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ACCT 2331: EXAM 1
company that is legally separated from its owners
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corporation
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what is the advantage of being in a corporation
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stockholders have limited liability
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prevents stockholders from being held personally responsible for the financial obligations of the corporation
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limited liability
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resources of a company
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Assets
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amounts owed to creditors
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liabilities
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owners claims to resources
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stockholders equity
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basic accounting equation
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assets=liabilities+stockholders equity
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amounts earned from selling products or services to customers
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revnues
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costs of providing products & services
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expenses
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distributions to stockholders
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dividends
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cumulative amount of net income earned over the life of a company that has been kept in the business rather than distributed to stockholders as dividends
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retained earnings
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stockholders equity equation
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common stock + retained earnings=total stockholders equity
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financial statement that measures activities involving cash receipts & cash payments over an interval of time
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statement of cash flows
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we can classify all cash transactions into 3 categories: what are they?
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operating, investing, financing
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x cash flows include cash receipts & cash payments for transactions involving revenues & expenses
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operating
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x cash flows include cash transactions for the purchase and sale of investments & productive long-term assets.
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investing
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x assets are resources owned by a company that are thought to provide benefits for more than one year
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long-term
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x cash flows include cash transactions with lenders, such as borrowing money & repaying debt, and with stockholders, such as issuing stock & paying dividends
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financing
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which financial statement conveys a company's ability to generate profits in the current perio
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income statement
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the body of rules and procedures that guide the measurement and communication of financial accounting information is known as
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gaap (generally accepted accounting principles)
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borrow from the bank
a. financing
b. investing
c. operating
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a. financing
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provide services to customers
a. financing
b. investing
c. operating
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c. operating
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issue common stock to investors a. financing
b. investing
c. operating
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a. financing
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buy stock
a. financing
b. investing
c. operating
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investing
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purchase land
a. financing
b. investing
c. operating
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b. investing
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pay rent for current period
a. financing
b. investing
c. operating
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c. operating
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pay dividends to stockholders
a. financing
b. investing
c. operating
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a. financing
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purchase building
a. financing
b. investing
c. operating
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b. investing
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owners' claim to the resources of a company
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stockholders equity
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what is the date for a balance shet
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PREPARED FOR A SPECIFIC DATE
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a net loss x retained earnings
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decreases
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the financial statement that displays a firm's financial position on a particular date is the
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balance sheet
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dividends paid to shareholders is on which financial statement
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statement of stockholders equity
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which business organizations owners have unlimited liability
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sole proprietorship & partnership
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if investor or lenders were interested in the amount of debt a company currently has, which financial statement would they need?
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balance sheet
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if investors or leaders were interested in the amount of debt a company currently has, what financial statement would they need
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balance sheet
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when you use up assets it becomes
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expenses
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x accounting info is provided for internal users
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managerial
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x accounting info is used for external users
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financial
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are managers internal or external users
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internal
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what are the 2 primary functions of financial accounting?
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1. measure business activities
2. communicate measures for decision makers
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what is the basic accounting equation?
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assets=liabilities+stockholders equity
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what is the formula for the balance sheet
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assets=liab+SE
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owners claims are a.
creditors claims are b.
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a. SE
b. liabilities
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assets are...
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resources
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what is the formula for the income statement?
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revenues-expenses=net income
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distributions to owners that are used in corporations
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dividends
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what is the opposite of dividends
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withdrawals
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2 parts of SE
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retained earnings + common stock
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investment of stockholders
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contributed capital
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is the profiters loss of business since startup less distribution to owners or stockholders
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retained earnings
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what are the 4 financial statements in order
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1. income statement
2. statement of SE
3. balance sheet
4. statement of cash flows
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revenues-expenses=
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net income
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corporation owners are known as
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stockholders
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does net income increase or decrease retained earnings
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increases
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do dividends increase or decrease retained earnings
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decrease
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will cash be found in an adjusting entry
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NO
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t account: where do you place the balance?
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larger side
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when you are closing an account and reducing the temporary accounts to zero, where do you transfer the amounts?
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retained earnings
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accumulated depreciation is an example of a
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contra-asset account
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if 1 year of rent is paid in advance on January 1st, 2015 and was debited to prepaid rent. what adjusting entry is needed to adjust on 1/31/2015?
a. debit prepaid rent, credit cash
b. debit rent expense, credit prepaid rent
c. debit rent expense, credit unearned revenue
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b. debit rent expense, credit prepaid rent
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another name for 'statement of financial position'
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balance sheet
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what is a fiscal year
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june-may
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process of transferring info from journal to the ledger is called
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posting
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accounts payable.
a. classification
b. normal balance
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a. liability
b. credit balance
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expenses:
a. increase/decrease SE
b. normal balance is credit or debit
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a. decrease
b. debit
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what is the normal sequence of info in an accounting system?
