Chapter 1: The Nature of Accounting

$10000

Remember. Assets= Liabilities + Owners' Equity If owners' equity increased $2000 in 20XY from earnings, what is the missing value of liabilities on the 20XY balance sheet?

$7000

Remember. Assets= Liabilities + Owners' Equity Solve for Owners' Equity.

$1850

Remember. Assets= Liabilities + Owners' Equity Solve for Total Assets.

$3000 Since there was no changes in owners' equity other than from income, al you had to do was compute the ending balance of equity ($30,000) and subtract the 20XX balance.

Remember: Totals Assets = Total liabilities + Owners' Equity [aka (Current Assets + Plant & Equipment) = (Current Liabilities + Long-term liabilities) + Owners' Equity] If The Second Company paid no dividends during 20XY and sold no stock, what was its net income for the year?

Which of the following is a liability? A) accounts payable B) inventory C) investments D) prepaid insurance E) none of the above

A-- A liability is an economic obligation of a firm. The only such obligation among the choices is accounts payable, which represents the total unsecured promises to pay for goods or services already received. Inventory, investments and prepaid insurance are all economic resources of a firm, and are thus classified as assets.

Goober Pyle purchased machinery for his auto shop at a cost of $5,000 with a note from the bank. Accordingly, A) liabilities increased $5K and assets increased $5K B) liabilities increased $5K and owners' equity decreased $5K C) assets and owners' equity both increased $5K D) none of the above

A-- purchasing equipment with a note increases equipment (an asset) and notes payable (a liability) by $5,000 each.

Which of the following accounts represents the original investment of the shareholders? A) Capital stock B) Retained earnings C) Liabilities D) Assets E) None of the above

A--Capital Stock

Academic accountants are members of which association?

American Accounting Association (AAA)

C, D, T. Current liabilities are those liabilities that will be repaid from current assets, which means that they are due within one year or operating cycle. The three current liabilities here are accrued rent payable, accrued salaries payable, and trade payables.

Answer the question.

D) Accounts Receivable Note: Assets are listed on the balance sheet in the order of liquidity.

Answer the question.

E) Prepaid Insurance Note: Assets are listed on the balance sheet in the order of liquidity and Prepaid Insurance is not a very liquid current asset.

Answer the question.

G) Notes Payable

Answer the question.

H, C. The proper order of presentation is Common (or Capital) stock, then Retained Earnings.

Answer the question.

I, N. Dividends and Net Income-- Dividends are not an expense of doing business, they are a distribution of earnings to the shareholders. Net Income, is not a form of expense either.

Answer the question.

L, P, S. The non-current assets are Machinery, Notes Receivable, and Property.

Answer the question.

M Mortgage Payable is a non-current liability as this debt or obligation will not become due within one year or operating cycle.

Answer the question.

O Net Sales--- Income Statements always begin with revenues. Net sales is the only form of revenue remaining in the list of accounts.

Answer the question.

AB Tricky question-- This is a simultaneous increase and decrease in assets-- you are receiving cash and at the same time you are surrendering your account receivable.

Answer the question. (Provide 2 letters)

AC Purchasing supplies results in an increase in assets, and buying them on account payable is an increase in liabilities.

Answer the question. (Provide 2 letters)

AC When you obtain a bank loan, you generally receive cash, which is an increase in an asset, and you establish an obligation to the bank, which is an increase in liability.

Answer the question. (Provide 2 letters)

AE A sale of stock is typically in exchange for cash, so an asset increases and owners' equity (the common stock) increases as well. A

Answer the question. (Provide 2 letters)

BD Disbursing cash decreases the balance of an asset account, and using it to pay an account payable decreases your liabilities.

Answer the question. (Provide 2 letters)

G No transaction occurs until an economic event has passed-- agreeing to paint the store does not constitute an economic event.

Answer the question. (Provide 2 letters)

Is Cash considered an Asset, Liability, or Owners' Equity account?

Asset

Is Inventory considered an Asset, Liability, or Owners' Equity account?

Asset Inventories are goods held for sale in the future. Thus, inventory is an Asset. We have already seen that when goods are sold, their cost is transferred from an asset to a charge against equity.

