question

Accountant

answer

A person who keeps the financial history of the transactions of an economic unit in written form. (p. 4)

question

Accounting

answer

The process of analyzing, classifying, recording, summarizing, and interpreting business transactions in financial or monetary terms. (p. 3)

question

Economic unit

answer

Includes both business enterprises and not-for-profit entities. (p. 3)

question

Ethics

answer

A philosophy or code or system of morality that is, how we conduct ourselves from day to day in a variety of situations requiring a decision, usually of a right or wrong nature. (p. 8)

question

(FASB) Financial Accounting Standards Board SEC-FASB-GAAP

answer

The organization, created in 1973 by the SEC, that created GAAP. (p. 4)

question

(GAAP) Generally Accepted Accounting Principles

answer

The rules or guidelines used for carrying out the accounting process. (p. 4)

question

(IASB) International Accounting Standards Board

answer

The International organization that provides Standards or rules for international financial reporting. (p. 4)

question

(IFRS) International Financial Reporting Standards

answer

The rules or guidelines that guide International Financial Reporting. (p.g 4)

question

Paraprofessional accountants

answer

People who are qualified in accounting to assume the duties of a general bookkeeper as well as some of the duties of a professional accountant under that accountant's supervision. (p. 7)

question

Sarbanes-Oxley Act

answer

A U.S. federal law enacted as a response to a number of major corporate and accounting scandals that establishes a wide range of rules related to the audit environment and internal controls. (p. 9)

question

(SEC) Securities and Exchange Commission

answer

The agency responsible for regulating public companies traded on a U.S. Stock Exchange. (p. 4)

question

Transaction

answer

An event directly affecting an economic entity that can be expressed in terms of money and that must be recorded in the accounting records. (p. 3)

question

Owner's Equity

answer

Owner's right to or investment in the business. (p. 13)

question

Assets

answer

Cash, properties or things of value owned by an economic unit or business entity. (p. 13)

question

Business entity

answer

A business enterprise, separate and distinct from the persons who supply the assets it uses. (p. 13)

question

Creditor

answer

One to whom money is owed. (p. 14)

question

Capital

answer

The owner's investment, or equity, in an enterprise. (p. 13)

question

Chart of Accounts

answer

The official list of accounts tailor-made for the business. (p. 22)

question

Liabilities

answer

Debts or amounts owed to creditors. (p. 14)

question

Revenues

answer

Amounts earned by a business (fees for services, income from sales, rent income, interest earned for lending money).

question

Expenses

answer

The costs that relate to earning revenue (the costs of doing business); examples are wages, rent, interest, and advertising. They may be paid in cash immediately or at a future time (AP) (p.21)

question

Account numbers

answer

The numbers assigned to accounts according to the chart of accounts. (p. 22)

question

Accounts

answer

The categories under the Assets, Liabilities, and Owner's Equity headings. (p.16)

question

Accounts Payable

answer

A liability account used for short-term obligations or charge accounts, usually due within 30 days (p. 18)

question

Accounts Receivable

answer

An account used to record the amounts due from (legal claims against) charge customers. (p.27)

question

Backups

answer

Procedures that store company data files in a a safe place, such as online or on a flash drive. (p. 34)

question

Cloud computing

answer

Software that is used via the Internet instead of from a local computer. Software and data can be accessed anywhere there is an Internet connection. (p. 34)

question

Computerized accounting

answer

An accounting system that records transactions using a computer and accounting software such as QuickBooks. (p. 33)

question

Double-entry accounting

answer

The system by which each business transaction is recorded in at least two accounts and the accounting equation is kept in balance. (p.17)

question

Equity

answer

The value of a right or claim to or financial interest in an asset or group of assets. (p. 13)

question

Fair market value

answer

The present worth of an asset or the amount that would be received if the asset were sold to an outsider on the open market. (p. 19)

question

Fundamental accounting equation

answer

(Assets=Liabilities+Owner's Equity) An equation expressing the relationship of assets, liabilities, and owner's equity. (p. 14)

question

Manual accounting system

answer

An accounting system in which transactions are recorded by hand. (p. 33)

question

Separate entity concept

answer

The concept by which a business is treated as a separate economic or accounting entity. The business stands by itself, separate from its owners, creditors, and customers. (p. 16)

question

Sole proprietorship

answer

A one-owner business. (p. 16)

question

Withdrawal (This is also referred to as drawing and is treated as a decrease in owner's equity). (p.30)

answer

The taking of cash or other assets out of a business by the owner for his or her own use.

