1What information is contained in a balance sheet?
Report of a company's financial position as of a point in time.
2What is an owner's equity?
Loans payable
Accounts receivable
Capital stock
Cash
Capital Stock
3A company ended July assets of $150,000 and owners equity of $60,000.
What is the amount of liabilities at the end of July?
$90,000
4How is gross profit computed?
Sales minus cost of goods sold
5he following are some accounts from a company's financial statement
Accounts receivable
Cost of goods sold
Cash
Retained earnings
Sales
Inventory
Income tax expense
Accounts payable
Which set is a list of all of the items that are used in computing this company's net income?
Sales, cost of goods sold, income tax payable
6What cash flow category contains activities whereby cash is obtained from or repaid to owners or creditors?
Financing
7Here are some financial statement items for the year for a company.
Cash received from customers
Cash received from the sale of land
Cash paid for dividends
Cash paid to employees for wages
Cash paid to purchase a new building
Cash paid for rent
Cash received as new investment from owners
Which set of items is a list of items that are used in computing the company's financing cash flow for the year?
Cash paid for dividends and cash received as new investment from owners.
8Here are some financial statement items for a company.
Net income
Cash flow from financing activities
Cash balance at the beginning of the year
Sales Cash flow from investing activities
Accounts receivable
Retained earnings at the beginning of the year
Cash flow from operating activities
What items are used in computing the company's ending cash balance for the year?
Cash balance at the beginning of the year, cash flow from operating activities, cash flow from investing activities, and cash flow from financing activities.
9What is the proper way to record an increase in an asset account and an increase in an equity account?
Asset, debit; equity, credit
10A company was started last year when the shareholders invested $70,000 cash into it. At that time, the company also borrowed $100,000 cash from a local bank. The company used $140,000 cash to purchase inventory for $140,000. This year the company sold all of the inventory for $95,000 cash (and that is not a typographical error; the amount received for all of the inventory was only $95,000 cash).
Which account balance is correct with respect to this company's balance sheet after the sale of the inventory?
Total owners' equity is $25,000.
11On January 1, a company had these assets, liabilities, and equities:
Cash$100
Inventory$140
Accounts payable$70
Paid-in capital$150
Retained earnings$20
During the year, the company entered into these transactions:
Selling inventory costing $140 for a total of $200; cash of $30 was received, and the remaining $170 was put on account.
Paying cash for rent of $45.
Paying cash dividends of $30.
What is this company's total equity at the end of the year?
$155
12A company made a $3,000 cash payment on a loan. Of the $3,000 cash paid, $2,400 was for interest expense and $600 was a payment to reduce the loan balance.
What is included in the journal entry necessary to record this loan payment?
Debit to interest expense for $2,400.
13A company was started last year when the shareholders invested $70 cash into the company. At that time, the organization also borrowed $30 cash from a local bank. The organization used $80 cash to purchase inventory for $80. This year the company sold all of the inventory for $55 cash. (That is not a typographical error; the amount received for all of the inventory was only $55 cash.)
Assuming that there is no interest on the loan, what is true with respect to this company's balance sheet after the sale of the inventory?
Total owners' equity is $45.
14How are expenses typically recorded with debits and credits?
As a debit, representing a reduction in equity.
15A company purchased inventory for $5,000. The company paid $1,000 cash and the remainder of the purchase was made on account.
What is included in the journal entry necessary to record this inventory purchase?
Credit to accounts payable for $4,000.
16A company sold inventory that cost $1,300 for $2,000. It received $500 cash and the remainder was on account.
What is included in the journal entry or entries necessary to record this sale of inventory?
Debit to accounts receivable for $1,500.
17On August 1 of Year 1, a company paid $7,200 for two years' rent. The rental period starts on August 1 of Year 1.
Which debit or credit is correctly included in the adjusting journal entry necessary on December 31 of Year 1?
Debit to rent expense for $1,500.
18The revenue recognition principle states that revenues are recorded when two main criteria have been met. One of those criteria is that cash has been collected or collectability is reasonably assured.
What is the other criterion?
The earnings process is substantially complete.
19What is the matching principle?
Expenses are recorded in the same period in which the corresponding revenue is recorded.
20For large, publicly traded companies, why is accrual basis accounting preferred over cash basis accounting
Accrual basis accounting provides a more accurate picture of a company's economic profitability.
21On October 1 of Year 1, a company made a $60,000 cash loan to another company. The interest rate on the loan is 5%. No cash payments will be collected on the loan until September 30 of Year 2.