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source document, journal, ledger
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the adjustment that allocates the cost of a fixed asset over the periods benefited by it use is
a. prepaid expense
b. unearned revnue
c. depreciation
d. accrual
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c. depreciation
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the current assets section of the balance sheet should include
a. machinery
b. patents
c. inventory
d. goodwill
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c. inventory
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which is not correct form for an adjusting entry?
a. debit to asset, credit to liability
b. debit to a liability, credit to revenue
c. debit to revenue, credit to liability
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a. debit to asset, credit to liability
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the matching principle controls
a. where on the income statement expenses should be presented
b. when costs are recognized as expenses on the income statement
c. the ordering of current asets & current liabilites on balance shet
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b. when costs are recognized as expenses on income statement
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assumption that helps us classify things as current or long-term
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going concern
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assumption that reports on one business at a time
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economic entity
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events that affect the financial position of the company but do not include an exchange with a separate economic entity
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internal transactions
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summary of all transactions related to a particular item over a period of time
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account
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prepaid rent
a. classification
b. increases with a
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asset
b. debit
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when you accrue revnue, you debit a x account, and credit a y account
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x. receivable
y. revenu
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Purchasing a building for $110,000 by paying cash of $15,000 and signing a note payable for $95,000 will..
a. increase both total assets & liabilites by 95,000
b. increase total assets & liabilities by 110,000
c. decrease total assets and liabilites by 15,000
d. decrease total assets & increase total liabilites by 15,000
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a. increase both total assets & liabilities by 95,000
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after initially recording a transaction, data is copied or posted to a
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ledger
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which of the following accounts is increased with a debit?
a. unearned revenue
b. prepaid expense
c. service revnue
d. retained earnings
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b. prepaid expense
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Received utility bill, the bill will be paid at a later date.
a. no note required
b. debit utility expense, cr. cash
c. debit utility expense, cr. utility pay
d. dr utility payable, cr. utility expense
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c. debit utility expense, credit utility payable
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in accounting, the matching principle means to match which of the following?
a. revenues-expenses
b. expenses-liabilities
c. expenses-revenues
d. revenues-liabilities
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c. expenses-revenues
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which is true?
a. assets=liab+cc-ret. earnings
b. asses-liab=cc+ret earn
c. assets+CC=liab+CC
d. assets-liab+cc=re
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b. assets-liab=cc+ret earnings
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which of the following accounts is NOT on the balance sheet?
a . unearned revneue
b. salaries payable
c. salaries expense
d. supplies
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c. salaries expense
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a debt that a corporation owes to an outside party is called a
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liability
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an increase in an expense account could be balanced in a journal entry by
a. a decrease in revenue account
b. a decrease in a liability account
c. a decrease in equity
d. a decrease in an asset acount
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d. a decrease in an asset account
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A business acquire equipment for $140,000 on 1/1. Has life of 7 years and 0 salvage value.
What is the required entry on 12/31?
a. debit 140k to equip, credit 140k to cash
b. debit 20k to depreciation expense & credit 20k to accumulated depreciation
c. debit 20k to dp. exp., credit 20k to equipment
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b. debit 20k to depreciation expense, credit 20k to accumulated depreciation
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if net income is $80,000, dividend is $24,000, & ending retained earnings balance is $105,000. how much is beginning RE?
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$49,000
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Business collects a $5000 accounts receivable from its customers. how is the accounting equation afffected?
a. assets increase by 5k, liab dec by 5k
b. 1 asset increases by 5k, another one decreases by 5k
c. assets increase by 5k, liabilities increase 5k
d. assets inrease 5k, se increase by 5k
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b. 1 asset increases by 5k, another decrease by 5k
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which of the following accounts have a normal debit balance
a. assets & revenues
b. liabilites & revnues
c. expesnses & assets
d. liabilites & retained earnings
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c. expenses & assets
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transactions are OG recorded in a
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journal
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which are decreased with a debit?
a. asset & revenues
b. liabilities & revenues
c. expenses & assets
d. liabilites & retained earnings
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b. liabilites & revenues
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when you record info in a journal entry, you are x a transaction
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journalizing
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on 8/1/2015, a business paid $6000 for 6 months rent. after adj. entries are made, what will be the balance of prepaid rent on 12/31/2015?
a. 6000
b. 1000
c. 2000
d. 4000
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b. 1000
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(Read)
Objectives of financial accounting are..
