Ch 2: The Accounting Cycle: During the Period

On January 1, Linden has total assets of $100,000, total liabilities of $30,000, and total stockholders' equity of $70,000. Linden purchases $20,000 of supplies on account, and $2,000 of prepaid rent for cash. After these transactions, total assets equal

$100,000 + $20,000 supplies + $2,000 prepaid rent - $2,000 cash = $120,000 total assets

Long issued 5,000 shares of stock for $10,000. Long used $2,000 of the proceeds to purchase supplies, and borrowed $8,000 cash from the bank. Long's total assets are

$18,000

If a transaction decreases cash by $100, the balance sheet will balance if which of the following occurs? (Select all that apply) a. Revenue is increased b. A liability is decreased c. Stockholders' equity is increased d. Another asset is increased

A liability is decreased; another asset is increased

Which of the following accounts would normally have a debit balance on the trial balance?

Cash/Utility Expense/Supplies

On August 2, Garner Company provides services to a long-time customer for $50,000. Payment for this service is due on September 1. Which of the following journal entries is made to record this transaction on August 2?

Debit accounts receivable; credit service revenue.

Rawlings Corp. borrows $3,000 on a note payable from Third National Bank. Which of the following is used to record this transaction?

Debit cash $3,000; credit note payable $3,000.

Farmer, Inc. purchases a tractor for $80,000 cash. Recording this transaction will require which of the following?

Debit equipment; Credit cash

Resnick purchases supplies on account. Which of the following is used to record this transaction?

Debit supplies; credit accounts payable

True or false: The term debit means increase, and the term credit means decrease.

False

True or false: The two functions of financial accounting are to measure business activities and prepare tax returns.

False

Sampson Corporation issues common stock for $25,000 cash and uses some of the proceeds to purchase equipment for $10,000 cash. Sampson also purchases $4,000 of supplies on account. After recording these transactions total assets are

Issuing common stock increases assets by $25,000 (cash) and increases equity (common stock). Purchasing equipment for cash decreases one asset and increases another asset, so there is no change in assets. Purchasing supplies on account increases assets and increases accounts payable. $25,000 + $0 + $4,000 = $29,000 total assets.

The commonly used format for recording a transaction is referred to as a(n)

Journal entry

An account that is used informally for analysis instead of drawing a formal general ledger account is referred to as a:

T-account

True or false: A trial balance is used for internal purpose to check that debits equal credits.

True

True or false: For each journal entry, debits must be equal to credits.

True

True or false: Revenue is recorded when services are performed, whereas deferred revenue is recorded when cash is received from customers in advance before services are performed.

True

True or false: The accounting equation must always remain in balance.

True

Indicate which situations would require Zenda Company to record revenue in the current period. (Select all that apply.) a. Zenda is paid in advance for services to be performed in the next period. b. Zenda signs a contract with a customer to perform services in a future period. c. Zenda performs services for cash. d. Zenda performs services on account.

Zenda preforms services for cash; Zenda preforms services on account

If debits do not equal credits on a trial balance, a possible error could be

a debit was posted to the credit column for a journal entry.

Which of the following is used to record the summary of effects on one particular item? a. An account b. A trial balance c. A general journal d. A general ledger

a. an account

What is the effect of net income on retained earnings? a. increase b. no effect c. decrease

a. increase

When services are provided on account, what is the effect on stockholders equity? a. increase b. decrease c. no change

a. increase

A(n) ______ is maintained for each financial statement item, whereas a(n) ______ contains all of the accounts of the company.

account; general ledger

The term ___ cycle refers to the full set of procedures utilized to measure and communicate business transactions to external decision makers.

accounting

The cost of equipment that will benefit future periods is typically recorded as a(n) ___.

asset

Accounts receivable are a. stockholders equity b. assets c. liability d. a component of net income and retained earnings

assets

Wolfgang Company's assets and stockholders' equity both increased by $50,000 as a result of a single transaction. Which of the following transactions would explain this increase? a. Supplies were purchased on account b. Common stock was sold for cash c. Dividends were paid to stockholders d. Equipment was paid for cash

b. Common stock was sold for cash

On May 1, Ace Electronics ordered office equipment. The equipment was delivered to Ace on May 15, and Ace agreed to pay for it by the end of the month. Ace paid for the equipment on May 31. When will Ace make the first entry in its accounting system for this purchase? a. May 1 b. May 15 c. May 31

b. May 15

After the accountant analyzes the impact of a transaction on the accounting equation, the next step in the measurement process is to a. prepare a trial balance b. determine the accounts to debit and credit c. post the transaction to the general ledger d. use source documents to prepare a financial statement

b. determine the accounts to debit or credit

Rice borrows $20,000 from the bank. Which of the following is an effect of this transaction? a. Increase stockholders equity b. Increase liabilities c. Decrease assets d. Decrease revenues

b. increase liabilities

What type(s) of transactions are typically measured only at the end of the accounting period? a. internal and external b. internal c. external

b. internal

What effect does revenue have on retained earnings? a. no effect b. decrease c. increase

