Chapter 1 Smartbook

On 6/25, supplies costing $1,000 were purchased, but only $400 of this amount was paid on 6/25. The remainder of the bill went on account. To record this transaction on 6/25: Supplies would be increased by $_________ (1,000/400/600); Cash would be decreased by $ _______(1,000/400/600) and Accounts Payable would be increased by $ ______(1,000/400/600).

1000,400,600

Which of the following statements below lists the rules of entering transactions into the accounting equation?

Accounting equation must always remain in balance so that assets always equal sum of liabilities & equity

When recording transactions into the accounting equation, which of the following statements are correct?

After recording the transaction, total assets will always equal total liabilities plus equity. The accounting equation must always remain in balance.

Jackson's Programming paid its June rent of $500 cash. Demonstrate how to use the accounting equation to record the transaction by completing the following sentence. Jackson would decrease ______(expenses/cash/revenues) and increase ______(expenses/equity/revenues) in the accounting equation

Cash, expenses

Smith Company purchased $100 of supplies for her business and paid immediately. She would record this transaction in the accounting equation by which of the following?

Decrease Cash; increase Supplies.

Dividends cause a(n) _____(increase/decrease) in equity and are recorded directly in the _____(retained earnings/dividends/equity)

Decrease, dividends

From the following statements, select the one that describes the effect of dividends on equity.

Dividends cause equity to decrease.

Generally accepted accounting principles (GAAP) wants information to have:

Faithful representation Relevance

Users of accounting info can divided into 2 main groups:

Internal & external

Managerial accounting is focused on the needs of

Internal users

Melton's Door Company pays rent on the building facilities of $5,000 on May 1. Show how to record this transaction in the accounting equation of Melton's Door Company.

Rent Expense will be increased.

Which of the statement(s) below define(s) an asset?

Resources with expected future benefits An amount owned Resources controlled by the business

Definition of an asset:

Something of value that a business owns or controls

To record the purchase of supplies for cash, the correct entry into the accounting equation would include an increase to ______(Equipment/Supplies/Cash) and a decrease to ______ (Equipment/Supplies/Cash).

Supplies, cash

What are Generally Accepted Accounting Principles?

The concepts and rules that govern financial accounting practice.

Which of the following statements explain(s) how the accounting equation applies to businesses?

The equation reflects that the total of what a business owns at any point in time will equal the total of what it owes creditors and owners. The equation applies to all transactions. The relation of assets, liabilities and equity is reflected in the equation. The equation states that Assets = Liabilities + Equity.

True or false: Dividends are resources paid to the stockholders.

True

Jackson Company purchased office equipment costing $3,000 for his business and paid immediately. Record this transaction in the accounting equation by:

decreasing Cash; increasing Equipment

Sally Smith decided to start a sea shell business organized as a corporation. Her initial investment in the business consisted of $10,000 in cash in exchange for common stock. Record this transaction in the accounting equation of the new business by:

increasing Cash; increasing Common Stock

Jackson's Catering Company provided cookies worth $3,000 to the local college. The college paid immediately. Record this transaction in Jackson's accounting equation by:

increasing Cash; increasing Revenues

On 8/1, supplies costing $500 were purchased on credit. Record this transaction in the accounting equation by:

increasing Supplies, and increasing Accounts Payable

Russell's Consulting Services Company provided $1,000 of services to the local college and immediately collected $700, but the college wants to pay the rest next month. Record this transaction in the accounting equation for Russell's Consulting Service by:

increasing both Cash and Accounts Receivable; and increasing Revenues

Importance of accounting:

Accounting information helps users make business and financial decisions

What does a business need accounting information?

Accounting records business transactions & communicates financial information

Which of the following correctly depicts the accounting equation?

Assets = Liabilities + Equity

When using the accounting equation, recording the purchase of equipment for cash would include an increase to the _______(Cash/Equipment/Supplies) account and a decrease to the _______ (Cash/Equipment/Supplies) account.

Equipment, cash

Johna's Plant Nursery Company pays the salaries of its two employees. How will this transaction affect the accounting equation?

Equity will be decreased. Salaries expense will be increased.

Johna's Plant Nursery Company pays the salaries of its two employees. How will this transaction affect the accounting equation? Select all that apply.

Equity will be decreased. Salaries expense will be increased.

The principle which states that a company should record expenses it incurred in the same period as the revenue it generated is known as the

Expense recognition principle

Users who do not directly run the org & have limited access to accounting info are known as __________ users.

External

Broad opportunity areas of accounting:

Financial Managerial Taxation

Jack Pickle decided to start a small business as a corporation. His initial investment was $4,000 cash in exchange for common stock. Demonstrate how to record this transaction in the accounting equation.

Increase Cash by $4,000; Increase Common Stock by $4,000.

Bob's Bakery receives its utility bill of $800 for the month and pays it immediately. Record this transaction in the accounting equation.

Increase Expenses and decrease Cash.

The Accounts Payable account is a(n) ______ account.

Liability

The area of accounting that serves the decision-making needs of internal users is referred to as (managerial/financial/research) ____ accounting.

Managerial

Accounting opportunities:

Managerial Taxation Financial

Another name for the expense recognition principle is:

Matching principle

The principle which states that accounting information is based on actual cost is called the

Measurement principle

The FASB conceptual framework consists of all of the following:

Objectives Qualitative characteristics Elements Recognition & measurement

Three factors that must exist for a person to commit fraud:

Opportunity Pressure Rationalization

Given the statements below, choose the most accurate definition of dividends.

Outflow of resources to stockholders.

An employee that has unpaid bills might exhibit the following fraud factor:

Pressure

Which of the following statements is/are true regarding the effect of revenues on the equity of a business?

Revenues that increase equity have many forms, such as consulting services and commissions from services. Revenues cause equity to increase.

Which of the following statements best represents the reason for the accounting equation?

The total of everything owned by a business must always equal the total of what the business owes to creditors and owners.

Which of the statements correctly represents the accounting equation?

What a business owns will always equal what it owes to creditors and owners.

The principle which says that revenue is recognized when goods or services are provided to customers at an amount expected to be received from the customer is known as the

revenue recognition principle

When supplies are purchased on credit it means that:

the Accounts Payable account will be increased. a liability has been incurred. the business will pay for the supplies at a later time.