Information must be.
1. useful to investors & creditors in making decisions
2. helps to predict cash flow
3. tells about resources
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------READ----
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paying on accounts payable would result in
a. DR cash, CR accts pay
b. DR accts pay, CR unearned revenue
c. DR accts rev, CR advertising expense
d. DR accts payable, CR cash
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D. DR accts payable, CR cash
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a journal entry for a $75 payment for rent expense has posted as a debit to salary expense and credit to cash. no other mistake was made. this error willl cause what change?
|
sum of credits will still = sum of debit
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what must result if rev-expenses is less than the amount of dividends paid?
a. RE account increases
b. company has positive net income
c. company has net loss
d. retained earnings account decreases
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d. RE account decreases
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Ending retained earnings equation is
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Beginning retained earnings + net income -dividends = ERE
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Those obligations of a firm that must be either paid in cash or settled by providing goods or services within 1 year are referred to as
a. current liabilities
b. current assets
c. notes payable
d. bonds payable
|
a. current liabilities
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which of the following accounts would appear in the balance sheet debit column?
a. unearned service revneue
b. depreciation expense
c. service revenue earned
d. prepaid insurance
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d. prepaid insurance
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a corporation pas cash dividends. how does the payment of dividens affect the acct. equation?
a. no effect
b. assets decrease, SE decreases
c. assets increase, liabilites decrease
d. assets decrease, SE increases
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b. assets decrease, SE decreases
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A 2-year insurance policy in th amount of $2400 was purchase on 2/1 and was recorded by debiting the prepaid insurance account. At the end of the fiscal year on June 30th, 2015. the firm will have to recognize insurance epxense of
a. 2400
b. 500
c. 1900
d. 1100
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b. 500
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at the end of the accounting period, the office supplies account shows a balance of $500, but the actual supplies on hand amount to only $300. if this situation calls for an adj. entry, what account should be debited?
a. office supplies
b. office supplies payable
c .unused office supplies
d. office supplies expense
|
d. office supplies expense
|
on oct. 1st, a company receives $1000 from a customer as advanced payment for services to be rendered & credits unearned revenues @ time of receipt. by adj. JE at 12/31 would include
a. debit to unearned revenue for $750
b. credit to unearned revenue for $750
c. debit to unearned revenue for $250
d. credit to unearned revenue for $250
|
a. debit to unearned revenue for $750
|
net income=15
liabilities 1/1=140
what are liabilities at 12/31/15 if no withdrawals or investements were made during the year?
|
$155
|
expanded accounting equation
|
assets=liabilities+CC+ret earnings+(rev-exp)-dividends
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assets=liabilities+CC+ret earnings+(rev-exp)-dividends
|
accounts receivable
|
summary of the revenue and expenses for a specific period of time, such as a month or year. also called statement of earnings or profit & loss statement or statement of operations.
|
income statement
|
statement that reports the changes in the earnings that are retained in the business for a specific period of time, such as a month or a year AND the changes of stockholders equity.
|
statement of stockholders equity
|
summary. also called statement of financial position. list of the assets, liabilities, and SE as of a specific date, usually at the close of the last day of a month or year
|
balance sheet
|
summary of cash receipts (increases in cash) and cash payments (decreases in cash) for a specific period of time, such as a month or year
|
Statement of Cash flows
|
measurement rules that are used to determine the numbers that appear on the financial statements and how the statements are prepared
|
GAAP- generally accepted accounting prniciples
|
Cash: Statement found on?
|
Balance sheet
|
Inventory : Statement found on?
|
Balance sheet
|
supplies expense is found on which statement(s)?
|
income statement
|
equipment is found on which statement(s)?
|
balance sheet
|
land is found on which statement(s)?
|
balance sheet
|
accounts payable is found on which statement(s)?
|
balance sheet
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interest payable is found on which statement(s)?
|
balance sheet
|
accounts payable is found on which statement(s)?
|
balance sheet
|
income tax expense is found on which statement(s)?
|
income statement
|
common stock is found on which statement(s)?
|
balance sheet
|
dividends is found on which statement(s)?
|
statement of SE
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cost of goods sold is found on which statement(s)?
|
income statement
|
utilities expense is found on which statement(s)?
