1. **What is the accounting equation, and why is it important?**
Answer: The accounting equation (Assets = Liabilities + Equity) is like a balance scale for a business's money. It's important because it helps keep track of where the money comes from and where it goes. It ensures that everything adds up correctly.
2. **Explain the accrual basis of accounting. How does it differ from cash basis accounting?**
Answer: Accrual accounting records money when it's earned or spent, even if no cash has changed hands yet. Cash accounting only records money when it's received or paid in cash.
3. **What is the difference between revenue and profit in accounting?**
Answer: Revenue is the total money a business makes from its main activities. Profit is what's left after taking away all the costs from that revenue.
4. **Define depreciation. Why is it important in accounting?**
Answer: Depreciation is like spreading the cost of something (like a computer) over its useful life. It's important because it helps show how valuable things are over time.
5. **What is the purpose of a trial balance in accounting?**
Answer: A trial balance is like a math check to make sure all the money records are accurate before making financial reports.
6. **Explain the concept of goodwill in accounting.**
Answer: Goodwill is like extra value a business gets when it buys another business. It's recorded on the books when businesses are bought or sold.
7. **What is the difference between current assets and fixed assets? Provide examples of each.**
Answer: Current assets are like money that can be used soon, like cash or money customers owe. Fixed assets are like things a business owns for a long time, like buildings and equipment.
8. **What are the three main financial statements, and what information does each provide?**
Answer: There are three important money reports: the Income Statement (shows if a business is making money), the Balance Sheet (shows what a business owns and owes), and the Cash Flow Statement (shows how money flows in and out).
9. **Explain the principle of conservatism in accounting.**
Answer: Conservatism means being careful. In accounting, it means being cautious and not overestimating how much money a business has or is making.
10. **What is the purpose of the Generally Accepted Accounting Principles (GAAP)?**
Answer: GAAP are like the rules everyone follows in accounting. They make sure all businesses report their money in the same way so that investors and others can understand and trust the reports.
11. **What is the difference between a liability and an expense in accounting?**
Answer: A liability is like a promise to pay money later, like a bill. An expense is a cost a business has right now, like rent or electricity.
12. **Define the concept of materiality in accounting.**
Answer: Materiality means something is important enough to be included in the money reports. If it's not important, it might be left out.
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