AC ch. 2 learnsmart

A classified balance sheet shows subtotals for current ____ and current ____.

asset, liabilties

When recording a transaction, the debits must always equal the ____.

credits

Current assets divided by current liabilities is the ____ ratio.

current

On May 1, Lord of the flies, Inc. hires an employee to begin work next month. On May 1, Lord of the Flies will _____.

not record anything

liabilities appear on the ____ side of the accounting equation and are increased with amounts that appear on the _____ side of liability T-accounts.

right and right

List the components of a classified balance sheet in the proper order in accordance with GAAP. List from top to bottom.

1. Current Assets 2. Non-current assets 3. Current liabilities 4. Non-current liabilities 5. Stockholders' equity

A company paid $500 for supplies that it purchased last month. The decrease in liabilities would be recorded with a ______ to Accounts Payable.

Debit

Company X borrows $10,000 from a bank in exchange for a promissory note. The effect of this transaction on the accounting equation is to _____ by $10,000.

increase assets increase liabilites

The common stock account is increased with an entry on the _____ side of the T-account.

right

Which type of activities are not captured by the accounting system because they are not considered transactions?

exchanges of promises

The effect on the accounting equation of paying suppliers for amounts owed includes a(n) ____.

decrease in liabilities

Business activities that affect the basic accounting equation and are recorded in the accounting system are called _____.

transactions

the primary objective of external reporting is to provide

useful economic information about a business to help external parties make sound financial decisions

The _____ principle requires that assets and liabilities be recorded at the amounts that were measurable at the time transactions occurred.

cost

Which of the principals below are true regarding transaction analysis?

every transaction affects at least two accounts the accounting equation must remain in the balance after each transaction

The line item, Common Stock, on the balance sheet results from a(n) ____ activity.

financing

Notes payable on a balance sheet is the result of ____.

financing actitivity borrowings from creditors

Typical steps needed before a business can start selling goods and/or services to customers include:

financing and investing activities

Sofa So Good, Inc. signs a contract with a programmer for the development of software that will be developed, delivered and paid for the next year. The signing of the contract _____.

has no effect on the accounting equation

identify what a company gives and receives when it invests in equipment by paying cash and signing a two-year note.

it gives cash it gives a promissory note it receives equipment

Accounts are updated by posting the effects listed in the general _____ to the respective accounts in the general ____.

journal and ledger

A(n) _____ is a probable future sacrifice of economic benefits arising from present obligations to transfer assets or provide services as a result of past transactions or events.

liability

Which of these events would not be recorded as transactions in the accounting system?

ordering supplies to be delivered and paid for in the future hiring an employee

Morris Lest, Inc., purchased machinery for $10,000 cash. The effect of this transaction is to cause ______.

total assets to remain the same

All transactions ____.

- affect assets, liabilities, and/or stockholders' equity - have at least two effects on the accounting equation

List the steps in the accounting cycle in chronological order

1. Record a journal entry 2. Summarize in the ledger (T-account) 3. Prepare an unadjusted trial balance 4. Adjust the accounts 5. Prepare financial statements 6. Close the books

How do financing activities differ from investing activities?

Financing activities may involve an exchange of cash for a company's own stock; investing activities do not.

Events that do not involve exchanges between the company and someone else but affect assets, liabilities, and/or stockholders' equity are called ______ events.

Internal

When a company pays its supplier for amounts owed, its Cash and Accounts _____ accounts are decreased.

Payable

increases and decreases in individual accounts, as well as an ending balance, are shown in a(n) _____.

T-accounts and ledger

Business activities that affect the basic accounting equation and are recorded in the accounting system are called ______.

Transactions

which of the following is an example of proper accounting when it comes to reporting values on a company's balance sheet?

X company reported its inventory at its current market value, which is lower than its original cost. X company reported its damaged equipment at an amount lower than it originally cost.

Acme Enterprise issued shares of common stock for an amount in excess of per value. The journal entry to record this transactions includes a credit to _____.

additional paid-in capital common stock

A transaction may be recorded with an increase in an asset and a decrease in a(n) _____.

another asset

When a company borrows from a bank by signing a formal agreement, an ____ titled ____ is increased and a _____ titled _____ is increased.

asset, cash, liability, notes payable

Which of the following are external transactions?

borrowing money from the bank paying salaries to employees purchasing inventory from suppliers

Which transactions are recorded in the accounting system?