question

A QuickBooks file with the extension (.QBB) is what type of file?

answer

a backup file

question

.QBW

answer

A file extension indicating a QuickBooks working file

question

Purchasing supplies on credit has what impact on the accounting equation?

answer

Increase Supplies and increase Accounts Payable

question

Balance sheet

answer

A financial statement showing the financial position of an organization on a given date, such as June 30 or December 31. This statement lists the balances in the asset, liability, and owner's equity accounts. (p. 78)

question

Compound entry

answer

A transaction that requires more than one debit or more than one credit to be recorded. (p. 71)

question

Credit

answer

The right side of a T account; to credit is to record an amount on the right side of a T account. Credits represent increases in liability, capital, or revenue accounts and decreases in asset, drawing, or expense accounts. (p. 62)

question

Debit

answer

The left side of a T account; to debit is to record an amount on the left side of a T account. Debits represent increases in asset, drawing, or expense accounts and decreases in liability, capital, or revenue accounts. (p. 62)

question

Financial position

answer

The resources or assets owned by an organization at a point in time, offset by the claims against those resources and owner's equity; shown on a balance sheet. (p. 78)

question

Financial statement

answer

A report prepared by accountants that summarizes the financial affairs of a business. (p. 76)

question

Footings

answer

The totals of each side of a T account. (p. 60)

question

Income statement

answer

A financial statement showing the results of business transactions involving revenue and expense accounts over a period of time. (p. 76)

question

Net income

answer

The result when total revenue exceeds total expenses over a period of time. (p. 76)

question

Net loss

answer

The result when total expenses exceed total revenue over a period of time. (p. 76)

question

Normal balance

answer

The plus side of a T account. (p. 60)

question

PDF (portable document format)

answer

An electronic file format that converts a printed document into an electronic image. (p. 85)

question

Profit and loss statement

answer

Another term for an income statement. (p. 83)

question

Report form

answer

The form of the balance sheet in which assets are placed at the top and liabilities and owner's equity are placed below. (p. 78)

question

Slide

answer

An error in placing the decimal point in a number. (p. 80)

question

Statement of Owner's Equity

answer

A financial statement showing the activity in the Owner's equity, or Capital account, over the financial period. (p. 77)

question

T Account form

answer

A form of account shaped like the letter T in which increases and decreases in the account may be recorded. One side of the T is for entries on the debit or left side. The other side of the T is for entries on the credit or right side. (p. 59)

question

Transposition

answer

An error that involves interchanging, or switching around, digits during the recording of a number. (p. 80)

question

Trial balance

answer

A list of all account balances to prove that the total of all debit balances equals the total of all credit balances. (p. 75)

question

Cost principle

answer

The principle that a purchased asset should be recorded at its actual cost. (p. 115)

question

Cross-reference

answer

The ledger account number in the Post. Ref. column of the journal and the journal page number in the Post. Ref. column of the ledger account. (p.120)

question

General ledger

answer

A book or file containing the activity (by accounts), either manual or computerized, of a business. (p. 118)

question

Journal

answer

The book in which a person makes the original record of a business transaction; commonly referred to as a book of original entry. (p. 111)

question

Journalizing

answer

The process of recording a business transaction in a journal. (p. 111)

question

Ledger account

answer

A complete record of the transactions recorded in an individual account. (p. 118)

question

Posting

answer

The process of transferring figures from the journal to the ledger accounts. (p. 120)

question

Source documents

answer

Business papers, such as checks, invoices, receipts, letters, and memos, that furnish proof that a transaction has taken place. (p. 111)

question

Two-column general journal

answer

A general journal in which there are two amount columns, one used for debit amounts and one used for credit amounts. (p. 113)

question

The ________________ is used to determine where the amount in the ledger comes from.

answer

posting reference (or cross-reference) (p. 144 Quiz)

question

For a journal entry to be complete, it must contain _________________.

answer

the date, a debit entry, a credit entry, and an explanation. (p. 144 Quiz)

question

Transferring information from the journal to the ledger is called ______________.

answer

posting

question

What are some examples of source documents?