|
income statement
|
prepaid insurance is found on which statement(s)?
|
balance sheet
|
patents is found on which statement(s)?
|
balance sheet
|
accounts receivable is found on which statement(s)?
|
balance sheet
|
supplies is found on which statement(s)?
|
balance sheet
|
buildings is found on which statement(s)?
|
balance sheet
|
prepaid rent is found on which statement(s)?
|
balance sheet
|
accrued liabilities is found on which statement(s)?
|
balance sheet
|
unearned revnue is found on which statement(s)?
|
balance sheet
|
interest payable is found on which statement(s)?
|
balance sheet
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additional paid-in capital- common stock is found on which statement(s)?
|
balance sheet
|
utilities payable is found on which statement(s)?
|
alance sheet
|
prepaid rent is found on the
|
balance sheet
|
prepaid insurance is classified as an
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asset
|
patents are classified as an
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asset
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accounts receivable are classified as
|
assets
|
cost of goods sold are classified as
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expenses
|
patents are classified as
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assets
|
notes payable, current portion is found on which statement(s)?
|
balance sheet
|
patents is found on which statement(s)?
|
balance sheet
|
retained earning is found on which statement(s)?
|
statement of SE & balance sheet
|
how are liabilites listed
|
in order of due date
|
what liability will always be first
|
accounts payable
|
how quickly & easily something can be converted to cash
|
Assets
|
DIVIDENDS
debit: increase/decrease
credit: increase/decrease
|
debit increases
credit decreases
|
EXPENSES
debit: increase/decrease
credit: increase/decrease
|
DEBIT INCREASES
CREDIT DECREASES
|
ASSET
debit: increase/decrease
credit: increase/decrease
|
debit increases
credit decreases
|
LIABILITIES
debit: increase/decrease
credit: increase/decrease
|
DEBIT DEC.
CREDIT INC.
|
OWNERS EQUITYdebit: increase/decrease
credit: increase/decrease
|
DEBIT DECREASE
CREDIT INCREASE
|
REVENUES
debit: increase/decrease
credit: increase/decrease
|
DEBIT DECREASE
CREDIT INCREASE
|
**ACRONYM***
DEA!LOR
Dea- increases with debit, decreases with credit
LOR- decreases with debit, increases with credit
|
**read**
|
which of the following transactions cause an increase in total assets?
a. pay employee salaries for current month
b. pay dividends to stockholders
c. issue common stock in exchange for cash
d. purchase office equipment for cash
|
c. issue common stock in exchange for cash
|
which of the following transactions causes an increase in SE?
a. pay dividends to stockholders
b. obtain cash by borrowing from a local bankk.
c. provide services to customers on account
d. purchase advertising on a local radio station
|
c. provide services to customers on account
|
an essential aspect of good investment decision. information is used to lead to more profitable investments.
|
net incomee
|
accounting in which we record revenues when we earn them (revenue recognition) and we record expenses with related revenues (expense recognition)
|
accrual-basis accounting
|
principle that states that we record revenue in the period in which we earn it
|
revenue recognition period
|
accounting in which we record revenues at the time we receive cash and expenses at the time we pay cash
|
cash-basis accounting
|
what does the adjusting entry for a prepaid expense always include?
|
debit to expense, credit to asset
|
when customers pay cash in advance, we debit x and credit a y
|
x cash
y liabilitiy
|
Interest equation
|
principal x fraction of the year x annual interest rate
|
average time that it takes to provide a service to a customer & then collect that customer's cash
|
operating cycle
|
long-term productive assets used in the normal course of business, such as land, buildings, equipmnt, and machinery
|
propert, plant, equipment
|
assets that lack physical substance but hve long-term value to a company, such as patents, copyrights, franchises, & trademarks
|
intangible assets
|
closing accounts:
ending retained earnings. draw pic of what it looks like
|
Retained Earnings
Left side: total expenses & dividends
Right side: beginning balance & total revenues
*Ending Balance is on larger side**
|
on may 5th, johnson plumbing receives a phone call from a customer needing a nw water heater and sschedules a service visit for may 7th. on may 7th johnson installs the new water heater. the customer pays for services on ma 10th. according to the revenue recognition principle, on which date should Johnson record service revenue?
|
May 7th (date of service)
|
which of the following accounts is NOT listed in a post-closing trial balance?
a. prepaid rent
b. accounts payable
c. salaries expense
d. retained earnings
|
c. salaries expense
|
which type of accounting is not accepted under GAAP?
