Accounting chp. 1, 2, 3
Daniel's Catering began with cash of $9,000. Daniel then bought supplies for $2,400 on account. Separately, Daniel paid $4,500 for equipment. Answer these questions. a. How much in total assets does Daniel have? b. How much in liabilities does Daniel owe?
11,400 2,400
Accounts payable (What financial statement?)
B
Common stock (What financial statement?)
B
Inventory (What financial statement?)
B
Long-term debt (What financial statement?)
B
Cash (What financial statement?)
B, C
Increase an asset and increase a liability
Borrow money Purchase of asset on account
How can a business be unprofitable several years in a row and still have plenty of cash?
Borrowing money , issuing stock to stockholders , and selling land, buildings and equipment can bring in cash even when the company has experienced losses.
Increase or decrease in cash (What financial statement?)
C
Net cash provided by operating activities (What financial statement?)
C
Net cash used for financing activities (What financial statement?)
C
Dividends (What financial statement?)
C, RE
Net income (What financial statement?)
C, RE, I
Decrease an asset and decrease stockholders' equity.
Declaration and payment of dividends to stockholders Expense transaction (ex: received and paid utility bill)
A utility bill is received on December 27 and will be paid next year. When should the company record utility expense?
Expense recognition principle
Salary expense of $48,000 is accrued at the end of the period to measure income properly.
Expense recognition principle
Give two reasons why a business can have a steady stream of net income over a five-year period and still experience a cash shortage.
Heavy investing activity and paying off debts can result in a cash shortage even if net income has been high.
Interest revenue (What financial statement?)
I
Salary expense (What financial statement?)
I
Sales revenue (What financial statement?)
I
Increase an asset and increase stockholders' equity.
Issuance of stock Revenue transaction (ex: provided services on account or for cash)
How can a business earn large profits but have a small balance of retained earnings?
Paying large dividends will cause retained earnings to be low.
Increase one asset and decrease another asset.
Purchase of asset for cash Sale of asset for cash equal to the asset's book value Collection of an account receivable
Retained earnings (What financial statement?)
RE, B
Decrease an asset and decrease a liability.
Return an asset purchased on account Pay a liability
A construction company is building a highway system which will take four years. When should the company record the revenue it earns?
Revenue principle
A physician performs a surgical operation and bills the patient's insurance company. It may take three months to collect from the insurance company. Should the physician record revenue now or wait until cash is collected?
Revenue principle
If you could pick a single source of cash for your business, what would it be? Why?
The single best source of cash for a business is operating activities . This source of cash is best because it results from the core operations of the business of the business. Operating activities should be the main source of cash for a business.
March has been a particularly slow month, and the business will have a net loss for the second quarter of the year. Management is considering not following its customary practice of reporting quarterly earnings to the public.
Time-period concept
