Bookkeeping Flashcards

Which financial statement reports a company's revenues and expenses over a specific period?

Answer: Income Statement

The Income Statement (also called the Profit and Loss Statement) reports revenues and expenses for a defined accounting period.

When a business pays its monthly rent in advance for six months, the initial entry debits:

Answer: Prepaid Rent

Prepaid Rent (an asset) is debited when rent is paid in advance because the benefit has not yet been consumed.

Which bank reconciliation item requires a journal entry by the company?

Answer: Bank service charges

Bank service charges appear on the bank statement but not in the company's books, so a journal entry is needed to record them.

What does the term 'double-entry bookkeeping' mean?

Answer: Every debit has an equal and offsetting credit

Double-entry bookkeeping means every transaction affects at least two accounts such that total debits always equal total credits.

Which of the following best describes 'accounts payable'?

Answer: Money the company owes to suppliers

Accounts Payable represents amounts owed by the company to its vendors or suppliers for goods or services received on credit.

If a company's ending inventory is overstated, what is the effect on net income for that period?

Answer: Net income is overstated

Overstated ending inventory reduces COGS, which overstates gross profit and therefore overstates net income.

Which posting step follows recording a transaction in the general journal?

Answer: Transferring amounts to the general ledger

After journalizing, each debit and credit is posted (transferred) to the appropriate general ledger account.