Accounting Midterm Study Guide

Debit

-Entry on the left side of an account -Normal balance of AWE

What are three types of businesses that operate to earn a profit?

-Merchandising -Manufacturing -Service

Liabilities

Amount owed to creditors

What is the basic accounting equation?

Assets = Liabilities + Owner's Equity

Which of the following best describes the effect of purchasing equipment on credit?

Assets increase and liabilities increase

Complete equation

Assets= Liabilities + Capital - Withdrawals + Revenue - Expenses

Accountant

Broad range of responsibilities

Profit

Business earns more money than it spent

Sole Proprietorship

Business owned by one person

Partnership

Business owned by two or more people

Accounting Clerk

Entry level

When an owner invests personal funds in the business, liabilities and owner's equity are increased.

False

When the owner of a business pays themselves, the account debited is salaries expense.

False

Normal Balance

Increase side of an account

Certified Public Accountant (CPA)

National test

__________ of a T account is always the debit side

The left side

Credit

-Agreement to pay for a purchase at a later time -Right side of an account -Normal balance for LCR

Creditor

A business or person to whom money is owed

Ledger

A group of accounts, aka general ledger

Chart of Accounts

A list of all accounts used by a business

Account

A subdivision under assets, liabilities, or owner's equity

Accounting System

A system designed to collect, document, and report on business transactions

A check was written on April 15. It is being recorded on April 17. The date used when recording the transaction is:

April 15

Loss

Business spends more money than it earns

When recording a business transaction in the journal, this is always entered first.

Date

The normal balance side for an asset account is the:

Debit side

Financial Reports

Documents that present summarized info about the financial status of a business

A business's accounts receivable account represents amounts they owe.

False

A withdrawal increases the assets of a business.

False

Account numbers for all businesses always contain three numbers.

False

All of an owner's personal finances are recorded in the business accounts.

False

All three forms of business organizations can sell stock to obtain money needed to expand their business.

False

An accounting period is always for one month.

False

Asset account titles are the same for all businesses.

False

Expense transactions are recorded as a decrease in the capital account.

False

Generally Accepted Always Rules are the set of rules used by accountants.

False

In a chart of accounts, expense accounts always begin with the number 4

False

In a partnership there are only two owners.

False

Money taken from the business by the owner for personal use is an expense.

False

Our Accounts Payable account represents amounts owed to our business.

False

Partnerships sometimes form for the purpose of selling additional stock to the public.

False

Permanent accounts start each accounting period with a zero balance.

False

Property or other items of value owned by a business are not referred to as assets.

False

Revenue accounts have a normal debit balance.

False

Temporary accounts are used by a business only once.

False

Temporary owner's equity accounts are used by a business only once.

False

The Internal Revenue Service is rarely interested in the profit or loss earned by a business.

False

The Opposite-Entry Accounting System is used to analyze and record a transaction.

False

The chart of accounts for all businesses is always the same.

False

The external users interested in financial accounting reports are only the company's investors.

False

The owner's capital account has a normal debit balance.

False

The owner's capital account is increased by debits.

False

The rules of debit and credit for liability accounts are the same as the rules for asset accounts.

False

There are six steps in the accounting cycle.

False

When a business performs services, they wait to record the performance of those services until they receive payment.

False

When there are two source documents for a transaction, each is recorded on a separate line.

False

Revenue Recognition

GAAP principle that revenue is recorded on the date it is earned, even if cash has not been received.

The amount of each asset account in an opening entry is recorded in a journal in the:

General Debit Column

Revenue

Income earned

What is the complete definition of revenue?

Income earned

This is an example of a business document that indicates a transaction has occured

Journal

This is sometimes called a "book" of original entry because it is where transactions are first entered in the accounting system

Journal

A business that buys and sells raw materials and uses labor and machinery to transform them into finished products and sells them to other businesses or individuals is an example of:

Manufacturing Business

Investment

Money or other property provided for the purpose of making a profit

After closing revenue and expense accounts to the income summary, the balance in the account represents what?

Net income or net loss

List three assets that a business may have

Office Equipment, Office Furniture, Accounts Receivable

Businesses that spend more money than they earn are said to be:

Operating at a loss

Expense

Operating costs

List three classifications of permanent accounts

Owner's Equity, Assets, Liabilities

List three classifications of temporary accounts

Owner's Equity, Revenue, Expenses

Owner's Equity

Owner's claims to the total assets of the business

Assets

Property or other items of value owned by a business

This is the source document used when a customer makes a payment on his/her account.

Receipt

Audit

Review of a company's accounting systems and financial statements to confirm that they follow GAAP

What type of business does things for its customers and charges them a fee?

Service Business

In our economic system, entrepreneurs:

Transform ideas into actual businesses

A chart of accounts is a list of all accounts used by a business.

True

A general ledger is where all accounts for a business are grouped in.

True

A legal right to an item is a financial claim.

True

All businesses have accounts that are both permanent and temporary.

True

An account's normal balance is always on the side used to record increases to the account.

True

An advantage to a sole proprietorship is that it is easy to set up.

True

An investment is money or other property paid out in order to produce profit.

True

It is not possible for the first entry in the accounts payable account to be a debit.

True

It is not possible to record a decrease to an account before you have recorded an increase.

True

Liabilities and the owner's capital account appear on the right side of the accounting equation.

True

The basic accounting procedures followed by a business are the same no matter how the business is formed or what type of business it is.

True

The debit and credit parts of a transaction must be equal for the accounting equation to remain in balance.

True

The rules of debit and credit for expenses are the same as those of withdrawals.

True

The sole proprietorship is the oldest and most common form of business organization.

True

There are 3 steps that must be completed for a journal page setup.

True

There are six steps when journalizing a transaction.

True

When a business uses credit to buy items, it is buying on account.

True

When recording transactions, we do not repeat the month for each transaction on the same page.

True

When we record transactions, increases do not always equal or match decreases.

True

A list of all accounts used by a business is called what?

chart of accounts