.
A company’s operating income is, in other words, its income from core operations. Operating income is calculated by subtracting operating costs from gross income.
C — If the business has provided the goods or services and can reasonably expect to receive cash, it can recognize the revenue in that period. The accrual concept requires that revenues and costs are recognized when they are earned or incurred, rather than when they are received in cash or paid. This method tends to provide companies with better and more comprehensive insights into their profitability and overall financial health.
B — Accounts payable tracks the money businesses owe to their creditors, so when businesses begin to pay off their purchases, which are recorded as debits, the balance in accounts payable decreases.
D — The depreciation expense is larger in the first few years and gets smaller as time goes on. Double-declining balance depreciation is an accelerated depreciation method that is used to offset an asset’s increased maintenance costs with lower depreciation expenses throughout its lifetime. For example, in knowing that assets will have lower repair and maintenance expenses in their early years, companies allocate higher depreciation expenses to newer assets.
C — Sales + Taxes + Interest.
Earnings before interest and taxes (EBIT) is a business’s net income before interest and taxes are deducted, and it’s often used as a measure of operating profit. There are multiple ways to calculate EBIT; no matter which you use, the metric provides a look at a company’s profitability regardless of its capital structure.
How did you do? It’s accrual world, but continue studying to become audit you can be. (Did you catch our accounting jokes there?). Accounting is a challenging field that requires years of initial education, experience and continuing professional education. Specialties within the field include managerial accounting, cost accounting, project accounting, forensic accounting, nonprofit accounting, tax accounting and financial accounting — which is the type of accounting covered by this test.
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Accounting Basics FAQ
What are the five basic accounting principles?
There are many principles of accounting that guide the way accountants record transactions. Four accounting principles are considered basic: historical cost, revenue recognition, matching and full disclosure. When referring to "5 basic accounting principles," the fifth is objectivity.
What are basic accounting questions?
Basic accounting questions focus on topics concerning the financial statements and how transactions are recorded.
What are the basics of accounting?
Accounting basics include how to value business transactions, how to record activity in a company’s books and how to report business results using financial statements.
What is an accounting assessment test?
An accounting assessment test gauges an individual’s knowledge of basic accounting information, often used to screen potential candidates for bookkeeping and lower-level accounting jobs.
What are some basic accounting questions? ›
- Should I hire an accountant?
- What records should I keep?
- How do I find my break-even point?
- What are my financing options as a business owner?
- How can I prepare for tax season?
The most effective way to learn accounting, and retain what you've learned, is to "REVIEW AS YOU GO". If it's a bad idea to cram for a history exam the night before a test, it's a very bad idea to cram for an accounting test. Never postpone reviewing your accounting until examination time.What are the 10 most common interview questions and answers for accounting? ›
- Why do you want to do accountancy?
- Are you able to convey technical information to someone of more or less technical ability? ...
- What are your strengths and weaknesses?
- Can you give examples of when you've helped a team be successful?
- Why do you want to work for this firm?
Accounting assessment tests are designed to measure your ability to process and analyze numerical data, and to solve problems using logical reasoning abilities. These are used to select the best candidates for entry-level and other roles.What are the 5 basic accounting? ›
Although the guidelines for accountants are extensive, there are five main principles that underpin accounting practices and the preparation of financial statements. These are the accrual principle, the matching principle, the historic cost principle, the conservatism principle and the principle of substance over form.What are the 5 basic accounts? ›
- Assets. Asset accounts usually include the tangible and intangible items your company owns. ...
- Expenses. An expense account can include the products or services a company purchases to help generate additional income. ...
- Income. ...
- Liabilities. ...
About half of the individuals who take the CPA Exam don't pass on their first attempt. According to the AICPA, the national average pass rate is 45-55%. Cumulative pass rates reported by the AICPA for the calendar year 2021 show that FAR had the lowest pass rate at 44.54% and BEC had the highest pass rate at 61.94%.What is the hardest accounting exam? ›
Often considered the most difficult exam, Financial Accounting and Reporting (FAR) has had the lowest passing scores of the four exams. The amount of material CPA Exam candidates have to learn for the exam, coupled with the combination of memorization and application, makes this exam more difficult.Is accounting hard to pass? ›
Accounting is hard because you must understand general, specific, and industry topics in-depth. Accounting requires you to have a nuanced understanding of both general and specific topics associated with the field. This includes financial accounting, auditing, tax, business law, and technology.What are the 5 hardest interview questions and answers? ›
- What is your greatest weakness?
- Why should we hire you?
- What's something that you didn't like about your last job?
- Why do you want this job?
- How do you deal with conflict with a co-worker?
- Here's an answer for you.