Is Investment considered an Asset, Liability, or Owners' Equity account?

Asset Investments, like Cash or Plant and Equipment, are resources of a firm available for future use, which means they are assets.

Is Prepaid Insurance considered an Asset, Liability, or Owners' Equity account?

Asset Prepaid insurance represents the amount of insurance premium dollars which have been spent to provide coverage into the future. Because it will provide future benefit it is an asset.

Which of the following statements shows the dividends paid during the accounting period? A) statement of financial position B) statement of retained earnings C) income statement D) B and C

B-- The statement of financial position is the balance sheet. The income statement shows revenues and expenses for the period. The statement of retained earnings shows the beginning and ending retained earnings plus net income and dividends.

The financial position at the end of a period is reflected on the: A) Income Statement B) Balance Sheet C) Statement of Retained Earnings D) None of the above

B--Balance Sheet

Using an accelerated depreciation method for tax purposes would be an example of ____________________.

Tax accounting

Current assets are a firm's resources that are expected to be converted into cash within a year. The basis of this rule is: A) the matching principle B) the going concern principle C) accounting convention D) the monetary concept

C-- Accounting convention dictates the categories on a balance sheet. This idea of cash conversion within a year is an account convention, not a generally accepted account principle such as A, B or D.

A corporation's fiscal year does not always coincide with the calendar year. The most common reason for this disparity is: A) that most corporations don't begin operations on January 1. B) that the S.E.C assigns fiscal years for public corporations. C) to favorably present the results of operations of seasonable enterprises

C-- The fiscal year of a corporation is chosen by its management or board of directors for any number of reasons, the most common being, 1) tax considerations, and 2) that in a highly seasonal businesses, the date on which a balance sheet is presented should reflect favorably upon the selling cycle of the company

The cash account includes: A) cash on hand B) checks on hand that have not been deposited C) cash in the bank D) all of the above

D

Arial Corporation incorporated on January 1, 2012. The capital stock account at that time was $100K. Losses for 2012, 2013, and 2014 totaled $60K. The retained earnings account at the end of 2014 was: A) $40,000 B) $160,000 C) $60,000 D) -$60K

D-- The retained earnings account at the end of a period is the cumulative retained earnings from the day the corporation begins. In this case, losses for three years amount to $60,000 in retained earnings.

The retained earnings account should take the form of: A) accounts receivable B) inventory C) plant and equipment D) A, B, and C

D-- When referring to retained earnings, as a company generates earnings, these earnings can take the form of investments by the company. These investments can be in the form of accounts receivable, inventory, and plant and equipment.

Which of the following accounts represents the market valuation of the company? A) Assets B) Liabilities C) Net Assets D) Retained Earnings E) None of the above

D--None of the above

Which of the following is a liability? A) Cash B) Account Receivable C) Inventory D) None of the above

D--None of the above

Which of the following statements represents a flow concept? A) Balance Sheet B) Statement of Retained Earnings C) Inventory Statement D) None of the above

D--None of the above

The operating expenses shown on an income statement usually include ______________________. A) cost of goods sold B) salaries C) administration D) A & B E) B & C

E-- salaries and administration expenses are usually shown on the income statement as operating expenses

Which of the following is NOT a functional area of accounting? -Managerial accounting -Tax Accounting -Economic Accounting -Financial Accounting

Economic accounting

C-- The right hand side of the entry or credit is to accounts receivable. Think of it this way, Ellis sold $60,000 worth of merchandise, but since $5,000 was returned, the original accounts receivable decreases by $5,000

Ellis Company sold $60,000 worth of merchandise on credit during the accounting period. $5,000 worth of merchandise was returned during the accounting period. The right hand side of the entry to show the sales returns is to: A) cash for $5,000 B) sales returns for $5,000 C) accounts receivable for $5,000 D) none of the above

D-- If Elpo collected $5,000 on a credit sale, Elpo debited cash for $5,000 which increased the cash account and credited accounts receivable for $5,000 which reduced accounts receivable.

