question

a proprietorship is a business with several owners

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false

question

bookkeeping is only a part of accounting

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true

question

professional accountants are held to a high standard of ethical conduct

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true

question

the organization that formulates generally accepted accounting principles in the US is the Financial Accounting Standards Board

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true

question

the valuation of assets on the balance sheet is generally based on

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historical cost

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the accounting equation can be expressed as

answer

assets-liabilities= owner's equity

question

How is the nature of an asset best described?

answer

an economic resource that's expected to benefit future operations

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Which financial statements cover a period of time?

answer

Income Statement and Balance Sheet

question

During the year, Aynsley Inc. has $280,000 in revenues, $145,000 in expenses and $6,000 in dividend declarations and payments. How much does stockholder's equity change by

answer

+$129,000

question

Which of the following items are recorded on the balance sheet: retained earnings, accounts payable, inventory?

answer

all of the above

question

During the year, Romero Company's stockholders' equity increased from $98,000 to $116,000. Romero earned net income of $25,000. Assume no changes in the capital stock accounts. How much in dividends did Romero declare?

answer

$7,000

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corporation

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a business owned by stockholders. A corporation is a legal entity, an "artificial person" in the eyes of the law.

question

going concern assumption

answer

Holds that the entity will remain in operation for the foreseeable future.

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historical cost principle

answer

Principle that states that assets should be recorded at their actual cost.

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income statement (statement of operations)

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A financial statement listing an entity's revenues, expenses, and net income of net loss for a specific period.

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balance sheet (statement of financial position)

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List of an entity's assets, liabilities, and owner's equity as of a specific date.

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limited liability company

answer

A business organization in which the business (not the owner) is liable for the company's debts.

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retained earnings

answer

The amount of stockholders' equity that the corporation has earned through profitable operations and has not given back to stockholders.

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statement of retained earnings

answer

summary of changes in the retained earnings for a specific period. Beginning + or - income - dividends = retained earnings ending.

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ASSETS

answer

Cash, accounts receivable, notes receivable, inventory, prepaid expenses, land, buildings

question

LIABILITIES

answer

Accounts Payable, Notes Payable, Accrued Liabilities

question

STOCKHOLDERS' EQUITY

answer

Common Stock, Retained Earnings, Dividends, Revenues, Expenses

question

A debit entry to an account

answer

increases assets

question

Which account types normally have a credit balance?

answer

Revenues and Liabilities

question

An attorney performs services of $1,100 for a client and receives $400 cash with the remainder on account. What would the journal entry show?

answer

debit cash, debit accounts receivable, credit service revenue.

question

What is the list of all ledger accounts with their balances ?

answer

Trial Balance

question

What is the basic summary device of accounting?

answer

Account

question

In a double-entry accounting system...

answer

a debit entry is recorded on the left side of a T-account

question

Which accounts appear on Balance sheet and which appear on income statement? Cash, Revenues, expenses, receivables, payables

answer

balance sheet: Cash, receivables, payables income statement: Revenues, expenses

question

Which is the correct sequence for recording transactions and preparing financial statements?

answer

Journal, ledger, trial balance, financial statements.

question

The error of posting $50 as $500 can be detected by...

answer

dividing the out-of-balance amount by 9

question

What is the book of accounts and their balances?

answer

Ledger

question

What is the chronological accounting record of a entity's transactions?

answer

Journal

question

deferral

answer

An adjustment for which the business paid or received cash in advance. Examples include prepaid rent, prepaid insurance, and supplies.

question

depreciation

answer

Allocation of the cost of a plant asset to expense over its useful life.

question

accrual

answer

An expense or a revenue that occurs before the business pays or receives cash.

question

prepaid expense

answer

debit expense, credit asset

question

depreciation expense

answer

debit expense, credit contra-asset

question

accrued expense

answer

An expense incurred but not yet paid in cash. debit expense, credit liability

question

accrued revenue

answer

A revenue that has been earned but not yet received in cash. debit asset(receivable), credit revenue

question

unearned revenue

answer

A liability created when a business collects cash from customers in advance of earning the revunue. debit liability, credit revenue

question

time period concept

answer

accounting information is reported over regular intervals

question

revenue principle

answer

record revenue after a transaction has been made

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expense recognition principle

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The basis for recording expenses. Directs accountants to identify all expenses incurred during the period, to measure the expenses, and to match them against the revenues earned during that same period.