answer

Canceled checks, vendor invoices, and receipts

question

Accounting cycle

answer

The sequence of steps in the accounting process completed during the fiscal period. (p. 167)

question

Accrual

answer

Recognition of an expense or a revenue that has been incurred or earned but has not yet been recorded. (p. 175)

question

Accrued wages

answer

Unpaid wages owed to employees for the time between the end of the last pay period and the end of the fiscal period. (p. 175)

question

Adjusting entries

answer

Entries that bring the books up to date at the end of the fiscal period. (p. 181)

question

Adjustments

answer

Internal transactions that bring ledger accounts up to date as a planned part of the accounting procedure. (p. 170)

question

Book value or Carrying value

answer

The cost of an asset minus the accumulated depreciation. (p. 173)

question

Contra account

answer

An account that is contrary to, or a deduction from, another account; for example, Accumulated Depreciation, Equipment is listed as a deduction from Equipment. (p. 172)

question

Depreciation

answer

An expense based on the expectation that an asset will gradually decline in usefulness due to time, wear and tear, or obsolescence; the cost of the asset is therefore spread out over its estimated useful life. A part of depreciation expense is apportioned to each fiscal period (p. 171)

question

Fiscal period

answer

Any period of time covering a complete accounting cycle, generally consisting of 12 consecutive months. (p. 167)

question

Fiscal year

answer

A fiscal period consisting of 12 consecutive months. (p. 167)

question

Matching principle

answer

The principle that the expenses for one time period are matched up with the related revenues for the same time period. (p 181)

question

Mixed accounts

answer

Certain accounts that apper on the trial balance with balances that are partly income statement amounts and partly balance sheet amounts--for example, Prepaid Insurance and Insurance Expense. (p. 175)

question

Straight-line depreciation

answer

A means of calculating depreciation in which the cost of an asset, less any trade-in value, is allocated evenly over the useful life of the asset. (p. 171)

question

Work sheet

answer

A working paper used by accountants to record necessary adjustments and provide up-to-date account balances needed to prepare the financial statements. (p. 167)

question

The ____________ represents the sequence of steps in the accounting process.

answer

accounting cycle (p. 204 Quiz)

question

On the work sheet, assets are recorded in which column?

answer

Balance sheet, debit (p. 204 Quiz)

question

Accrual basis of accounting

answer

An accounting method under which revenue is recorded when it is earned, regardless of when it is received, and expenses are recorded when they are incurred, regardless of when they are paid. (p. 235)

question

Cash basis of accounting

answer

An accounting method under which revenue is recorded only when it is received in cash, and expenses ar recorded only when they are paid in cash. (p. 234)

question

ATM (Automated Teller Machine)

answer

Machines that enable depositors to make deposits, withdrawals, and transfers using a coded plastic card. (p. 274)

question

Bank reconciliation

answer

A process by which an accountant determines whether and why there is a difference between the balance shown on the bank statement and the balance of the Cash account in the business's general ledger. The object is to determine the adjusted (or true) balance of the Cash account. (p. 279)

question

Bank routing number

answer

A nine-digit number used by the Federal Reserve Bank to identify the financial institution of the account holder. (p. 276)

question

Bank statement

answer

A periodic statement that a bank sends to the drawer/depositor of a checking account listing deposits received and checks paid by the bank, debit and credit memos, electronic transactions, and beginning and ending balances. (p. 277)

question

Canceled checks

answer

Checks issued by the depositor that have been paid (cleared) by the bank and listed on the bank statement. They are called canceled checks because they are canceled by a stamp, indicating that they have been paid. (p. 279)

question

Cash funds

answer

Separately held reserves of cash set aside for specific purposes. (p. 272)

question

Change Fund

answer

A cash fund used by a business to make change for customers who pay cash for goods or services. (p. 293)

question

Collections

answer

Payments collected by the bank and added to the customer's bank account in the form of a credit memorandum. (p. 280)

question

Denominations

answer

Varieties of coins and currency, such as quarters, dimes, and nickels and $1 and $5 bills. (p. 290)

question

Deposit in transit

answer

A deposit not recorded on the bank statement because the deposit was made between the time of the bank's closing date for compiling items for its statement and the time the statement is received by the depositor; also known as a late deposit. (p. 280)

question

Deposit slips

answer

Printed forms provided by a bank on which customers can list all items being deposited; also known as deposit tickts. (p. 273)

question

Drawer

answer

The party who writes the check. (p. 275)

question

Electronic Funds Transfer (EFT)

answer

A transfer of funds initiated through an electronic terminal, such as a telephone, computer, or magnetic tape.