c increase

The full set of accounting procedures used to measure and communicate business transactions is referred to as the a. transition cycle b. accounting information system c. accounting cycle d. financial reporting

c. accounting cycle

When a company performs services for a customer, and the customer agrees to pay for the services at a later date, the transaction is recorded in which account? a. prepaid services b. accounts receivable c. accounts payable d. deferred revenue

c. accounts recievable

On January 1, Kim pays for two years of rent in advance. The effect of this transaction a. decrease liabilities b. increase assets c. has no effect on total assets d. increases stockholders equity

c. has no effect on total assets

Claire purchases equipment for $10,000 by paying $3,000 in cash and borrowing $7,000 from the bank. The number of accounts affected by this transaction is a. one b. two c. three d. four

c. three

Rory purchases supplies for cash. Which of the following occurs? a. total asset to increase b. total asset to decrease c. total asset to remain the same

c. total asset to remain the same

Recording the repayment of a promissory note will include a credit to

cash

Tabor Company issues $20,000 of common stock to investors. Recording this transaction will include a credit to

common stock

Jeremy issues 5,000 shares of common stock for $10 per share. Which of the following accounts are affected? a. notes payable b. common stock c. revenue d. cash

common stock; cash

Roland Corporation borrows $10,000 from the bank by signing a promissory note. Recording this transaction will include:

credit to notes payable; debit to cash

Turkey Corp. provides services to customers on account for $3,000. Recording this transaction will include a

credit to revenues

The accounting equation is Assets = Liabilities + Stockholders' Equity. Accounts on the right side of this equation are increased with

credits

A list of all account names used to record transactions of a company is referred to as the a. balance sheet b. general ledger c. income statement d. chart of accounts

d. chart of accounts

Accounts on the left side of the accounting equation (assets) are increased with a(n) ___ to the account, whereas accounts on the right side of the accounting equation are increased with a(n) ___ .

debit; credit

Because dividends reduce retained earnings, a ______ to dividends is essentially a ______ to retained earnings.

debit; debit

Because expenses reduce retained earnings, a ______ to expense is essentially a(n) ______ to retained earnings.

debit; debit

When a company pays salary expense, the effects are to a. decrease stockholders equity b. increase assets c. decrease assets d. increase liabilities

decrease stockholders equity (retained earnings); decrease assets

Dividends ______ retained earnings; therefore, to increase dividends, one would ______ the dividends account.

decrease; debit

Expenses ___ stockholders' equity because they ___ retained earnings.

decrease; decrease

The acronym DEALOR can be used to remember how debits and credits affect different accounts. The three types of accounts that are increased with debits (represented by the DEA in the acronym) are

dividends, expenses, assets

Crane purchases equipment by signing a note payable with the equipment dealer for $10,000. The accounts affected for Crane are

equipment and notes payable

A(n) ___ is a cost of doing business during the period, whereas a(n) ___ is a distribution of cash to stockholders.

expense; dividend

A(n) ___ transaction involves an exchange between the company and a separate economic entity.

external

Which of the following contains a list of transactions affecting each account and the account's balance?

general ledger

Zelda purchases $10,000 of supplies on account. The effects of this transaction are to a. increase liabilities b. decrease liabilities d. increase assets c. increase stockholders equity

increase assets; increase liabilities

Revenues ______ retained earnings; therefore, to increase any revenue, one would ______ the revenue account.

increase; credit

A(n) ___ transaction is an event that affects the financial position of the company but does not include an exchange with a separate economic entity.

internal

Transactions that are typically recognized at the end of the period and do not include an exchange with a separate company are referred to as ___ transactions.

internal

A ________ entry describes the format for recording a transaction

journal

A transaction is initially recorded in the general ___ , and then subsequently posted to the general ___.

journal; ledger

The acronym DEALOR can be used to remember how debits and credits affect different accounts. The three types of accounts that are increased with credits (represented by the LOR in the acronym) are

liabilities; owners equity, revenues

The two roles of financial accounting are to: a. report cost accounting information for internal decisions b. measure and report results to taxing authorities c. communicate information to external parties for decision making purposes d. measure business activities of the company

measure business activities of the company; communicate information to external parties for decision making purposes

An increase in revenues increases ___ ___, which increases retained earnings, which increases stockholders' equity. (Enter one word per blank)

net income

The process of transferring information from a journal entry to the specific accounts affected in the general ledger is referred to as ___.

posting

Indigo Company's journal reveals that equipment was debited and notes payable was credited, both for $10,000. Indigo Company must have

purchased equipment and signed a note for the purchase price

The accumulated net amount of revenue less expenses and dividends is reflected in the balance of ___ ___

retained earnings

Consistent with the ___ recognition principle, companies record revenue at the time goods are provided to customers.

revenue

The type of information included in an account includes

the account title, columns for debits and credits

The balance in retained earnings represents

the accumulated net amount of revenue minus expenses and dividends over the company's lifetime.

A journal entry should contain which of the following information?

the date, accounts and amounts debited, accounts and amounts credited, description of the transactions

A list of all accounts and their balances at a particular date showing that debits equal credits is referred to as a(n) ___ ___.

trial balance