Quizzes - BrainMass

What is the basic algebraic formula used in accounting?

Assets = Liabilities + Equity, or A = L + E

There is no algebra in accounting.

What does double-entry accounting mean?

Double entry means that each transaction should be double checked to be certain it is cortrect.

Double entry, as developed in Italy in the 14th century, means there are two entries for each transaction. The development promoted credibility of record keeping and a perception of honesty.

Does a left side debit always mean increase?

A debit will denote an increase for assets and expenses but not so with liabilities and equity accounts.

Debit means increase, whether a left or right side entry

What are normal balances for assets, liabilities and equity? Debit or credit?

Normal balances are: assets debit, liabilities debit, and equity accounts credit.

Normal balances are: assets debit, liabilities credit, and equity accounts credit.

What are normal balances for revenues and expenses?

Normal balances for revenues are credit and for expenses are debit.

There are no normal balances for income statement accounts.

Rewrite the accounting equation to show the net equity or net worth of an entity.

Assets – Liabilities = Equity, or A – L = E. The concept is important because it shows the residual value of an entity. In theory, if assets were used to pay liabilities, the net value left would be the equity of the company.

It is not possible to modify the formula.

Provide three examples of types of equity accounts.

There are only two types of equity accounts: stock and retained earnings

Capital stock, either preferred or common, is a standard equity account for a corporation. Retained earnings represent the accumulated net income for an entity over its life of operation. Dividends are reductions of equity to reward stockholders with dividends as a share of accumulated profits.

Of two common types of business use software, which of the following displays double-entry accounting? Quicken or QuickBooks?

The income statement resulting from the use of Quicken is an example of a single entry system. In its simplest form, it is a compilation of checkbook activity. QuickBooks, on the other hand, is a double entry system in which the program itself often makes the second entry of a transaction for the user.

Both software products use double entry account, but Quickbooks is designed for business use only.

Does an entity ever outgrow the double entry accounting system?

The change in accounting with the evolution of electronic over manual systems made the use of double entry obsolete.

There is no other system of accounting beyond the double entry system. It makes no difference whether it is a manual or electronic system. It doesn’t matter whether it is branch versus home office accounting, or whether foreign or US-based accounting. The end result is a double entry system from which full financial statements can be prepared and issued.

Is it possible to operate a business using a single-entry system of accounting?

Yes, it is possible to use single entry accounting which may be limited to a checkbook. The system is sufficient to produce a profit and loss statement provided there are no complications such as inventory or bank debt, for example.

A business must use double entry account for tax and business reporting.

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