Accounting 201 – Flashcards
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A debit to an account always indicates an increase in that account.
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False
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A decrease in a liability account is recorded by a debit.
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True
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The normal balance of the dividend account is a credit.
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False
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A decrease in a liability is recorded by a debit.
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True
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The complete effect of a transaction on the accounts is disclosed in the journal.
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True
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Prepaid expenses assets.
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True
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Unearned service revenue is classified as a liability on the balance sheet.
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True
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A trial balance does not prove that all transactions have been recorded or that the ledger is correct.
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True
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If total liabilities decreased by $3200, then
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Assets must have decreased by $3200, or stockholders' equity must have increased by $3200. ??????
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The purchase of an asset on credit
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increases assets and liabilities
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Which of the following items has no effect on retained earnings?
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land purchase
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On March 1, 2017, Freeze Company hires a new employee who will start to work on March 6. The employee will be paid on the last day of each month. Should a journal entry be made on March 6? Why or why not?
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No, hiring an employee is an important event; however it is not an economic event that should be recorded.
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The left side of an account is
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the debit side.
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Which accounts normally have credit balances?
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Revenus, Liabilities, and retained earnings
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Which of the following accounts is increased with a credit?
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Sales Revenue
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When a company performs a service but has not yet received payment it
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debits Accounts Receivable and credits Service Revenue
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The Dividends account
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Is increased with debits and decreased with credits.
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Credit
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Accounts Payable, Notes Payable...
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During January 2017, its first month of operation, Blue Spruce Corp. earned net income of $7890 and paid dividends to the owners of $2320. At January 31, the balance in Retained Earnings will be
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5570 Credit
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At December 1, 2017, Wildhorse Co. Accounts Receivable balance was $18140. During December, Wildhorse had credit sales of $48600 and collected accounts receivable of $38880. At December 31, 2017, the Accounts Receivable balance is
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$27860 Debit
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The usual sequence of steps in the transaction recording process is
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analyze, journalize, post to the ledger.
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Which of the following is not part of the recording process?
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Preparing a trial balance
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The final step in the recording process is to transfer the journal information to the
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ledger
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A company that receives money in advance of performing a service
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debits cash and credits unearned service revenue.
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An accounting record that includes a list of accounts and their balances at a given time is called
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trial balance
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The procedure of transferring journal entries to the ledger accounts is called
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posting
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On July 7, 2017, Bramble Corp. received cash $1370 for services rendered. The entry to record this transaction will include
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?????
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Which of the following errors, each considered individually, would cause the trial balance to be out of balance?
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A payment of $148 to a creditor was posted as a debit to Accounts Payable and a debit of $148 to Cash.
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The revenue recognition principle dictates that revenue be recognized in the accounting period in which the performance obligation is satisfied.
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True
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The cash basis of accounting is not in accordance with generally accepted accounting principles
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True
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Adjusting entries are not necessary if the trial balance debit and credit columns balances are equal.
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False
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If prepaid costs are initially recorded as an asset, no adjusting entries will be required in the future.
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False
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The adjusting entry for unearned revenue results in an increase (a debit) to an asset account and an increase (a credit) to a revenue account.
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False
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Accounts receivable is a permanent account.
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True
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In the accounting cycle, closing entries are prepared before adjusting entries.
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False
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In a service-type business, revenue is recognized:
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When the service is performed
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Under the accrual basis of accounting:
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events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received.
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Adjusting entries are made to ensure that:
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-expense are recognized in the period in which they are incurred. -revenues are recorded in the period in which the performance obligation is satisfied. -balance sheet and income statement accounts have correct balances at the end of an accounting period. -all of these answer choices are correct.
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Prepaid Expenses are:
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Paid and recorded in an asset account before they are used or consumed.
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Bramble Corp. purchased office supplies costing $6860 and debited Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $2450 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be:
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debit Supplies Expense, $4410; credit Supplies, $4410
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Blue Spruce Corp. purchased office supplies costing $8120 and debited Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $2090 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be:
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debit Supplies Expense, $6030; credit Supplies, $6030
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The balance in the prepaid rent account before adjustment at the end of the year is $9600 and represents three months rent paid on December 1. The adjusting entry required on December 31 is:
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debit Rent Expense, $3200; credit Prepaid Rent, $3200
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Accumulated Depreciation is an
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contra asset account
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The adjusting entry to an unearned revenue account will
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decrease liabilities and increase revenues.
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Depreciation is the process of:
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allocation the cost of an asset to the periods in which it is used.
