Question 1

Abnormal balance

Accepted Answer

Refers to balance on the side where decreases are recorded. Identified by circling it or by entering it in red or some other unusual color

Question 2

Account balance (p 55)

Accepted Answer

The difference between total debits and credits for an account, including any beginning balance

Question 3

Account (p 51)

Accepted Answer

Is a record of increases and decreases in a specific asset, liability, equity, revenue, or expense item

Question 4

Accounting process

Accepted Answer

Identifies business transactions and events, analyzes and records their effects, and summarizes and presents information in reports and financial statements

Question 5

Accused liabilities

Accepted Answer

Are amounts owed that are not yet paid Examples include wages payable, taxes payable, and interest payable

Question 6

Asset account

Accepted Answer

Includes asset, cash, accounts receivable, notes receivable, prepaid accounts, supplies accounts, equipment accounts, building accounts, and land

Question 7

Balance column account (p 58)

Accepted Answer

Actual accounting systems need more structure. Has a column with the balance of the account after each entry is recorded. The heading of the balance column does not show whether it is a debit or a credit balance. Instead, an account is assumed to have a normal balance.

Question 8

Calendar year companies

Accepted Answer

Businesses whose accounting year begins Jan 1 and ends Dec 31

Question 9

Chart of accounts (p 54)

Accepted Answer

Is a list of all ledger accounts and includes an identification number assigned to each account

Question 10

Correcting entry

Accepted Answer

Corrects an error by removing an amount from the wrong account and recording it in the correct

Question 11

Credit balance

Accepted Answer

When the sum of credits exceeds the sum of debits

Question 12

Creditors (p 52)

Accepted Answer

Are individuals and organizations that have rights to receive payments from a company. If a company fails to pay its obligations, the law gives creditors a right to force the sale of that company\'s assets to obtain the money to meet creditor\'s claims. Any remaining money goes to the owners of the company. A loan is less risky if the borrower\'s liabilities are smaller in comparison to assets because this means there are more resources than claims on resources

Question 13

Debt ratio

Accepted Answer

Total liabilities divided by total assets

Question 14

Debit balance

Accepted Answer

Is when the sum of debit exceeds the sum of credits

Question 15

Double-entry accounting (p 55)

Accepted Answer

Requires that for each transaction at least 2 accounts are involved, with at least one debit and one credit; that the total amount debited must equal the total amount credited; the accounting equation must not be violated. Some transactions affect only one side of the equation, meaning that 2 or more accounts on one side are affected, nit their net effect on this side is zero

Question 16

Equity accounts

Accepted Answer

Equity is affected by owner\'s capital, owner\'s withdrawals, revenues, and expenses

Question 17

Financial leverage

Accepted Answer

A company that finances a relatively large portion of its assets with liabilities is said to have a high degree of financial leverage

Question 18

Financial statements

Accepted Answer

Report on financial performance and condition of an organization

Question 19

Fiscal accounting year

Accepted Answer

One-year reporting period

Question 20

General journal (p 56)

Accepted Answer

Includes date of transaction, title of affected accounts, $ amount of each debit and credit, and an explanation of the transaction

Question 21

General ledger (p 51)

Accepted Answer

Is a record containing all accounts used by a company and is often in electronic form. The collection of all accounts and their balances for an information system. If accounts are in files on a hard drive, the sum of those files is the ledger. If the accounts are pages in a file, the file is a ledger

Question 22

Journal (p 56)

Accepted Answer

Gives a complete record of each transaction in on place. Shows debits and credits for each transaction

Question 23

Journalizing (p 56)

Accepted Answer

The process of recording transactions in a journal

Question 24

Liability accounts

Accepted Answer

Liabilities, creditors, accounts payable, and notes payable

Question 25

Normal balance

Accepted Answer

Side for assets is the left side Side for liabilities and equity is the right side. Equity increases from revenues and owner investments and it decreases from expenses and other withdrawals

Question 26

Posting (p 56)

Accepted Answer

The process of transferring journal entry information to the ledger. While companies can use various journals, every company uses a general journal

Question 27

Source documents (p 50)

Accepted Answer

Identify and describe transactions and events entering the accounting process. They are the sources of the accounting information and can be in either hard copy or electronic form. If obtained from outside the organization, provide objective and reliable evidence about transactions and events and their amounts