What is golden accounting rule? ›
To put it in simple terms, the golden rules of accounting are a set of guidelines that accountants can follow for the systematic recording of financial transactions. They revolve around the system of dual entry i.e., debit and credit. You have to know which accounts have to be charged and which need to be credited.What are the 3 types of accounts? ›
3 Different types of accounts in accounting are Real, Personal and Nominal Account. Real account is then classified in two subcategories – Intangible real account, Tangible real account. Also, three different sub-types of Personal account are Natural, Representative and Artificial.What are the 4 tests for CPA? ›
- Auditing and Attestation (AUD)
- Business Environment and Concepts (BEC)
- Financial Accounting and Reporting (FAR)
- Regulation (REG)
A business must use three separate types of accounting to track its income and expenses most efficiently. These include cost, managerial, and financial accounting, each of which we explore below.What are the 7 principles of accounting? ›
- Accrual principle.
- Conservatism principle.
- Consistency principle.
- Cost principle.
- Economic entity principle.
- Full disclosure principle.
- Going concern principle.
- Matching principle.
IAS 27 prescribes the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity elects, or is required by local regulations, to present separate financial statements.What are 3 Golden Rules of accounts? ›
Take a look at the three main rules of accounting: Debit the receiver and credit the giver. Debit what comes in and credit what goes out. Debit expenses and losses, credit income and gains.What are the 4 ledgers? ›
Types of ledger accounts
Liability accounts: lines of credit, accounts payable, debt, and notes payable. Revenue accounts. Expense accounts. Equity accounts.
Therefore, I conclude that based on pass rates and the length of testing time required, the CPA Exam is harder than the Bar Exam, depending on where you take your Bar Exam.How many times can you fail CPA? ›
You may take any unpassed section of the Uniform CPA Exam year-round. Your only restriction is waiting to receive your score from a previous attempt of the same section. Additionally, there is no limit as to the amount of times you may repeat a failed section.
What exam is harder than CPA? ›
Keep in mind, the Bar exam has much more difficult requirements to even sit for the exam—you need to go to law school, which is quite a commitment, both financially and in terms of time. While the CPA requires accounting experience and coursework, there's a lower bar for entry for this test.Which state has the easiest CPA Exam? ›
Colorado's (CO) CPA exam requirements are possibly the most advantageous of all the states. It does not require 150 hours to sit. With no requirement to be a US Citizen, a resident of CO, or a certain age, it makes Colorado one of the easiest states to sit for the CPA exam and become licensed.How many people pass all 4 CPA exams first try? ›
The overall pass rate for each section of the CPA exam hovers around 50%, but how many people manage to pass all four sections on the first try? About 20%. Around 1 in 2 people will pass a specific section of the exam, and about 1 in 5 people will pass each section on their first try.Is it normal to fail CPA Exam? ›
The CPA Exam has a pass rate of around 50%. So, though millions of candidates have passed the CPA Exam, many first faced failure along the way. Remember, not passing the CPA Exam doesn't mean you can't do this. The CPA Exam is a test of endurance, not intelligence.What is the hardest accounting subject? ›
Tax Accounting: Usually some of the most difficult classes for an accounting major as they delve into the minutia of tax codes, though this knowledge is a major source of income for accounting graduates.Is accounting a lot of math? ›
Accounting isn't hard-core math. It's basic addition, subtraction, multiplication, and division. Possibly some light, entry-level algebra, but that's it. You don't have to understand calculus.Which is harder finance or accounting? ›
Generally speaking, people consider accounting majors to be more difficult to study and pass than finance majors. And there are a few different reasons for this. The content of accounting majors is, on average, much more technical than for finance majors, and this can make it more difficult.What are tricky interview questions? ›
- Can you tell me a little about yourself?
- How did you hear about the position?
- What do you know about the company?
- What are your greatest professional strengths?
- What do you consider to be your weaknesses?
- What is your greatest professional achievement?
- Do you come to work just to work, or do you like to socialize along the way?
- What inspires you to work in this industry?
- Tell me about a time when you felt like a hero at work.
- Tell me about a time when a job or company felt like a bad fit for your personality and why.
- Tell me about yourself.
- Why are you interested in working for this company?
- Tell me about your education.
- Why have you chosen this particular field?
- Describe your best/worst boss.
- In a job, what interests you most/least?
- What is your major weakness?
What are the 3 types of ledgers? ›
- General ledger.
- Sales ledger or debtor's ledger.
- Purchase ledger or creditor's ledger.
The following are the rules of debit and credit which guide the system of accounts, they are known as the Golden Rules of accountancy: First: Debit what comes in, Credit what goes out. Second: Debit all expenses and losses, Credit all incomes and gains. Third: Debit the receiver, Credit the giver.What are the 2 main types of accounting? ›
The two main accounting methods are cash accounting and accrual accounting. Cash accounting records revenues and expenses when they are received and paid. Accrual accounting records revenues and expenses when they occur. Generally accepted accounting principles (GAAP) requires accrual accounting.What are the 4 current accounts? ›
- Standard current accounts. Also known as an everyday current account, this type of account comes with a debit card and access to online banking. ...