Which debit or credit is correctly included in the adjusting journal entry necessary on the company's books (the lender) on December 31 with respect to this loan?
Credit to interest revenue for $750.
22On May 1 of Year 1, a company received $24,000 cash for rent in advance. This $24,000 rental receipt covers the period from May 1 of Year 1 to April 30 of Year 2.
Which debit or credit is correctly included in the journal entry necessary on May 1 to record this cash received for rent in advance?
Credit to unearned rent for $24,000.
23On January 1, a company had office supplies costing $4,600. During the year, the company bought (and recorded) additional office supplies costing $9,900. On December 31, a physical count of office supplies revealed that supplies costing $2,900 remained.
Which debit or credit is correctly included in the adjusting journal entry necessary on December 31 to record the supplies that the company used during the year?
Credit to office supplies for $11,600.
24At the end of the year, before any closing entries are made, which account has a debit balance?
Cost of Goods Sold
25What is a nominal account
Salaries
26In preparing a bank reconciliation, what is the proper treatment of a deposit in transit?
Add it to the reported cash balance in the bank statement.
27A company rents a building that it uses in its operations. The accountant for the company mistakenly input a $1,000 rental payment on the building as $10,000 in the accounting records.
What is the impact of this error on the financial statements?
Expenses are too high, so reported net income is too low
28The accountant for a company mistakenly posted an expense amount as an asset in the general ledger.
What is the financial statement impact of this error?
Assets are too high, and retained earnings are too high.
29The accountant for a company mistakenly posted a liability amount as a revenue in the general ledger.
What is the financial statement impact of this error?
Liabilities are too low, and retained earnings are too high.
30Proper segregation of duties requires that one person not perform three specific separate functions with respect to a single transaction. Two of those functions are authorization and record keeping.
What is the third function that should be performed by a different person if proper segregation of duties is to be maintained?
Custody of Assets
31Why are daily cash deposits important?
They prevent the accumulation of a large amount of cash
32Which costs are included in work-in-process inventory?
Materials, labor, and overhead
33Who owns goods in transit?
If the shipping terms are FOB destination, the goods belong to the seller while in transit.
34On November 1, a company purchased inventory costing $1,000 on account. The payment terms are 2/10, n30. The company paid on November 6 to receive the 2% discount.
What is the impact on the company's financial statements of the cash payment of this account within the discount period?
Decrease inventory by $20
35A company uses a perpetual inventory system. Beginning inventory for the period was $160,000. Purchases for the period totaled $700,000. A physical count of ending inventory revealed inventory of $130,000. Cost of goods sold according to the perpetual system is $690,000.
What is the amount of inventory shrinkage?
$40,000
36With a LIFO inventory cost flow assumption, what is assumed about the units that are sold and the units that remain in ending inventory?
New units sold, old units in ending inventory
37When a machine is purchased, what is the proper accounting for the amount paid for sales tax on the purchase price?
As part of the cost of the machine
38How does a company report an externally purchased trademark in its financial statements?
As an asset in the balance sheet
39A company purchased a patent from another company for $5,000 cash.
What is needed in the journal entry to record this patent purchase?
Debit to patent for $5,000
40How does a mortgage loan differ from an ordinary loan?
A mortgage loan is related to a specific asset.
41A company borrowed $10,000 in cash by signing a $10,000, five-year note payable with a 10% annual interest rate.
What is needed in the journal entry to record this borrowing of $10,000?
Debit to cash for $10,000
42Owners equity increase vs. decrease
increase with credits; decrease with debits
43Liabilities' increase vs. decrease
increase with credits; decrease with debits
44Assets increase vs. decrease
increase with debits ; decrease with credits
45T-accounts
a simplified depiction of an account in the form of a letter T
46account
an accounting record in which the results of transactions are accumulated ; shows increases, decreases, and a balance.
47The 4 steps in the accounting cycle
Analyze transactions; record the effects of transactions; summarize the effects of transactions; prepare reports
48what is revenue?
the amount of assets consumed through business operations.
49What is an asset?
an economic resource that is owned or controlled by a company.
50Which financial statement provides a detailed explanation of one component in the year - to - year change in the retained earnings balance
Income Statement
51Articulation
the interrealationship among the financial statements
52what are the major activities in the cash flow statement
financing, operating, and investing
53what are financing activities
those activities whereby cash is obtained from or repaid to owners and creditors.
54what is a statement of cash flows
Report of the operating, investing, and financial cash flows of a company during a period.
