Accounting Exam 1

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

$492,000.

Revenue Recognition Principle

1. Recognize revenue when it is earned. 2. Proceeds need not be in cash. 3. Measure revenue by cash received plus cash value of items received.

Expense Recognition Principle (or Matching Principle)

A company must record its expenses incurred to generate the revenue reported.

Balance sheet.

A financial statement providing information that helps users understand a company's financial status, and which lists the types and amounts of assets, liabilities, and equity as of a specific date, is called

Measurement Principle (or Cost Principle)

Accounting information is based on actual cost. Actual cost is considered objective

Full Disclosure Principle

Accounting principle that dictates that companies disclose circumstances and events that make a difference to financial statement users.

Assets created by selling goods and services on credit are

Accounts Receivable

Contra account.

An account linked with another account that has an opposite normal balance and is subtracted from the balance of the related account

accrued expense

An expense that the business has incurred but has not yet paid.

Identify the accounts that would normally have balances in the debit column of a business's trial balance

Assets and expenses.

If a company purchases equipment costing $4,500 on credit, the effect on the accounting equation would be:

Assets increase $4,500 and liabilities increase $4,500.

Prepaid accounts (also called prepaid expenses) are generally

Assets that represent prepayments of future expenses

Increase an expense; decrease an asset

Assuming prepaid expenses are originally recorded in balance sheet accounts, the adjusting entry to record use of a prepaid expense is

Sarbanes-Oxley (SOX)

Congress passed the Sarbanes-Oxley Act to help curb financial abuses at companies that issue their stock to the public.

Two common subgroups for liabilities on a classified balance sheet are

Current liabilities and long-term liabilities

Dividend

Distributions of cash or other resources by a business to its stockholders are called:

(T/F) An adjusting entry often includes an entry to Cash.

False

(T/F) During the closing process, Retained Earnings is closed to the Dividends account.

False

(T/F)The detail of individual revenue and expense accounts is reported on the statement of retained earnings.

False

Generally Accepted Accounting Principles (GAAP)

GAAP aims to make information relevant, reliable, and comparable.

materiality constraint

Prescribes that only information that would influence the decisions of a reasonable person need be disclosed.

External users of accounting information include all of the following except: Customers. Purchasing managers. Creditors. Shareholders. Government regulators.

Purchasing managers.

(T/F) "Unearned" accounts are liabilities that must be fulfilled.

True

(T/F) Debits increase asset and expense accounts

True

(T/F) Expenses always decrease equity

True

(T/F) Recording revenues early overstates current-period income; recording revenues late understates current period income.

True

(T/F)Adjusting entries result in a better matching of revenues and expenses for the period

True

Generally accepted accounting principles

basic assumptions, concepts, and guidelines for preparing financial statements.

Common stock account.

common stock account is used to record investments by owners The common stock account is an equity account The common stock account is increased on the right side of the T-account

Willow Rentals purchased office supplies on credit. The general journal entry made by Willow Rentals will include a

credit to Accounts payable

records the effects of transactions and other events in at least two accounts with equal debits and credits.

double-entry accounting system

Accounting

information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organization's business activities.

Factors of the Fraud Triangle

opportunity pressure and rationalization