Questions

1. Explain what conservatism means, and give an example in your own words.

2. State the accounting equation, and explain what each part represents.

3. How do revenues and expenses affect the accounting equation?

4. Does every transaction affect both sides of the accounting equation? Explain your answer.

5. Which is the “book of original entry”?

6. What is the effect on the accounting equation when a business purchases supplies on account?

7. What is the effect on the accounting equation when a business pays the balance due on accounts payable?

8. Is it still necessary to record a transaction if it has no net effect on the accounting equation? Explain your answer.

9. Why does the combined total of the company’s liabilities and equity always equal the total of the company’s assets?

10. What do the terms “debit” and “credit” mean?

11. Will an accounts receivable balance increase with a debit or a credit entry? How do you know?

12. What types of accounts will increase with a credit?

13. What is a journal?

14. Why is a journal referred to as the “book of original entry”?

15. What does the term recognize mean?

16. What are the rules you should follow when recording journal entries?

17. What is the general ledger?

18. Explain the steps in posting.

19. What is a T-account? When would we use T-accounts?

20. Explain normal balances. Give three examples of accounts that will normally have a debit balance and three accounts that will normally have a credit balance.

21. What is a prepaid account? What type of account is it?

22. What is an unearned account? What type of account is it?

23. Explain what a T-account is and what purpose it serves.

24. Can a credit entry be described as a generally positive or negative transaction? Explain.

25. What types of accounts are increased with a debit?

26. What types of accounts are increased with a credit?

27. What does an account’s “normal balance” indicate?

28. Does the order in which financial statements are prepared matter?

29. Answer the following questions about the trial balance: What is the purpose of it? What is the primary usefulness of it?

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