|
cash-basis
|
which one is an example of a possible adjusting entry?
a. dr cash & cr serv rev
b. dr accts rec & cr serv rev
c. dr acts rec & cr cash
d. dr epxense & cr accts rec
|
b. dr accts rec & cr serv revenue
|
true or false: the ledger info that is summarized in the adjusted trial balance is the basis for the financial statements
|
TRUE
|
balance sheet accounts (i.e. assets, liablities, CC, & ret. earnings) are called x
|
permanent accounts
|
asset
a. increases with
b. decreases with
|
a. debit
b. credit
|
liability
a. increases with
b. decreases with
|
a. credit
b. debit
|
contributed capital
a. increases with
b. decreases with
|
a. credit
b. debit
|
retained earnings/capital a. increases with
|
a. credit
|
revenue
a. increases with
b. decreases with
|
a. credit
b. debit
|
gains
a. increases with
b. decreases with
|
a. credit
b. debit
|
expenses
a. increases with
b. decreases with
|
a. debit
b. credit
|
losses
a. increases with
b. decreases with
|
a. debit
b. credit
|
dividends
a. increases with
b. decreases with
|
a. debit
b. credit
|
which of the following is not depreciated?
a. machinery
b. land
c. building
d. equipment
e. all of the above
|
b. land
|
true or false: companies listed on stock exchange only do yearly reports
|
false
|
which would not be a possible adjusting entry?
a. accrued depreciation-equipment
b. interest expense
c. retained earnings
d. service revenue
|
c. retained earnings
|
which is a correct sequential order of the accounting cycle?
a. record OG entries & then record adjsting entries
b. record in ledger & post to journal
c. after posting, prepare a trial balance
d. prepare financial statements
|
c. after posting prepare a trial balance
|
accrual of salaries earned but not yet paid
a. what would you debit
b. what would you credit
|
a. expense
b. liability
(salary expense, salary payable)
|
interest earned on a CD but not yet received
a. what would you debit
bb. what would yo ucredit
|
a. interest receivable (asset)
b. interest revenue (revenue)
|
record transaction.
"person deposited 45,000 cash in a businss bank and received common stock"
|
Cash (D) 45k
common stock--45k (c)
|
record transaction.
"defended a client in court, billed the client, and received his promise to pay the $800 within a week."
|
Accts Rec-800 (D)
Service Revenue -800(c)
|
record transaction
"paid for 2100 furniture that hd been recorded on account."
|
Accounts payable-2100
Cash ((c)-2100
|
record transaction
"received partial payment from client on account $400"
|
cash (d) $400
accts receivalbe (c) $400
|
record Transaction
"prepared legal documents for a client on account $600"
|
Accts receivable $600
service revenue (c) $600
|
Common Stock
a. found on which statement?
b. increased with?
|
a. balance sheet
b. credit
|
Dividends
a. found on which statement
b. increases with
|
a. SE statement
b. debit
|
prepaid insurance
a. found on which statement
b. increases with
|
a. balance sheet
b. debit
|
prepaid rent
a. found on which statement
b. increases with
|
a. balance sheet
b. debit
|
record transaction
"provide service to customers on account for $2000"
|
accts receivable +2000
service revenue +2000
|
record transaction
"receive cash in advance from customers $600"
|
cash increases $600
unearned revenue increases b $600
|
pay salries to workers: record
|
salarie expense decreases , cash decreases
|
record transaction:
pay dividends to stockholders $200
|
dividends & cash decrease by $200
|
Record transaction
"billed customers for cleaning services $1340"
|
accts rec 1340
--cleaning service revenue 1340
|
how do you prepare a trial balance?
|
list all accounts, and list their account balance on their normal balance side
|
explain
on account/for credit
|
EARNING REVENUE-- ACTS. RECEIVABLE
|
record transaction:
'purchased $9800 of supplies for credit'
|
supplies 9800
accts payable - (c) 9800
|
received 1 year's rent in advance & prepare monthly statements. how is this recorded?
|
credit unearned revenue
|
i make a payment on account. how is this recorded?
|
debit accts payable
|
accounting required by gaap
|
accrual
|
true or false: adjusting entries are only concerned with income statment accounts
|
false
|
true or false: prepayments include prepaid asses & unearned revenues
|
true
|
straight line depreciation equation
|
cost-salvage/est. useful life in years
|
record transaction.
"provide sevices worth $8000 to customers on account."
|
accts receivable debit 8000
service revenue credit 8000
|