Elpo Company collected $5,000 on a credit sale. The right had side of the entry would be: A) credit accounts payable for $5,000 B) credit sales for $5,000 C) credit cost of goods sold for $5,000 D) credit accounts receivable for $5,000

B-- When a company borrows money from the bank, the company receives cash, but incurs a liability-- bank loan payable. So the company debits cash and credits the bank loan payable.

Essex Company borrows $10,000 from the bank. The terms of the note are 10% interest for one year. Essex makes a left hand entry to cash and a right hand entry to: A) bank loan payable for $10,100 B) bank loan payable for $10,000 C) bank loan payable for $9,900 D) none of the above

B-- The terms "on credit" indicate an accounts payable. Another way to state this is: the debit entry is to store equipment and the credit entry is to accounts payable.

Evan Jones Company purchased store equipment on credit for $3000. The left-hand side entry is to store equipment for $3,000. The right hand entry is to: A) notes payable for $3,000 B) accounts payable for $3,000 C) store equipment expense for $3,000 D) none of the above

Which organization is recognized today as the authoritative voice of accounting principles?

F.A.S.B

Capital stock represents the market's value of the company. True or False

False

Current assets are properly listed in order of liquidity on a balance sheet as shown in the following example: Cash, Accounts Receivable, Prepaid Insurance, Inventory. True or False

False

Long-term investments in securities are recorded on the balance sheet at their original cost, unless the market value has increased significantly, in which case they should be written up to their fair market value. True or False

False

Prepaid items have already been converted to cash and therefore are the most liquid items in the current assets portion of the balance sheet. True or False

False

True or False: Even though tax laws are constantly changing they are fairly easy to predict.

False ---- the government has the power to levy a tax on anything it chooses

Since the total of all the right-hand sides of the accounts equals the total of the left-hand sides, then the total amount of increases entered in the general ledger must equal the total amount of decreases. True or False

False-- Ex: The entry: Cash (A) incr. xxx Common Stock (OE). incr. xxx is used to recored the sale of company stock . While the right-hand side equals the left-hand side, they both increase, thus, the total amount of increases does not equal the decreases.

Almost all the data necessary to prepare an income statement is contained in the retained earnings account. True or False

False-- ALL, not almost all, the data necessary to prepare an income statement is contained in the retained earnings account.

An asset is only a tangible, economic resource of a firm that can be measured in monetary terms. True of False

False-- Assets need to be tangible, as long as they are measurable in monetary terms. An example of intangible asset is a patent.

Credits are generally good and debits are generally bad. True or False

False-- Credit means nothing more than the right-hand side, while debit means nothing more than the left-hand side. Neither is good nor bad by its own merits.

Dividends are one of the largest expenses that a corporation incurs. True or False

False-- Dividends are not an expense of the corporation. The corporation is not required to pay dividends.

True or False: The money spent to buy equipment is called an expense.

False-- Money spent to buy equipment is called a capital expenditure. The historical cost of the equipment is reported on the balance sheet under the category property, plant and equipment. Such purchases are said to be capitalized, because they are set up as assets rather than flowing directly through to the income statement. Each year a portion of the cost of the equipment is charged against income in the form of depreciation expense.

Liabilities normally have a left-hand balance. True or False

False-- Remember the rules for entering transactions are: A=L+OE Thus, liabilities, as well as owner's equity, normally have right-hand balance, while assets have left-hand balances.

Allison Corporation had net income of $18,000 for 2014. A the end of 2014, Allison paid out $10,000 in dividends. This payment left Allison with $8,000 cash in retained earnings. True or False

False-- The payment left Allison with $8,000 in retained earnings, not necessarily cash. The retained earnings could take the form of inventory, account receivable and PP&E.

True or False: The statement of retained earnings shows the revenues, expenses, and net income of an enterprise over a period of time.

False-- The statement of retained earnings lists the beginning balance in retained earnings, to which net income for the period is added, and dividends paid during the same time period and deducted. The income statement discloses the revenues, expenses and net income of a firm over a period of time.

True or False: Except for some minor differences, tax accounting and financial accounting are the same.

False-- both have different objectives

True or False: Large corporations, like GM, are required to round of their figures to the nearest million dollars on their financial reports.