55financing activities
obtaining resources from owners and providing them are turn on their investment; obtaining resources from creditors and repaying those borrowings
56investing activities
cash inflows and outflows from acquiring and selling productive assets such as PPE ; acquiring and selling investment securities; lending money and collecting on those loans
57operating activates
all transactions relating to a companys delivering or producing its goods for sale and providing its services
583 categories of cash flow
operating activities ; investing activities ; financing activities
59cash equivalents
short-term, highly liquid investments such as treasury bills, commercial paper, and money market funds.
60what is a single -step income statement
groups and totals revenues; groups and total expenses
61what is a bad debt expense
amount of uncollectible accounts created by credit sales during the year.
62how is earning per share (EPS) computed
net income divided by the number of shares
63what is net income
the amount by which revenues exceed expenses
64net income
difference b/t revenues and expenses
65consolidated financial statements
that combine the financial results of a "parent company" with other companies that it owns, called subsidiaries
66multiple-step income statement
statement format that emphasizes the presentation of gross profit and operating income
67What does a debit entry to an asset account represent?
An increase
68How are dividends typically recorded with debits and credits?
A debit, representing a reduction in equity
69A company issued capital stock to new investors in exchange for $100,000 cash. What is the effect of this transaction on the accounting equation?
Total assets and owners' equity increase.
70What does a debit entry to a liability account represent?
A decrease
71What is a general journal?
A chronological record of all transactions of a business
72What is the meaning of the term "debit"?
Recorded on the left side
73In what setting might a company use special journals as well as a general journal?
A large company with many transactions
74When does an accountant perform transaction analysis?
When recording items in the journal
75What is one step in the process of preparing a journal entry?
For each account, determine if it has increased or decreased.
76In the context of accounting, what is the meaning of the word "journalizing"?
Recording a transaction in a journal entry
77How are the items arranged in a journal entry?
Debit first, credit second
78In making a journal entry, why is it important to know whether an account increased or decreased?
To determine whether the account should be debited or credited
79What is a chart of accounts?
A list of accounts used by a company to classify transactions
80What is the normal order of a chart of accounts?
Assets, liabilities, owners' equity, sales, and expenses
81Generally Accepted Accounting Principles
A common set of accepted accounting principles, standards, and procedures that companies and their accountants must follow when they compile their financial statements
82Accrual Accounting
The process of recording expenses and revenues when incurred and earned, regardless of when cash is received, and of adjusting original transaction data into refined measures of a firm's past economic performance and current economic condition
83Accrual Basis Accounting
A system of accounting in which revenues and expenses are recorded as they are earned and incurred, not necessarily when cash is received or paid
84Revenue Recognition Principle
The idea that revenues should be recorded when (1) the earnings process has been substantially completed and (2) cash has either been collected or collectibility is reasonably assured
85What is accrual accounting?
Recording revenues and expenses when earned or incurred, not when cash is received or paid
86What name is given to a 12-month accounting period?
Fiscal Year
87How does the time period concept impact the process of financial reporting?
Financial statements are provided regularly, at least once a year.
88Where and when should an expense already paid in cash be reported if it cannot be directly matched with an associated revenue?
In the income statement as an expense in the accounting period in which it is incurred
89What is cash basis accounting?
Recording revenues when cash is received and expenses when cash is paid
90Real Accounts
Accounts that are not closed to a zero balance at the end of each accounting period; permanent accounts appearing on the balance sheet
91Nominal Accounts
Accounts that are closed to a zero balance at the end of each accounting period; temporary accounts generally appearing on the income statement
92Which one of these items is a nominal account?
Sales Revenue
93Which item is closed to a zero balance at the end of each accounting period?
Cost of Goods Sold
94At the end of a period, what happens to balances existing in real accounts?
They are carried forward to the next period.
95Closing Entries
Entries that reduce all nominal (temporary) accounts to a zero balance at the end of each accounting period, transferring their preclosing balances to a permanent balance sheet account
96At the end of the year, before any closing entries are made, which account typically has a debit balance?
Dividends
97Post-closing Trial Balance
A listing of all real account balances after the closing process has been completed; tests whether total debits equal total credits for all real accounts prior to beginning a new accounting cycle
98A listing of all real account balances after the closing process has been completed; tests whether total debits equal total credits for all real accounts prior to beginning a new accounting cycle
Cash
99How is the ending Retained Earnings balance computed?
Beginning Retained Earnings + Net Income − Dividends
100At the end of the year, what amount is reflected in the Retained Earnings balance before the closing entries are made and posted?
Beginning Retained Earnings