Accounting 2000 Exam 1

if equity is $300,000 and liabilities are $192,000, then assets equal

$492,000

the income summary account is used to

close the revenue and expense account

distributions of cash or other resources by a business to its stockholders

dividends

the difference between a company's assets and its liabilities, or net assets

equity

the rule that requires financial statements to reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue

going-concern assumption

which of the following is the usual final step in the accounting cycle

preparing a post-closing trial balance

revenues, expenses, and dividends accounts, which are closed at the end of each accounting period are

temporary accounts

a business uses a credit to record

a decrease in an asset account

a business's record of the increases and decreases in a specific asset, liability, equity, revenue, or expense

account

the recurring steps performed each reporting period in preparing financial statements, starting with analyzing and recording transactions in the journal and continuing through the post-closing trial balance

accounting cycle

a debit is used to record an increase in all of the following except; accounts payable, cash, dividends, supplies, prepaid insurance

accounts payable

which of the following accounts are permanent accounts

accounts payable

identify the account below that is classified as an asset in a company's chart of accounts

accounts receivable

adjusting entries

affect both income statement and balance sheet accounts

when closing entries are made

all temporary accounts are closed but permanent accounts are not closed

a debit is used to record

an increase in the dividends account

resources a company owns or controls that are expected to yield future benefits

assets

if a company receives $# from the stockholders to establish a corporation, the effect on the accounting equation would be:

assets increase $# and equity increase $#

if a company purchases equipment costing $# on credit, the effect on the accounting equation would be

assets increase $# and liabilities increase $#

prepaid expenses are generally

assets that represent prepayments of future expenses

accounts payable appear on which of the following statements

balance sheet

a company's list of accounts and the identification numbers assigned to each account

chart of accounts

journal entries recorded at the end of each accounting period to prepare the revenue, expense, and dividend accounts for the upcoming period and to update the retained earnings account for the events of the period just finished are referred to as

closing entries

an account used to record the stockholders investments in a business

common stock account

the right side of a t-account

credit

two common subgroups for liabilities on a classified balance sheet

current liabilities and long-term liabilities

richard redden contributed $70,000 in cash and land worth $130,000 to open a new business, rr consulting, inc. what is the journal entry will rr make to record this transaction

debit cash $70,000; debit land $130,000; credit common stock $200,000

prior to recording adjusting entries, the office supplies account had a $359 debit balance. a physical count of the supplies showed $105 of unused supplies available. the required adjusting entry is

debit office supplies expense $254 and credit office supplies $254

k. canopy, the stockholder of canopy services, inc., the company paid $5,700 cash in dividends to the owner (sole stockholder) the entry to close the dividends account at the end of the year

debit retained earnings $5,700; credit dividends $5,700

the closing process is necessary in order to

ensure that net income or net loss and dividends for the period are closed into the retained earrings account

a partnership:

has unlimited liability for its partners

the financial statement that reports whether the business earned a profit and also lists the revenues and expenses

income statement

the total amount of depreciation recorded against an asset over the entire time the asset has been owned

is referred to as accumulated depreciation

a debit

is the left-hand side of a t-account

the current ratio

is used to help assess a company's ability to pay its debts in the near future

the record of all accounts and their balances used by a business

ledger

creditors' claims on the assets of a company

liabilities

unearned revenues are generally

liabilities created when a customer pays in advance for products or services before the revenue is earned

which of the following accounting principles prescribes that a company record its expenses incurred to generate the revenue reported

matching principle

another name for a temporary account

nominal account

which of the following is classified as a current assets

office supplies

if a company uses $# of its cash to purchase supplies, the effect on the accounting equation would be:

one asset increases $# and another asset decreases $# causing no effect

a classified balance sheet

organizes assets and liabilities into important subgroups that provide more information

assets, liabilities, and equity accounts are not closed; these are called

permanent accounts

the process of transferring general journal entry information to the ledger

posting

a business's source documents

provide objective evidence that a transaction has taken place

the rule (1) that requires revenue to be recognized at the time it is earned, (2) allows the inflow of assets of associated with revenue to be in a form other than cash, and (3) measures the amount of revenue as the cash plus the cash equivalent value of any noncash assets received from customers in exchange for goods or services

revenue recognition principle

increases in equity from a company's sales of products or services

revenues

the basic financial statements include all of the following except: statement of cash flows, statement of retained earnings, balance sheet, income statement, or statement of changes in assets

statement of changes in assets

the financial statement that shows the beginning balance of retained earnings; the changes in retained earnings that resulted from, net income (or net loss); dividends; and the ending balance

statement of retained earnings

an account balance

the difference between the total debits and total credits for an account including the beginning balance

identify the account used by businesses to record the transfer of assets from a business to its owner for personal use

the dividends account

net income

the excess of revenues over expenses

identify the statement below that is incorrect; the normal balance of dividends is a debit, the normal balance of an expense account is a credit, the normal balance of the common stock account is a credit, the normal balance of unearned revenues is a credit, or the normal balance of accounts receivable is a debit

the normal balance of an expense account is a credit

a balance sheet lists

the types and amounts of assets, liabilities, and equity of a business as of a specific date

identify the correct formula below used to calculate the debt ratio

total liabilities/total assets

revenue is properly recognized:

upon completion of the sale or when services have been performed and the business obtains the right to collect the sale price

a credit used to record an increase in all of the following accounts except; accounts payable, wages expense, service revenue, common stock, or unearned revenue

wages expense