Chapter 1 & 2; Study Set

If a company is considering the purchase of a parcel of land that was originally acquired by the seller for $85,000, is currently offered for sale at $150,000, is considered by the purchaser as easily being worth $140,000, and is finally purchased for $137,000, the land should be recorded in the purchaser's books at

$137,000

A business uses a credit to record:

A decrease in an asset account

Identify the account that is classified as an asset in a company's chart of accounts

Accounts Receivable

Which of the following accounts is not included in the liabilities section of the balance sheet?

Accounts receivable

Liabilities + Owner's Equity = ?

Assets

Prepaid accounts (also called prepaid expenses) are

Assets from prepayments of future expenses.

How do you find the Change in Equity?

Beginning Owner's Capital − Ending Owner's Capital

Which of the following accounts is not included in the calculation of net income?

Cash

Ted Catering received $800 cash in advance from a customer for catering services to be provided in three months. Determine the general journal entry that Ted Catering will make to record the cash receipt ; ( Hint: What are the account types?)

Cash = $800 Unearned Revenue = $800

What happens when there are changes in Liabilities and changes in Owner's Equity?

Changes in Assets

A company's list of all ledger accounts with an identification number assigned to each account is called a:

Chart of accounts

Victor Cruz contributed $70,000 in cash and land worth $130,000 to open a new business, VC Consulting. Which of the following general journal entries will VC Consulting make to record this transaction

Debit Cash $70,000; Debit Land $130,000; Credit Cruz, Capital, $200,000

Edison Consulting received a $300 utilities bill and immediately paid it. Edison's general journal entry to record this transaction will include a:

Debit to Utilities Expense for $300.

Total Liabilities/Total Assets = ?

Debt Ratio

Beginning Cash Balance + Debits − Credits = ?

Ending Cash Balance

Beginning Equity + Net Income − Withdrawals = ?

Ending Equity

Beginning Owner's Capital + Revenues − Expenses − Withdrawals = ?

Ending Owner's Capital

The Securities and Exchange Commission (SEC) has given the task of setting GAAP to the

FASB

A company borrows $125,000 from the Northern Bank and receives the loan proceed ?

Financing activity

The rule that requires financial statements to assume that the business will continue operating instead of being closed or sold is the

Going-concern assumption

Limited Liability Company (LLC)

Has owners called members

The group that sets international preferred accounting practices is called

IASB

A company purchases equipment for $75,000 cash. This represents a(n):

Investing activity

The collection of all accounts and their balances is called a(n)

Ledger (or General Ledger)

Assets

Liabilities + Owner's Equity

The accounting principle that requires accounting information to be based on actual cost and requires assets and services to be recorded initially at the cash or cash-equivalent amount given in exchange, is the

Measurement (Cost) principle

Consulting Revenue − Employee Salaries Expense − Interest Expense − Rent Expense = ?

Net Income

Revenues − Expenses = ?

Net Income

If a company uses $1,300 of its cash to purchase supplies, the effect on the accounting equation would be

One asset increases $1,300 and another asset decreases $1,300, causing no effect.

The process of transferring journal entry information to the ledger is called:

Posting

On March 1st, Alejandro Consulting paid $2,500 cash for a 5-month insurance policy that begins that day. Given the choices below, determine the general journal entry that Alejandro Consulting will make to record the cash payment.

Prepaid Insurance = $2,500 Cash = $2,500

The expense recognition principle, also called the matching principle is

Prescribes that a company record the expenses it incurred to generate the revenue reported.

Full Disclosure Principle

Prescribes that a company report the details behind financial statements that would impact users' decisions. Correct

The primary objective of financial accounting is to

Provide accounting information that serves external users

An example of an investing activity on a statement of cash flows is

Purchase of land

A tool that represents a ledger account and is used to show the effects of transactions is called a

T-account

Unearned revenues are:

Transferred to revenue when products and services are delivered

A list of all ledger accounts and their balances at a point in time is called a(n):

Trial balance

Identify the account that is classified as a liability in a company's chart of accounts

Unearned Revenue

Which of the following accounts is not included in the asset section of the balance sheet?

Wages expense

A credit

is the right side of a T- Account

Creditors' claims on assets are called

liabilities

Net Income

occurs when revenues exceed expenses

net income/average total assets

return on assets ratio