- Basic bank accounts. ...
- Packaged bank accounts. ...
- High-interest accounts. ...
- Cashback current accounts. ...
- Student bank accounts.
In double-entry accounting, each journal entry must have at least two accounts: one debit and one credit. Beyond the initial two accounts, there is no limit to how many more an accountant may include in a journal entry.Can you pass the CPA Exam in 3 months? ›
You may wonder, can you really pass all four sections of the CPA exam in 3 months? The answer is yes, you can! While the preparation will be tedious, it's definitely doable.What is the hardest to easiest CPA Exam? ›
CPA Exam sections—hardest to easiest
- Remembering and understanding.
|CPA PEP Module||2020 Pass Rate||2019 Pass Rate|
You can always look into courses at your local community college, or take online courses in accounting for free. Try websites like Coursera or other online education platforms to find free courses taught by distinguished professionals in the field of accounting.What every accountant should know? ›
- Opening a bank account.
- Tracking income, expenses, assets, liabilities, and equity.
- Preparing financial statements.
- Developing a system for bookkeeping.
- Creating a payroll system.
- Figuring out tax regulations and payments.
What is the most important skill for an accountant? ›
Accountants have to be accurate, numbers-minded and analytical. Analytical skills remain one of the most important skills for accounting professionals, especially for those in disciplines such as forensic accounting.
Begin your financial accounting education by learning how to read and analyze three key financial statements: the balance sheet, income statement, and cash flow statement. These documents contain valuable information about your company's spending, earnings, profit, and overall financial health.How can I make accounting easier? ›
- Track and Sort All Business Expense Receipts. ...
- Keep All Contribution and Donation Receipts. ...
- Create an Accurate Invoicing System. ...
- Create a Seamless Payroll System. ...
- Use Software That's Secure and Compliant. ...
- Maintain Current P&L Statements.
You can use Excel's built-in formats and formulas to help you with your accounting. Highlight the cells you're working with then left-click on them so you can bring up a menu. Choose the "Format" option and choose "Accounting" under the "Number" tab.What are the 3 basics of accounting? ›
- 1) Rule One. "Debit what comes in - credit what goes out." This legislation applies to existing accounts. ...
- 2) Rule Two. "Credit the giver and Debit the Receiver." It is a rule for personal accounts. ...
- 3) Rule Three. "Credit all income and debit all expenses."
- Accruals Concept. Revenue is recognized when earned, and expenses are recognized when assets are consumed. ...
- Conservatism Concept. ...
- Consistency Concept.
- Sale in cash to a customer.
- Sale on credit to a customer.
- Receive cash in payment of an invoice owed by a customer.
- Purchase fixed assets from a supplier.
- Record the depreciation of a fixed asset over time.
- Purchase consumable supplies from a supplier.
- Investment in another business.
Take a look at the three main rules of accounting: Debit the receiver and credit the giver. Debit what comes in and credit what goes out. Debit expenses and losses, credit income and gains.What is the golden rule of accounting? ›
Rule 1: Debit all expenses and losses, credit all incomes and gains. This golden accounting rule is applicable to nominal accounts. It considers a company's capital as a liability and thus has a credit balance. As a result, the capital will increase when gains and income get credited.What are the 4 principles of accounting? ›
The four basic principles in generally accepted accounting principles are: cost, revenue, matching and disclosure.
What are the 7 basic accounting categories? ›
- Revenue. For a business, the total amount of money the company receives for selling services and products is its revenue. ...
- Expenses. Expenses are the costs a business incurs to generate revenue. ...
- Assets. ...
- Liabilities. ...
- Capital. ...
- Accounts. ...
- Financial statements.
Business Entity, Money Management, Cost, Dual Resources, Time Period, Realization, Consistency, Matching, etc are some of the basic accounting concepts which are known as Generally Accepted Accounting Principles or GAAP in the business world.What are the three types of transactions? ›
Based on the exchange of cash, there are three types of accounting transactions, namely cash transactions, non-cash transactions, and credit transactions.What are the six basic accounts? ›
- Asset accounts are used to recognize assets. ...
- Liability accounts are used to recognize liabilities. ...
- Equity accounts are used to recognize ownership equity. ...
- Revenue accounts are used to recognize revenue. ...
- Expense accounts are used to recognize expenses. ...
- Gain accounts are used to recognize gains.
: Business Entity, Money Measurement, Going Concern, Accounting Period, Cost Concept, Duality Aspect concept, Realisation Concept, Accrual Concept and Matching Concept.