We will test your understanding of this topic with this quiz. This explanation of accounting basics will introduce you to some basic accounting principles, accounting concepts, and accounting terminology. Once you become familiar with some of these terms and concepts, you will feel comfortable navigating through the explanations, quizzes, quick tests, video training, and other features on AccountingCoach.com. Joe is a hard worker and a smart man, but admits he is not comfortable with matters of accounting.
Enroll now to gain the skills you need to take your career to the next level. We will present the basics of accounting through a story of a person starting a new business. The person is Joe Perez—a savvy man who sees the need for a parcel delivery service in his community. Joe has researched his idea and has prepared https://personal-accounting.org/ a business plan that documents the viability of his new business. If you have difficulty answering the following questions, learn more about this topic by reading our Debits and Credits (Explanation) and Additional Explanation. Take your learning and productivity to the next level with our Premium Templates.
He assumes he will use some accounting software, but wants to meet with a professional accountant before making his selection. He asks his banker to recommend a professional accountant who is also skilled in explaining accounting to someone without an accounting background. Joe wants to understand the financial statements and wants to keep on top of his new business. His banker recommends Marilyn, an accountant who has helped many of the bank’s small business customers. With thousands of such transactions in a given year, Joe is smart to start using accounting software right from the beginning. Accounting software will generate sales invoices and accounting entries simultaneously, prepare statements for customers with no additional work, write checks, automatically update accounting records, etc.
- This is a key concept of any financial accounting 101 course.
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- When a business’ total revenues are greater than its expenses, then the income statement will show a “net income”, meaning that the business is profitable.
To make accounting even easier to understand, we created a collection of premium materials called AccountingCoach PRO. Our PRO users get lifetime access to our visual tutorials, video training, cheat sheets, flashcards, quick tests, quick accounting 101 quiz tests with coaching, business forms, and more. CFI is the official global provider of the Financial Modeling and Valuation Analyst (FMVA)™ certification program, designed to transform anyone into a world-class financial analyst.
Start with a free account to explore 20+ always-free courses and hundreds of finance templates and cheat sheets. This course offers free online tutorials on accounting basics. It aims to build and solidify one’s knowledge of the foundations which are vital in building a career in accounting & finance or in managing a small business. In this explanation of accounting basics, and throughout all of the free materials and the PRO materials—we will often omit some accounting details and complexities in order to present clear and concise explanations. This means that you should always seek professional advice for your specific circumstances. Through a series of steps known as accounting cycle, it gathers information about business transactions, and collates and summarizes them to generate reports for a business entity.
The overall equation for an income statement is Revenue – Expenses. When a business’ total revenues are greater than its expenses, then the income statement will show a “net income”, meaning that the business is profitable. This is a key concept of any financial accounting 101 course. My Accounting Course is a world-class educational resource developed by experts to simplify accounting, finance, & investment analysis topics, so students and professionals can learn and propel their careers.
Some of the basic accounting terms that you will learn include revenues, expenses, assets, liabilities, income statement, balance sheet, and statement of cash flows. You will become familiar with accounting debits and credits as we show you how to record transactions. You will also see why two basic accounting principles, the revenue recognition principle and the matching principle, assure that a company’s income statement reports a company’s profitability.
Profit is equal to:
By getting into the habit of entering all of the day’s business transactions into his computer, Joe will be rewarded with fast and easy access to the specific information he will need to make sound business decisions. Marilyn tells Joe that accounting’s “transaction approach” is useful, reliable, and informative. She has worked with other small business owners who think it is enough to simply “know” their company made $30,000 during the year (based only on the fact that it owns $30,000 more than it did on January 1). Those are the people who start off on the wrong foot and end up in Marilyn’s office looking for financial advice. Over 1.8 million professionals use CFI to learn accounting, financial analysis, modeling and more.
Accounting Quizzes
The Accounting Path’s in house experts draw upon a broad network of professionals to bring you the most up to date information what’s happening in the accounting world. We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping. If you have difficulty answering the following questions, learn more about this topic by reading our Accounting Basics (Explanation).
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How good are your basic accounting principles and concepts? Try out these quiz questions and answers and check your financial knowledge. Accounting principles are the common rules and guidelines that companies need to follow while preparing and presenting financial statements.
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At his first meeting with Marilyn, Joe asks her for an overview of accounting, financial statements, and the need for accounting software. Based on Joe’s business plan, Marilyn sees that there will likely be thousands of transactions each year. She states that accounting software will allow for the electronic recording, storing, and retrieval of those many transactions.
Accounting software will permit Joe to generate the financial statements and other reports that he will need for running his business. This Accounting Test is designed to help you assess your knowledge of essential accounting principles and basic concepts. This is also a useful resource for employers to examine the technical knowledge of the candidates during an accounting or finance interview.