question

Accrual Accounting

answer

Accounting that records the impact of a business event as it occurs, regardless of whether the transaction affect cash.

question

cash-basis accounting

answer

Accounting that records only transactions in which cash is received or paid.

question

Net Working Capital

answer

= Total current assets - Total current liabilities

question

Current Ratio

answer

= Total current assets/Total current liabilities (strong is 1.5)

question

Debt Ratio

answer

Total liabilities/ total assets

question

On November 1, Brownstone Apartments received $3,600 from a tenant for four months' rent. The receipt was credited to Unearned Rent Revenue. What adjusting entry is needed on December 31?

answer

debit unearned rent revenue 1800 credit rent revenue 1800

question

Sullivan Inc purchased supplies for $1500 during 2014. At year-end, Sullivan has $400 of supplies left. The adjusting entry should

answer

debit supplies expense $1100

question

The accountant for Max Corp failed to make the adjusting entry to record depreciation for the current year. What is the effect of the error?

answer

Assets, net income, and stockholder's equity are all overstated

question

interest earned on a note receivable at Dec 31 equals $225. What adjusting entry is needed to accrue this interest?

answer

debit interest receivable $225 creidit interest revenue $225

question

if a real estate company fails to accrue commission revenue,

answer

assets are understated, and net income is understated.

question

T/F adjusting entries are required for a business that uses the cash basis

answer

True

question

T/F Accrual accounting produces better information that cash-basis accounting.

answer

False

question

T/F A fiscal year may end on some date other than dec 31

answer

True

question

T/F the expense recognition principle directs accountants to identify and measure all expenses incurred and deduct them from revenues earned during the same period.

answer

True

question

The account unearned revenue is a ...

answer

liability

question

T/F adjusting entries are needed to measure the period's net income or net loss

answer

True

question

T/F adjusting entries do not debit or credit cash

answer

True

question

T/F adjusting entries update the accounts

answer

True

question

An adjusting entry that debits an expense and credits a liability is ...

answer

Accrued expense

question

misappropriation of assets

answer

this type of fraud is committed by employees of an entity who steal money from the company and cover it up

question

fraudulent financial reporting

answer

this type of fraud is committed by company managers who make false and misleading entries in the books

question

the fraud triangle

answer

motive, opportunity, rationalization

question

internal control (5 objectives)

answer

designed to help (1) safeguard assets, (2) encourage employees to follow company policies, (3) promote operational efficiency, (4) ensure accurate reliable accounting records, (5) comply with legal requirements

question

Sarbanes-Oxley Act (SOX)

answer

revamped corporate governance in the United States and profoundly affected the way that accounting and auditing is done in public companies.

question

5 components of Internal Control

answer

Control environment, risk assessment, information system, control procedures, monitoring of controls.

question

Smart hiring practices and separation of duties separates what 3 duties?

answer

asset handling, record keeping, and transaction approval

question

documents used to control a bank account

answer

signature card, deposit ticket, check, bank statement, and bank reconciliation

question

bank statement

answer

Document showing the beginning and ending balances of a particular bank account listing the month's transactions that affected the account.

question

Bank reconciliation

answer

A document explaining the reasons for the difference between a depositor's records and the bank's records about the depositor's cash.

question

Bank Side of Reconciliation

answer

(add) deposits in transit (either) book errors (less) outstanding checks

question

Book Side of Reconciliation

answer

(add) bank collections (add) EFT receipts (add) interest revenue (less) EFT transfers (less) Service charges (less) NSF checks (either) book errors

question

Journal entry for NSF checks

answer

debit accounts receivable , credit cash

question

cash budget

answer

helps a company or an individual manage cash by planning receipts and payments during a future period.

question

steps to making a cash budget

answer

1) start with entity's cash balance at the beginning of the period. 2) add the budgeted cash receipts and subtract budgeted cash payments. 3) the beginning balance + cash receipts - cash payments = cash available for new financing 4) compare the cash available before the new financing period to the budgeted cash balance at the end of the period.

question

fidelity bond

answer

this type of insurance policy covers losses due to employee theft

question

bank statement showed interest earned of $50

answer

add to the book balance

question

The bank statement showed that the bank had credited Trisha's account for a $500 deposit make by Tryon Company

answer

deduct from the bank balance

question

A check for $753 written by Trisha during the current month was erroneously recorded as a $375 payment.