question

Endorsement

answer

The process by which the payee transfers ownership of the check to a bank or another party. A check must be endorsed when deposited in a bank, because the bank must have legal title to it in order to collect payment from the drawer of the check (the person or firm who wrote the check). (p. 275)

question

Errors

answer

Mistakes made by a customer or the bank. (p. 280)

question

Interest income

answer

The amount earned from lending money to another person or business. (p. 280)

question

Ledger balance of cash

answer

The balance of the Cash account in the general ledger before it is reconciled with the bank statement. (p. 279)

question

NSF (non-sufficient funds) check

answer

Check drawn against an account in which there are not sufficient funds and returned by the payee's bank to the drawers bank because of nonpayment; also known as a dishonored check. (p. 280)

question

Internal controls

answer

Plans and procedures built into the accounting system with the following objectives: (1) to protect assets against fraud and waste, (2) to provide accurate accounting data, (3) to promote efficient operation, and (4) to encourage adherence to management policies. (p. 271)

question

Online banking

answer

Customers conducting banking transactions, such as paying bills, transferring funds, and reviewing bank statements through a secure website. (p. 274)

question

Outstanding checks

answer

Checks that have been written by the drawer and deducted on his or her records but have not reached the bank for payment and are not deducted from the bank balance by the time the bank issues its statement. (p. 280)

question

Payee

answer

The person to whom a check is payable. (p. 275)

question

Petty Cash Fund

answer

A cash fund used to make small, immediate cash payments. (p. 289)

question

Petty cash payments record A record indicating the amount of each petty cash voucher, the accounts to which it should be charged, and the purpose of the expenditure. (p. 291)

answer

Petty cash payments record

question

A form stating who requested cash from the Petty Cash Fund, signed by (1) the person in charge of the fund and (2) the person who received the cash, and indicating the purpose of the petty cash payment. (p. 290)

answer

Petty cash voucher

question

(PIN) personal identification number

answer

A unique personal identification number that is entered by the user to protect access to the user's account. (p. 274)

question

Positive pay

answer

A fraud prevention cash management program offered by banks in an attempt to protect customers and the bank. (p. 276)

question

Promissory note

answer

A written promise to pay a specific sum at a definite future time. (pgs. 282, 514)

question

Remote deposit

answer

The process of capturing checks and deposits electronically for presentation to a financial institution. (p. 274)

question

Service charge

answer

The fee the bank charges for handling checks, collections, and other items. It is in the form of a debit memorandum. (p. 280)

question

Signature card

answer

The form a depositor signs to give the bank a copy of the official signatures of any persons authorized to sign checks. The bank can use it to verify the depositors signatures on checks. (p. 274)

question

Substitute check

answer

The creation of a two-sided digital version of an original check. (p. 274)

question

FICA taxes

answer

Social Security taxes plus Medicare taxes, paid by both employee and employer under the provisions of the Federal Insurance Contributions Act. The proceeds are used to pay old-age and disability pensions and to fund the Medicare program. (p. 325)

question

Gross pay

answer

The total amount of an employee's pay before any deductions. (p. 323)

question

Independent contractor

answer

Someone who is engaged for a definite job or service and who may choose his or her own means of doing the work. This person is not an employee of the firm for which the service is provided. (p. 324)

question

Net pay

answer

Gross pay minus deductions. Also called take-home pay. (p. 323)

question

Payroll bank account

answer

A special checking account used to pay a company's employees. (p. 339)

question

Medicare taxes

answer

Federal government taxes levied on employees and employers; proceeds are used for medical insurance for eligible people aged 65 and over. (p. 325)

question

Payroll register

answer

A manual or computerized schedule prepared for each payroll period listing the earnings, deductions and net pay for each employee. (p. 334)

question

Pre-tax deductions

answer

Employee deductions that are not subject to income tax. The deductions include medical insurance premiums medical and dependent care expenses under a flexible spending pland, and 401(k) contributions. (p. 329)

question

Social Security Act of 1935

answer

An act that provides for worker retirement funding through deductions from workers' wages and matching amounts from their employers. (p. 325)

question

Social Security taxes

answer

Federal government taxes levied on employees and employers; proceeds ar used for old-age pensions and disability benefits. (p. 325)

question

Taxable earnings

answer

The amount of an employee's earnings subject to a tax. (p. 329)

question

Wage-bracket tax tables

answer

A chart providing the amounts to be deducted for income taxes based on amount of earnings, marital status and number of allowances claimed. (p. 330)