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An accumulated deprecation account:
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has a normal credit balance
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Pina Colada Corp. purchased a 12-month insurance policy on March 1, 2017 for $5880. At March 31, 2017, the adjusting journal entry to record expiration of this asset will include:
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a debit to Insurance Expense and a credit to Prepaid Insurance for $490.
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Foley Marketing received $70800 from a customer on January 2nd, 2017 to be on retainer for the next 2 years. The appropriate journal entry to recognize earned revenue at Foley's fiscal year-end on December 31st, 2017 would be ____________.
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Unearned Revenue $35400 Service Revenue $35400
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Nash's Trading Post, LLC borrowed $20000 from the bank signing a 6%, 3-month note on September 1. Principal and interest are payable to the bank on December 1. If the company prepares monthly financial statements, the adjusting entry that the company should make for interest on September 30, would be:
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$20000 × 6% × 1/12 = $100 (Amount borrowed × 6% × 1/12) debit Interest Expense, $100; credit Interest Payable, $100.
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Jill Clown earned a salary of $460 for the last week of October. She will be paid on November 1. The adjusting entry for Jill's employer October 31 is:
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Salaries and Wages Expense 460 Salaries and Wages Payable 460
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Sheridan Company issued a one-year 10% $400000 note on April 30, 2017. Interest expense for the year ended December 31, 2017 was:
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$400000 × 10% × 8/12 = $26667 (Note pay. × 10% × 8/12)
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The primary source used in the preparation of the financial statements is the:
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adjusted trial balance
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The closing entry process consists of closing:
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all temporary accounts
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Closing entries
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cause the revenue and expense accounts to have zero balances.
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External users of accounting information are managers who plan, organize, and run a business.
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False
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The majority of U.S. business is transacted by proprietorships.
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False
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Accounting communicates financial information about a business to both internal and external users.
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True
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Financing activities for corporations include borrowing money and selling shares of their own stock.
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True
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The purchase of equipment is an example of a financing activity.
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False
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Payments to owners are operating activities.
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False
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The economic resources that are owned by a business are called stockholders' equity.
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False
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Net income for the period is determined by subtracting total expenses and dividends from revenues.
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False
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The balance sheet reports assets and claims to those assets at a specific point in time.
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True
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The accounting equation can be expressed as Assets - Stockholders' Equity = Liabilities.
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True
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An advantage of the corporate form of business is that
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its ownership is easily transferable via the sale of shares of stock.
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The right to receive money in the future is called a(n)
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account receivable
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Issuing shares of stock in exchange for cash is an example of a(n)
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financing activity.
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The cost of assets consumed or services used is also known as
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an expense
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The best definition of assets is the
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resources belonging to a company that have future benefit to the company.
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Metlock, Inc. recorded the following cash transactions for the year: Paid $184000 for salaries. Paid $76700 to purchase office equipment. Paid $17800 for utilities. Paid $7900 in dividends. Collected $363000 from customers. What was Metlock net cash provided by operating activities?
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??????????? $161200
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Dividends paid
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Decrease retained earnings
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If total liabilities decreased by $81000 and stockholders' equity increased by $41000 during a period of time, then total assets must change by what amount and direction during that same period?
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40000 decrease
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Oriole Company compiled the following financial information as of December 31, 2017: Service revenue $836000 Common stock 194000 Equipment 240000 Operating expenses 732000 Cash 202000 Dividends 56000 Supplies 25000 Accounts payable 120000 Accounts receivable 95000 Retained earnings, 1/1/17 443000 Oriole assets on December 31, 2017 are:
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$562000.
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International standards are referred to as
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IFRS
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U.S. standards are developed by the
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FASB
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Liquidity ratios measure the short-term ability of a company to pay its maturing obligations and meet unexpected needs for cash.
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True
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Profitability ratios measure the operating success of a company for a given period of time
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True
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A major function of management is to provide the accountant with relevant and useful information.
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False
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Full disclosure of all important facts aids in overcoming the limitations of accounting information.
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True
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A current asset
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expected to be converted to cash or used in the business within a relatively short period of time
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Generally accepted accounting principles
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are accounting rules that are recognized as a general guide for financial reporting.
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The quality of consistency enhances
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comparability.
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The accounting concept that indicates assets should be reported at the price received to sell an asset is the
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fair value principle.
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Which accounting assumption assumes that an enterprise will continue in operation long enough to carry out its existing objectives and commitments?