answer

deduct from the book balance

question

The bank statement included a check from a customer that was marked NSF

answer

deduct from the book balance

question

A $600 deposit made on the last day of the current moth did not appear on this month's bank statement.

answer

add to the bank balance

question

imprest system

answer

a way to account for petty cash by maintaining a constant balance in the petty cash account, supported by the fund (cash plus payment tickets) totaling the same amount

question

Trading Securities (current term asset)

answer

are debt in the form of bonds/notes or equity (stock) investments purchased and expected to be sold within the near term through active trading. Change in value on day to day basis through changes in price. Reported on the balance sheet at current fair value.

question

Available for sale Securities (current or long term asset)

answer

debt or equity that are not classified as trading or held to maturity securities. They are held with the intent of selling them some time in the future.

question

Realized Gain

answer

Sale price is greater than the Investment carrying amount

question

Realized Loss

answer

Sale price is less than the Investment carrying amount

question

Held to maturity securities (long term asset)

answer

debt securities (bond, notes, or other forms in which there are established maturity dates

question

Unrealized Gains

answer

The gains that exist from a trade that are considered unrealized because they haven't been sold yet.

question

example of unrealized gains

answer

example: buying stock for a total of $100,000 and then the stock rises and the value of all of your shares now is $110,000. Since you haven't sold your shares yet you have an unrealized gain of $10,000.

question

How are unrealized gains reported on the balance sheet for trading securities vs available for sale securities?

answer

Unrealized gains and losses are reported as "other income or losses" on the income statement for trading securities and as "Other comprehensive income" for available-for-sale securities.

question

what is other comprehensive income?

answer

certain types of revenue, expenses, gains, and losses that are allowed to bypass the income statement. These items are reported in a separate statement. At the end of the period, it is recorded as a separate category of stockholders' equity. Recorded on the stockholders' equity for available-for-sale securities

question

How is the subsequent measure of trading and available-for-sale securities recorded on the balance sheet?

answer

at their current fair value.

question

Are unrealized gains reported on the balance sheet for Trading and Available-for-sale securities?

answer

yes for trading no for available-for-sale

question

Fair value

answer

The value of an investment at the current moment

question

Shipping Terms

answer

Determines when the ownership of goods changed hands between seller and buyer occur, this help determine the proper time to recognize sales revenue

question

Sales Discounts

answer

Percentage reduction of sales price by the seller as an incentive for early payment before the due date. ex: "2/10, n/30" 2% discount if paid by 10 days, entire amount due within 30 days. (debit because expense)

question

Sales returns and allowances

answer

merchandise returned for credit or refunds for services provided. (debit sales return, credit accounts receivable)

question

allowance method

answer

Is the best way to measure uncollectible accounts expense. This method records losses from failure to collect receivables based on the company's collection experience. This reduces receivables to their estimated net value.

question

allowance for uncollectable accounts

answer

the estimated amount of collection losses. (contra account similar to depreciation expense)

question

accounts receivable

answer

amounts collectible from customers from the sale of goods and services.

question

receivables

answer

monetary claims against others

question

uncollectible-account expense (doubtful account expense)

answer

Cost to the seller of extending credit. Arises from failure to collect from credit customers.

question

Percent-of-sales method

answer

Computes uncollectible-account expense as a percentage of net sales. Also called the income-statement approach.

question

aging of receivables

answer

A balance sheet approach that focuses on the more relevant representation of accounts receivable as of the date on the balance sheet.

question

Quick Ratio/ Acid ratio

answer

=cash and cash equivalents + short-term investments + net current receivables/total current liabilities. Measures how quickly one can pay off current liabilities. 1.04 means to pay off $1 of liabilities it has $1.04 of quick assets to pay it off with.

question

notes receivable

answer

more formal contracts where the borrower signs a written promise to pay the lender a definite sum at the maturity date, plus interest.

question

writing off uncollectible accounts

answer

credit accounts receivable and debit allowance for uncollectible accounts

question

Net accounts receivable

answer

accounts receivable - allowance for uncollectible accounts

question

direct-write-off method

answer

A method of accounting for bad debts in which the company waits until a customer's account receivable proves uncollectible and then debits Uncollectible-Account Expense and credits the customer's Account Receivable.

question

write off

answer

debit allowance for uncollectable accounts and credit accounts receivable

question

days' sales in receivables

answer

Average net receivables/ average daily sales

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