question

Withholding allowance

answer

An allowance claimed by an employee (on a W-4), which employers use to calculate the amount of income tax withheld from an employee's paycheck. (p. 329)

question

Workers' compensation laws

answer

Laws that protect employees and dependents against losses due to death or injury incurred on the job. (p. 326)

question

(EFTPS) Electronic Federal Tax Payment System

answer

Federal tax deposits are made using this system. Payments can be made 24 hours a day, 7 days a week. Businesses can schedule payments up to 120 days in advance of the due date. To be considered on time, tax deposits must be scheduld at least one calendar day prior to the due date. (p. 371)

question

(EIN) Employer Identification Number

answer

The number assigned to each employer by the Internal Revenue Service for use in the submission of reports and payments for FICA taxes and federal income tax withheld. (p. 367)

question

(FUTA) Federal unemployment tax

answer

A tax levied only on the employer that is equal to 0.6 percent of the first $7,000 of total earnings paid to each employee during the calendar year. This tax is used to administer the funds. (p. 369)

question

Form 940

answer

An annual report filed by employers showing total wages paid to employees, total wages subject to federal unemployment tax, and other information. Also called the Employer's Annual Federal Unemployment (FUTA) Tax Return. (p. 382)

question

Form 941

answer

A quarterly report showing the tax liability for withholdings of employees; federal income tax and FICA taxes and the employer's share of FICA taxes. Total tax deposits made in the quarter are also listed on thes Employer's Quarterly Federal Tax Return. (p. 375)

question

Form 941-V

answer

A payment voucher completed when making payments with the 941 report. (p. 376)

question

Form W-2

answer

A form containing information about employee earnings and tax deductions for the year. Also caled Wage and Tax Statement. (p. 380)

question

Form W-3

answer

An annual report sent to the Social Security Administration listing the total wages and tips, total federal income tax withheld, total Social Security and Medicare taxable wages, total Social Security and Medicare tax withheld, and other information for all employees of a firm. Also called the Transmittal of Wage and Tax Statements. (p. 381)

question

Payroll Tax Expense

answer

A general expense account used for recording the employer's portion of the FICA taxes, the federal unemployment tax, and the state unemployment tax. (p. 367)

question

Quarter

answer

Three consecutive months. (p. 372)

question

(SUTA) State unemployment tax

answer

A tax levied against employers by most states based on a portion of employee earnings during the calendar year. Rates and earning limits vary among states. The proceeds are used to pay subsistence benefits to unemployed workers. (p. 369)

question

Workers' compensation insurance

answer

This insurance paid for by the employer provides benefits for employees injured or killed on the job. The rates vary according to the degree of risk inherent in the job. The plans may be sponsored by states or by private firms. The employer generally pays the premium in advance at the beginning of the year based on the estimated payroll. The rates are adjusted after the exact payroll is known. (p. 386)

question

Accounts payable ledger

answer

A subsidiary ledger that lists the individual accounts of creditors in alphabetical or numerical order with their respective balances. (p. 439)

question

Accounts receivable ledger

answer

A subsidiary ledger that lists the individual accounts of credit customers in alphabetical or numerical order, with their respective transactions and balances. (p. 431)

question

Controlling account

answer

An account in the general ledger that summarizes the balances of a subsidiary ledger (p. 431)

question

Cost of Goods Sold account

answer

An account, used in the perpetual inventory system, that represents the cost of the inventory sold. (p. 443)

question

Credit memorandum

answer

A written statement indicating a seller's willingness to reduce the amount of a buyer's debt. The seller records the amount of the credit memorandum in the Sales Returns and Allowances account. (p. 429)

question

FOB destination

answer

Shipping terms under which the seller pays the freight charges and includes them in the selling price. Title or ownership changes hands when the buyer receives the goods. (p. 437)

question

FOB shipping point

answer

Shipping terms under which the buyer pays the freight charges between the point of shipment and the destination. Payment may be made directly to the carrier upon receiving the goods or to the supplier if the supplier prepaid the freight charges on behalf of the buyer. Title or ownership changes hands when goods are transferred to the freight company. (p. 437)

question

Invoices

answer

Business forms prepared by the seller that list the items shipped, their cost, their terms of the sale, and the mode of shipment. They may also state the freight charges. The buyer considers them purchase invoices; the seller considers them sales invoices. (p. 426)

question

Merchandise inventory

answer

Goods (an asset account) that a company buys and intends to resell at a profit. (p. 425)

