Accounting 201 True/False – Flashcards

Accounting is a system of maintaining records of a company's operations and communicating this information to decision makers.

For each transaction, there must be at least one debit amount and one credit amount

Liability accounts increase with a credit and decrease with a debit.

Providing services to customers on account causes assets to increase and stockholders' equity to increase.

The closing entry for expense accounts include a debit to retained earnings and a credit to all expense accounts

Closing entries transfer balances of all temporary accounts (revenues, expenses, and dividends) to common stock account

Purchasing office supplies is recorded with a credit to office supplies

The closing entry for expense accounts includes a debit to retained earnings and a credit to all expense accounts

If the beginning balances of retained earnings equals $10000, net income for the year equals $6000 and dividends for the year equal $2000 then the ending balance of retained earnings equals $18000

A bank reconciliation matches the balance of cash in the bank account with the balance of cash in the company's own records

The sales discounts account is an expense account

Customers' accounts that we no longer consider collectible are referred to as uncollectable accounts (or bad debits)

A sale on account for $1000 offered with Falseterms 2/10, n/30 means that the customers will get a $2 discount if payment is made within 10 days; otherwise, full payment is due within 30 days.

A multiple-step income statement reports multiple levels of profitability, such as gross profit, operating income, income before income taxes, and net income.

Inventory is usually reported as a long term asset in the balance sheet

We use the term capitalize to describe recording an expenditure as an expense.

Residual value, also referred to as salvage value, is the amount the company expects to receive from selling the asset at the end of its service life.

Declining-balance depreciation will be lower than straight - line depreciation in earlier years, but higher in later years.

Commonly, current liabilities are payable within one year, and long-term liabilities are payable more than one year from now

When a company receives cash for next year's revenue, it debits cash and credits unearned revenue

Operating leases are contractual agreements where the lessor owns the asset and the lessee simply uses the asset temporarily

A lease is a contractual arrangement by which the lessor provides the lessee the right to use an asset for a specified period of time

Operating leases occur when the lessee essentially buys an asset and borrows the money though a lease to pay for the asset.

Par value is the legal capital per share of stock that's assigned when the corporation is first established

Treasury stock is the repurchase of a company's own issued stock.

Treasury stock is a contra-equity account since treasury stock increases total stockholders' equity

Retained earnings represent the earnings retained in the corporation - earnings not paid out as dividends to stockholders

Financing activities include cash receipts and cash payments for transactions relating to revenue and expense activities.

We report interest and dividends received from investments with investing activities.

Under the indirect method, an increase in accounts payable is added to net income to arrive at net cash flows from operating activities.