Question 28

Statement of owner\'s equity

Accepted Answer

Reports information about how equity changes over the reporting period. Dollar signs are not used in journals and ledgers. Visual practice is to put dollar signs below only the first and last numbers in a column

Question 29

Trial balance (p 65)

Accepted Answer

IS a list of accounts and their balances at a point in time. Account balances are reported in their appropriate debit or credit columns of a trial balance. Can be sued to confirm and follow up on any abnormal or unusual balances. 1) List each account title and its amount from ledger in the trial balance. If an account has a zero balance, list it with a zero in its normal balance column or omit it entirely. 2) Compute the total of debit balances and total of credit balances. 3) Verify total debit banks equal total credit balances

Question 30

T-accounts (p 54)

Accepted Answer

Represents a ledger account and is a tool used to understand the effects of one or more transactions. The left side of the account is debit (DR), and the right side of the account is credit (CR). For an account where the debit is an increase, the credit is a decrease; where the debit is a decrease, the credit is an increase

Question 31

Unadjusted statement

Accepted Answer

Will need further adjustments. Balance sheet is the financial position at a point in time. The income statement is the financial position in a period of time

Question 32

Unearned revenue (p 53)

Accepted Answer

Unearned revenue accounts refer to a liability that is settled in the future when a company declines its products or services

Question 33

Zero balance

Accepted Answer

When the sum of debits equals the sum of credits. For an account is usually shown by writing zeros or a dash in the balance column to avoid confusion between a zero balance and one omitted in error

Question 34

1. Identify examples of accounting source documents

Accepted Answer

1. Examples of source documents are sales tickets, checks, purchase orders, charges to customers, bills from suppliers, employee earnings records, and bank statements

Question 35

2. Explain the importance of source documents

Accepted Answer

2. Source documents serve many purposes, including record-keeping and internal control. Source documents, especially if obtained from outside the organization, provide objective and reliable evidence about transactions and their amounts

Question 36

3. Identify each of the following as either an asset, a liability, or equity: a) prepaid rent, b) unearned fees, c) building, d) wages, e) office supplies

Accepted Answer

3. Assets= ace; Liabilities= bd; Equity=

Question 37

4. What is an account? What is a ledger

Accepted Answer

4. An account is a record in an accounting system that records and stores the increases and decreases in a specific asset, liability, equity, revenue, or expense. The ledger is collection of all the accounts of a company

Question 38

5. What determines the number and types of accounts a company uses

Accepted Answer

5. A company\'s size and diversity affect the number of accounts in its accounting system. the types of accounts depend on information the company needs to both effectively operate and report its activities in financial statements

Question 39

6. Does debit always mean increase and credit always mean decrease

Accepted Answer

6. No. Debit and credit both can mean increase or decrease. The particular meaning in a circumstance depends on the type of account. For example, a debit increases the balance of an asset, wzhitdrawals, and expense accounts, but it decreases the balance of liability, capital, and revenue accounts

Question 40

7. Describe a chart of accounts

Accepted Answer

7. A chart of accounts is a list of all of a company\'s accounts and their identification numbers

Question 41

8. What types of transactions increase equity and which decrease it

Accepted Answer

8. Equity is increased by revenues and by owner investments. Equity is decreased by expenses and owner withdrawals

Question 42

9. Why are accounting systems double-entry

Accepted Answer

9. The name double-entry is used because all transactions affect at least two accounts. There must be at least one debit in one account and at least on credit in another accounts

Question 43

10. For each transaction, double-entry accounting requires which of the following? a) debits to asset accounts must create credits to liability or equity accounts, b) a debit to a liability account must create a credit to an asset account, or c) total debits must equal total credits

Accepted Answer

10. C

Question 44

12. Explain what a compound journal entry is

Accepted Answer

12. A compound journal entry affects three or more accounts

Question 45

13. Why are posting reference numbers entered in the journal when entries are posted to ledger accounts

Accepted Answer

13. Posting reference numbers are entered in the journal when posting to the ledger as a cross-reference that allows the record-keeper or auditor to trace debits and credits from one record to another

Question 46

14. Where are dollar signs typically entered in financial statements

Accepted Answer

14. At a minimum, dollar signs are placed beside the first and last numbers in a column. It is also common to place dollar signs beside any amount that appears after a ruled line to indicate that an addition or subtraction has occurred

