ACCT 2010 (Ch 1-3 t/f)

Stockholders' equity is the difference between a company's assets and its liabilities

Assets = liabilities + stockholders' equity; therefore assets - liabilities = stockholders' equity

The daily activities involved in running a business such as buying supplies and paying salaries are classified as operating activities on the statement of cash flow

Buying supplies and paying salaries and wages are normal operating costs on the statement of cash flows

A company owes $200,000 on a bank loan. It will be reported by the company as Notes Payable

Formal debt, evidenced by a written contract or note, is reported as notes payable

If total assets increase, then either total liabilities or total stockholder's equity must also increase

The accounting equation (assets = liabilities + stockholder's equity) must balance. if one side of the equation increase the other side must increase

The normal balance of an account is on the same side that increases the account

The balance in an account is determined by the excess of increases over decreases. It is normal to have more increase in an account than decreases

The list of account names and reference numbers that the company will use when accounting for transactions is called the chart of accounts

The chart of accounts is a summary of all account names and corresponding account numbers used to record financial results in the accounting system

Dividing up the continuing life of a company into shorter periods is called the time period assumption

The ongoing life of a company is divided up into shorter periods according to the time period assumption so that financial reports can be issued for specific periods of time and at a specific point in time

Unearned revenue is reported on the balance sheet as a liability

Unearned revenue is a liability representing a company's obligation to provide goods or services to customers in the future. Liability accounts are reported on the balance sheet

A debit may increase or decrease an account, depending on the type of account

Whether a debit or credit increases or decreases an account depends on the type of account. Debits increase assets, expenses and dividends. Debits decrease liabilities, revenues and equity. Credits increase liabilities, revenue and equity. Credits decrease assets, expenses and dividends

A transaction may have any combination of increase and decreases. A purchase of equipment or account increases both equipment and accounts payable. Every transaction is recorded with at least one debit and at least one credit

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Assets and liabilities would each decrease by $100 million if they paid that much in cash to pay off a debit; there is no impact on stockholders' equity

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Building a new warehouse is an investing activity on the statement of cash flows

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Erroneously recording an asset as an expense would overstate total expenses, which would understand net income

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Even if debits equal credits on the trial balance, it is still possible that the wrong account was used, an entry was omitted or recorded twice, and/or the wrong amount was entered as both a debit and a credit.

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Expenses are costs of operating the business, incurred to generate revenues in the period, covered by the income statement. Whenever a business uses up its resources to generate revenues during the period it reports an expense, regardless of when the company pays for the resources

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If credits exceed debits the account will have a credit balance

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It is called a net loss if expenses are greater than revenues. A net loss decreases stockholders' equity

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Journal entires are entered into the journal using a debit/credit format. By themselves, journal entries show the effect of transactions, but they do not provide account balances. The entries are posted to the ledger accounts, which then show the balance of each of the accounts

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Large businesses often round the numbers on their financial statements to the nearest thousand or million

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Net income is not the same as cash flows from operating activities. Net income is not necessarily equal to cash bc revenues are reported when earned and expenses are incurred regardless of when cash is received/paid

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On the statement of cash flows, payments of dividends to the company's stockholders is a financing activity

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Recording the collection of accounts receivable would increase Cash and decrease Accounts Receivable. This journal entry has no effect on net income

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Stockholders are owners of a corporation

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The expense recognition principles states that expenses should be recorded in the same period as the revenues they generate, not necessarily the period in which cash is paid for them. As such, an expense would be recorded this year since the utilities were used this year

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The income statement reports revenues and expenses. Dividends are not expenses but optional distribution of earnings to stockholders, approved by the company's BOD

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A classified balance sheet shows a subtotal for current assets and current liabilities

A classified balance sheet contains subcategories and subtotals for current assets and current liabilities

A net profit margin of 15.4% means that the company used 84.6 cents of each sales dollar to cover costs and expenses

A net profit margin of 15.4% means that the company earns 15.4 cents of net income for each dollar of revenue. This means that 84.6 cents (or $1.00-$1.54) went to cover costs and expenses

A transaction is an exchange or event that directly affects the assets, liabilities or stockholder's equity of a company

A transaction is an event or activity that has a direct and measurable financial effect on the assets, liabilities or stockholder's equity of a business

It is possible for a company to be profitable, yet not have enough cash to pay its bills

Accrual basis net income is the excess of revenues earned over expenses incurred. Revenues do not necessarily equal cash receipts and expenses that do not necessarily equal cash disbursements. A profitable company may not be able to pay its bills if it does not collect cash from customers quickly enough

Accounts Payable, notes payable, and salaries and wages payable are examples of liabilities

An account with the word payable in its title is a liability