Both external exchanges and internal events

Debits must always equal ______ in each journal entry.

credits

Accounts _______ is a liability account and represents amounts owed to suppliers.

payable

Which of the following is correct regarding posting a transaction?

posting means to transfer journal information to a ledger

Which of the following accounts are found on a balance sheet?

prepaid rent and interest payable

Which of the following is an external transaction?

purchasing supplies from a vendor

Two sources of equity financing which increase stockholders' equity are _____.

retained earnings and common stock

MMM Pizza bought $1,500 of supplies on account. What is the effect of recording this transaction on the company's total assets?

total assets will increase

Which of the following are possible effects on the accounting equation when recording a transaction that increase an asset by $100?

- A stockholders' equity account increases by $100 - A liability account increase by $100 - A decrease in another asset by $100

Z best, inc. issued $1,000,000 of common stock for cash. By accident, Z Best recorded the transaction by increasing cash and decreasing stockholders' equity. As a result of this entry, _____.

- Common stock is understated - stockholders' equity is understated - the accounting equation is out of balance

Which of these would be captured and reported by an accounting system?

- Investing activities - Financing activities - Purchase of equipment on account

Company X receives $10,000 from issuing common stock to its owners. The effect on the accounting equation is a(n) ______.

- increase in assets - increase in stockholders' equity

Company X issued $10,000 of common stock to its owners for cash. It recorded the transaction by increasing assets and increasing liabilities. Which of the following statements are correct?

- liabilities will be too high - stockholders' equity will be too low

A company purchased a $100,000 building in exchange for a 20-year note payable. The company recorded a $100,00 increase in the Building account and a $100,000 decrease in Cash. As a result of this error, ____.

- total assets are too low - total liabilities are too low

Which of the following have normal debit balances?

-cash -supplies -equipment

List the steps in the accounting cycle.

Anaylze transaction Record journal entries in the general journal Post amounts to the general ledger Adjust revenues and expenses in the journal and post to the ledger Prepare financial statements Close revenues, expenses, gains, and losses to Retained Earnings

Burrows, Inc. borrowed $100,000 from Last Bank by signing by a formal agreement to repay the bank in 100 years. Burrows' journal entry to record this transaction will include a debit to _____.

Cash

Which financial statement reports the dividends during the current accounting period?

Dividends are reported on the Statement of Retained Earnings

An exchange of promises is a transaction that affects the accounting equation.

False; An exchange of promises is not a transaction and thus does not affect the accounting equation until later when it receives and gives something of value.

Sofa So Good, Inc. signs a contract with a programmer for the development of software that will be developed, delivered and paid for in the next year. The signing of the contract _____.

Has no effect on the accounting equation

In April, Pizza Aroma hired a new employee at a rate of $1,000 per month to start work at the beginning of May. In April, Pizza Aroma should record ______.

Nothing, because an exchange of promises is not a transaction

Identify the key activities necessary to start a business

Obtain financing

The payment of cash owed to suppliers for purchases recorded earlier includes a decrease to ____.

accounts payable and cash

Company X receives $10,000 from issuing 10,000 shares of $1 par value common stock to its owners. The effect on the accounting equation is ____.

assets increase and stockholders' equity increase

When a company needs cash to buy or build additional facilities, it often seeks funds by ____.

borrowing from banks issuing stock

When Diva, inc. declared a $10,000 cash dividend, it recorded a $10,000 ______.

credit to dividends payable debit to retained earnings

In May, Pizza Aroma bought $1,200 of supplies and promised to pay the supplier next month. As soon as it receives the supplies in May, Pizza Aroma should record a ______.

debit to supplies of $1,200 credit to accounts payable of $1,200

The equipment account is increased with an entry on the ___ side of the Equipment T-account.

left

The equipment account is increased with an entry on the _____ side of the Equipment T-account.

left

Which of the following events are transactions that should be entered in the accounting system?

receiving 3 cases of copy paper that cost $12 per case Paying the office secretary's monthly salary of $2,000 paying $48 for 4 cases of copy paper that were delivered last month

When information is complete, neutral, and free from error, it possess the qualitative characteristic of faithful _____.

representation

Noodlecake purchases and receives $10,000 in computers, printers and desks in exchange for its promise to pay next month. What is the effect of this purchase on account on the accounting equation?

- Total liabilities increase - total assets increase - total stockholders' equity remains the same

List the components of a classified balance sheet in the proper order in accordance with GAAP.

1. Current assets 2. Non-current assets 3. Current liabilities 4. Non-current liabilities 5. Stockholders' equity

List the steps from top to bottom in the order they occur in the accounting system.

1. Transactions are recorded in the journal 2. Transactions are posted to the ledger 3. Account balances are computed

Which of the following statements is (are) correct regarding a T-account?

A T-account will show the debits and credits of the transactions affecting the account. A T-account represents a ledger account.