Question 47

15. If a $4,000 debit to Equipment in a journal entry is incorrectly posted to the ledger as a $4,000 credit, and the ledger account has a resulting debit balance of $20,000, what is the effect of this error on the Trial Balance column totals

Accepted Answer

15. The equipment account balance is incorrectly reported at 20k- it should be 28k. The effect of this error understates the trial balance\'s debit column total by 8k. This results in an 8k difference between the column totals

Question 48

16. Describe the link between the income statement and the statement of owner\'s equity

Accepted Answer

16. An income statement reports a company\'s revenues and expenses along with the resulting net income or loss. A statement of owner\'s equity reports changes in equity, including that from net income or loss. Both statements report transactions occurring over a period of time

Question 49

17. Explain the link between the balance sheet and statement of owner\'s equity

Accepted Answer

17. The balance sheet describes a company\'s financial position (assets, liability, and equity) at a point in time. The capital amount in the balance sheet is obtained from the statement of owner\'s equity.

Question 50

19. Define and describe assets, liabilities, and equity

Accepted Answer

19. Assets are the resources a business owns or controls that carry expected future benefits. Liabilities are obligations of a business, representing the claims of others against the assets of a business. Equity reflects the owner\'s claims on the assets of the business after deducting liabilities

Question 51

18. Define and describe revenues and expenses

Accepted Answer

18. Revenues are inflows of assets in exchange for products or services provided to customers as part of the main operations of a business. Expenses are outflows or the using up of assets that result from providing products or services to customers

Question 52

C1 Explain the steps in processing transactions and the role of source documents

Accepted Answer

C1 The accounting process identifies business transactions and events, analyzes and records their effects, and summarizes and prepares information useful in making decisions. Transactions and events are the starting points in the accounting process. Source documents identify and describe transactions and events. Examples are sales tickets, checks, purchasing orders, bills, and bank statements. Source documents provide objective and reliable evidence, making information more useful. The effects of transactions and events are recorded in journals. Posting along with a trial balance helps summarize and classify these effects

Question 53

C2 Describe an account and its use in recording transactions

Accepted Answer

C2 An account is a detailed record of increases and decreases in a specific asset, liability, equity, revenue, or expense. Information from accounts is analyzed, summarized, and presented in reports and financial statements for decision makers

Question 54

C3 Describe a ledger and a chart of accounts

Accepted Answer

C3 The ledger or general ledger is a record containing all accounts used by a company and their balances. It is referred to as the books. The chart of accounts is a list of all accounts and usually includes an identification number assigned to each account

Question 55

C4 Define debits and credits and explain double-entry accounting

Accepted Answer

C4 Debit refers to left, and credit refers to right. Debits increase assets, expenses, and withdrawals who credits decrease them. Credits increase liabilities, owner capital, and revenues; debits decrease them. Double-entry accounting means each transaction affects at least two accounts and has at least one debit and one credit. The system for recording debits and credits follows the accounting equation. The left side of the account is the normal balance for assets, withdrawals, and expenses, and the right side is the normal balance for liabilities, capital, and revenues

Question 56

A1 Analyze the impact of transactions on accounts and financial statements

Accepted Answer

We analyze transactions using concepts of double-entry accounting. This analysis is performed by determining a transaction\'s effects on accounts. Theses effects are recorded in journals to ledgers

Question 57

A2 Compute the debt ratio and describe its use in analyzing financial condition

Accepted Answer

A2 A company\'s debt ratio is computed as total liabilities divided by total assets. It reveals how much of the assets are financed by creditor (non-owner) financing. The higher this ratio, the more risk a company faces because liabilities must be repaid at specific dates

Question 58

P1 Record transactions in a journal and post entries to a ledger

Accepted Answer

P1 Transactions are recorded in a journal. Each entry in a journal is posted to the accounts in the ledger. This provides information that is used to produce financial statements. Balance column accounts are widely used and include column for debits, credits, and the account balance

Question 59

P2 Prepare and explain the use of a trial balance

Accepted Answer

P2 A trial balance is a list of accounts from the ledger showing their debits or credit balances in separate columns. The trial balance is a summary of the ledger\'s contents and is useful in preparing financial statements and is revealing record-keeping errors.

Question 60

P3 Prepare financial statements from business transactions

Accepted Answer

The balance sheet, the statement of owner\'s equity, the income statement, and the statement of cash flows use data from the trial balance and other financial statements for their preparation

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