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Going concern assumption
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The economic entity assumption states that economic events
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of every entity can be separately identified and accounted for
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Earnings per share (EPS) formula
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=net income-Preferred Dividends/average outstanding common shares
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Retained Earnings formula=
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=beginning Retained Earnings-Net Income during the period-Dividends= Ending Retained Earnings
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Debt to assets ratio formula CURRENT RATIO
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Total Liabilities/ Total Assets Current asset / Current liabilties
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net income
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=Revenue- Expense
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Sole Proprietorship
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Simple to establish owner controlled tax advantages
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Corporation
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-easier to transfer ownership -easier to raise funds -no personal liability
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Partnership
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-Simple to establish -shared control -broader skills and resources -tax advantages
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Internal users and uses of financial information
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marketing, management, finance, Human Resources
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External users and uses of financial information
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Creditors and Investors
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Congress passes Sarbanes-Oxley Act of 2002
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Effective financial reporting depends on sound ethical behavior
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3 types of activities all businesses are involved in are
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financing, investing, and operating
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Financing Activities
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1) Borrowing money (debt financing) Amounts owed are called liabilities Party to whom amounts are owed are creditors Notes payable and bonds payable are different types of liabilities 2) Issuing (selling) shares of stock for cash Payments to stockholders are called dividends
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Investing Activities
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Purchase of resources a company needs to operate Example:computers. delivery trucks.........(Property, Plants and Equipment) All called assets and investing is another example of an investing activity
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Operating Activities
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Once a business has the assets it needs, it can begin its operations -Revenues-amounts earned from the sale of products -inventory- good available for sale to customers -Accounts receivable- right to receive money from a customer as the results of a sale -Expenses Liabilities Net income Net loss
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Income Statement
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-reports revenues and expenses for a specific period of time
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Retained earning statement
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statement shows amounts and causes of change in retained earnings during the period time period is the same that covered by the income statement users can evaluate dividend payment practices
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Balance sheet
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-reports assets and claims to assets at a specific POINT IN TIME -assets=liabilities+stockholders' equity
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Management discussion and analysis (MD)
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covers the company's ability to pay near-term obligations, its ability to fund operations and expansion, and its results of operations
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annual report always includes
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financial statements mamagement discussion and analysis notes to financial statements auditors report
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The Sarbanes-Oxley Act determines:
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internal control standards of U.S. publicly traded companies.
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debt financing equity financing
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is the total liabilities is common stock
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Working capital
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=current assets-current liabilities
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What increases and decreases retained earnings
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(dividends decrease it, increase is net income)
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Prepaid expense
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is an asset
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Depreciation
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- allocating the cost of assets to a number of years.
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Intangible Asset
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Assets that do not have physical substance. Includes goodwill, patents, copyrights, and trademarks or trade names.
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Solvency
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the ability to pay interest as it comes due and to repay the balance of a debt due at its maturity.
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Free Cash Flow
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=Cash provided by operations- capital expenditures- cash dividends
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Measurement principles
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historical cost, fair value, full disclosure
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Cost constraint
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Accounting standard-setters weigh the cost that companies will incur to provide the information against the benefit that financial statement users will gain from having the information available.
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Accounting Information System of
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collecting and processing transaction data and communication financial information to decision makers Most businesses use computerized accounting (EDP) systems
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Basic accounting equation
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assets=liabilities+stockholders equity
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Journalizing
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entering transaction data in the journal
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The ledger
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is comprised of the entire group of accounts maintained by the a company
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Trial balance
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a list of accounts and their balances at a given time accounts are listed in the order in which they appear in the ledge purpose is to prove that debits equal credits may also uncover errors useful in the preparation of financial statements
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Accountants divide the economic life of a business into artificial time periods
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Periodicity Assumption
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Companies recognize revenue in the accounting period in which the performance obligation is satisfied.
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Revenue recognition principle
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Match expenses with revenues in the period when the company makes effects to generate those revenues
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Expense recognition principle
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Transactions recorded in the periods in which the events occur. Revenues are recognized when services performed, even if cash was not received. Expenses are recognized when incurred, even if cash was not paid.
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Accrual-Basis Accounting
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Revenues are recognized only when cash is received. Expenses are recognized only when cash is paid. Prohibited under generally accepted accounting principles (GAAP).
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Cash-Basis Accounting
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Deferrals are
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prepaid expenses or unearned revenue
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post closing trail balance
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The purpose of the post-closing trial balance is to prove the equality of the permanent account balances that the company carries forward into the next accounting period -zero