question

Merchandising businesses

answer

Businesses that buy and sell goods. (p. 425)

question

Periodic Inventory system

answer

A method of recording inventory that requires the company to determine the amount of goods on hand by periodically taking a physical count and then attaching a value to it. (p. 425)

question

Perpetual Inventory system

answer

A method of recoring inventory that provides the firm with a running balance of inventory. (p. 425)

question

Purchases account

answer

An account for recording inventory that provides the firm with a running balance of inventory. (p 425)

question

Purchases Returns and Allowances account

answer

An account that records a company's return of merhandise it has purchased or a reduction in the bill for an agreed-upon reason; it is treated as a deduction from Purchases. (p. 436)

question

Purchases journal (P)

answer

Used to record purchases of merchandise purchased on account for resale only.

question

Sales journal (S)

answer

A special journal used to record sales of merchandise sold on account only. This specialized type of transaction calls for debits to Accounts Receivable and credits to Sales. (Don't duplicate the transaction in the general journal). (p. 447)

question

Cash receipts journal (CR)

answer

Used to record all transactions that include a debit to Cash such as cash sales, checks received, or interest earned on a checking account.

question

Cash payments journal (CP)

answer

Used to record all transactions that include a credit to Cash, such as payments by check or bank service charges.

question

Special Journals

answer

Books of original entry used to simplify the recording process. One or more of these journals may be used in a manual accounting system, or they may be used in certain computerized systems designed to facilitate specialized types of repetitive transactions. (p. 447)

question

Sales account

answer

A revenue account for recording the sale of merhandise. (p. 425)

question

Sales Tax Payable Account

answer

An account used to record a tax levied by a state or city government on the retail sale of goods and services. The tax is paid by the consumer but collected by the retailer. (p. 429)

question

Subsidiary ledger

answer

A group of accounts representing individual subdivisions showing the debits and credits of a controlling account. (p. 431)

question

Sales Returns and Allowances account

answer

The account a seller uses to record the physical return of merchandise by customers or reduction in a bill for an agreed-upon reason. Sales Returns and Allowances is treated as a deduction from Sales. This account is usually evidenced by a credit memorandum issued by the seller. (p. 428)

question

Cash discount

answer

The amount a customer can deduct for paying a bill within a specified period of time; used to encourage prompt payment. Not all sellers offer cash discounts. (p. 497)

question

Cash payments journal

answer

A special journal used to record all transactions involving cash payments or decreases to the Cash account. (p. 516)

question

Cash receipts journal

answer

A special journal used to record all transactions involving cash receipts or increases to the Cash account. (p. 511)

question

Credit period

answer

The time the seller allows the buyer before full payment on a charge sale has to be made. (p. 497)

question

Notes Payable

answer

The account containing the balance of promissory notes. (p. 514)

question

Sales discount

answer

A deduction from the original price granted by the seller to the buyer for the prompt payment of an invoice (p. 498)

question

Trade discount

answer

Substantial discounts from the list or catalog prices of goods, granted by the seller; not recorded by the buyer or the seller. (p. 508)

question

Cash equivalents

answer

Items included in the broad definition of cash. Included are short-term, highly liquid investments (for example, money market accounts, U.S. Treasury bills, and commercial paper) having maturities with a maximum of 90 days from the date aquired. (p. 633)

question

Current Assets

answer

Cash and any other assets or resources that are expected to be realized in cash or to be sold or consumed during the normal operating cycle of the business (or one year if the normal operating cycle is less than 12 months). (p. 616)

question

Current Liabilities

answer

Debts that will become due within the normal oprating cycle of a business, usually within one year, and that are normally paid from current assets. (p. 617)

question

Current ratio

answer

A firm's current assets divided by its current liabilities. Portrays a firm's short-term debt paying ability. (p. 618)

question

Transaction: Owner deposited cash in a bank account in the name of the business. What accounts are involved? What are the classifications of the accounts involved? Are the accounts increased or decreased?

answer

Accounts involved: Cash and Capital Classifications: Cash (Asset), Capital (Owner's Equity) Cash is increased because the company has more money than before.

question

Transaction: Company bought equipment, paying cash. What accounts are involved? What are the classifications of the accounts involved? Are the accounts increased or decreased?

answer

Accounts involved: Cash and Equipment Classifications: Cash (Asset), Equipment (Asset) Cash is decreased because the company used cash to purchase the equipment. Equipment is increased because the company has more equipment now than it did before.

question

Transaction: Company bought equipment on account from a supplier. What accounts are involved? What are the classifications of the accounts? Are the accounts increased or decreased?

answer

Accounts involved: Equipment & Accounts Payable Classifications: Equipment (Asset), AP (Liability) Equipment is increased because the company has more equipment than before. AP is increased because the company owes more to creditors than it owed before.

question

Transaction: Company paid a creditor on account. What accounts are involved? What are the classifications of the accounts? Are the accounts increased or decreased?

answer

Accounts involved: Cash & Accounts Payable Classifications: Cash (Assets), AP (Liability) Cash is dereased because the company used cash to pay the creditor. AP is decreased because the company owes less now than before.

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Transaction: The owner invests personal cash in the business. Effect: The company's asset account Cash increases and The proprietor's Capital account increases. Liabilities are not involved in this transaction.

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Effect: The company's asset account Cash increases and The proprietor's Capital account increases. Liabilities are not involved in this transaction.

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Transaction: The owner withdraws cash from the business for personal use.

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Effect: The company's asset account Cash will decrease and The proprietorship's owner's equity decreases by an entry to the Drawing account. Liabilities are not involved in this transaction.

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Transaction: The company receives cash from a bank loan.

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Effect: The company's asset account Cash increases and The company's liabilities (such as Notes Payable or Loans Payable) have increased. Owner's (Stockholders') Equity is not involved in this transaction.

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Transaction: The company repays the bank that had lent money to the company.

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Effect: The company's asset account Cash decreased and The company's liabilities (such as Notes Payable or Loans Payable) have decreased. Owner's (Stockholders') Equity is not involved in this transaction.

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Transaction: The company purchases equipment with its cash Effect: The asset account Equipment increases, and another asset is also affected The asset account Cash decreases, and another asset is also affected. Liabilities and Owner's Equity are not involved in this transaction.

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Effect: The asset account Equipment increases, and another asset is also affected The asset account Cash decreases, and another asset is also affected. Liabilities and Owner's Equity are not involved in this transaction.

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Transaction: The owner contributes his/her personal truck to the business.

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Effect: An asset such as Trucks increased and The proprietor's Capital account increased. Liabilities are not involved in this transaction

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Transaction: The company purchases a significant amount of supplies on credit.

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Effect: The company's asset account Supplies increases.The company's liability account Accounts Payable increases. Owner's (Stockholders') Equity is not involved in this transaction.

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Transaction: The company purchases land by paying half in cash and signing a note payable for the other half.

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Effect: The asset Land has increased. Liabilities (Notes Payable account) have increased and the asset Cash has decreased. Owner's (Stockholders') Equity is not involved in this transaction.

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In May, Consulting Company X provides services for and bills Client Q then records the transaction by a debit to Accounts Receivable for $5,000 and a credit to Service Revenues for $5,000. What is the effect of this entry upon the accounting equation for Company X?

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Effect: The asset Accounts Receivable increased and Revenues cause Owner's (Stockholders') Equity to increase. Liabilities are not involved in this transaction.

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T account form

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A form of account shaped like the letter T in which increases and decreases in the account may be recorded

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Trial balance

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A list of all account balances to prove that the total of all debit balances equals the total of all credit balances

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Credit

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The right side of a T account

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Net income

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The result when total revenue exceeds total expenses over a period

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Income statement

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A financial statement showing the results of business transactions involving revenue and expense accounts over a period of time

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Financial statement

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A report prepared by accountants that summarizes the financial affairs of a business

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Debit

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The left side of a T account

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Statement of owner's equity

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A financial statement showing the activity in the owner's equity, or Capital account, over the financial period

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Normal balance

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The plus side of a T account

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compound entry

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A transaction that requires more than one debit or more than one credit to be recorded.

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Footings

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The totals of each side of a T account

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Report form

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The form of the balance sheet in which assets are placed at the top and liabilities and owner's equity are placed below

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Balance sheet

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A financial statement showing the financial position of an organization on a given date, such as June 30 or December 31.

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Net loss

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The result when total expenses exceed total revenue over a period of

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Financial position

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The resources or assets owned by an organization at a point in time, offset by the claims against those resources and owner's equity

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Transposition

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An error that involves interchanging, or switching around, digits during the recording of a number

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Slide

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An error in placing the decimal point in a number

Accounting 101- Basic Accounting

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