False-- corporations are not required nor directly told where to round off their numbers, concept of materiality is discretionary

Increases in T-accounts are always shown on the right-hand side. True or False

False-- the methods for entering transactions are: A= L + OE

Elvon Incorporated (Elvon Inc.) is a large multinational corporation located in the US. Elvon presents its financial statements in US dollars. This is an example of ______________________.

Financial accounting (uses the monetary characteristic)

Using A= L + OE As of Jan 1, 20XX: $125,000= $79,000 + OE Jan 1, 20XX: OE= $46,000 Therefore, OE for Dec. 31, 20XX can be found: OE Jan 1, 20XX + Total Revenues for the year -Total expenses for yr - dividends declared and paid= OE Dec. 31, 20XX $46,000+$188,00-$153,000-$15,000=$66,000 Solving for liabilities as of Dec. 31, 20XX: $168,000= L + $66,000 Liabilities= $102,000 *Inventory purchases is included in assets *Loans is a long-term liability so not included?-check with Derek

From the following information, calculate the liabilities as of Dec. 31, 20XX.

C-- A balance of $10,000 is meaningless unless more information is given. For example, if the beginning retained earnings balance was $20,000 and the ending were $10,000, it would indicate the company lost money during the period.

If the retained earnings T account has a balance of $10,000 at the end of the accounting period, the company: A) had net income of the period B) sustained a loss for the period C) unable to determine because of a lack of data D) none of the above

Arrow Inc was incorporated in 1904. Land was purchased at that time for $10,000. This same land would be carried on the balance sheet of Arrow Inc in 2004 as $10,000. True or False

True

T-Accounts are called such because they resemble the shape of a 'T'. True or False

True

True or False: Managerial accounting can be used for comparing budgeted and forecasted costs with actual performance.

True

True or False: Owners in corporations are liable only for the amount they have invested and no more.

True

True or False: When the owner of a proprietorship or one of the partners of a partnership dies, the business ceases to exist.

True

Bookkeeping accounts are a method of accumulating financial transactions and summarizing their effects on balance sheet items. True or False

True-- Bookkeeping accounts provide an easy means for recording, collecting and reporting financial transactions of a firm.

It is possible to have the books in balance, but with mistakes. True or False

True-- Having the books in balance means that each time you entered a transaction you placed equal amounts on the right-hand side and the left-hand side. Books which balance do not rule out the possibility that a transaction could have posted to the wrong account.

True or False: Stockholders' equity is the same as owners' equity.

True-- In a corporation stockholders are the owners of the firm; thus, the terms of stockholders' equity and owners' equity are synonymous.

The total of ALL the right-hand sides of the T-accounts must equal the total of ALL the left-hand sides of the T-accounts. True or False

True-- The double-entry system of accounting means that for each transaction recorded, there is a left-hand (debit) entry offset by the right-hand (credit) entry.

True or False: Liabilities = Assets - Owners' Equity

True-- The foundation of all accounting is based on the relationship: Assets = Liabilities + Owners' Equity

True or False: The "net worth" of a firm is shown on a company's balance sheet.

True-- The term "net worth" is synonymous with owners' equity; thus, it is reported on a company's balance sheet. In contemporary accounting parlance, equity is the preferred title. Net worth is considered an outdated title, although it is still frequently seen.

The main purpose of the trial balance is to make sure you have not committed any math errors in your T-accounts. True or False

True-- The trial balance is taken as a partial check of the arithmetic accuracy of the entries previously made.

True or False: One application of the conservatism principle is that inventory is valued on the balance sheet at either its original cost or market value, whichever is lower.

True-- This practice is known in accounting circles as valuing inventories at the lower of cost or market (LCM).

A transaction is an event that affects the financial position of a company. True or False

True-- a transaction is an accounting record of an economic event.

True of False: Liabilities are the claims of creditors to a company's resources.

True-- liabilities are the debts or obligations of an enterprise.

D-- Accounts Receivable is an asset so... Total left-side ($24,000) -Total right-side ($17,500) ------------------------------ 7-31-XX Balance $6,500

What is the ending balance of the following account? A) $5,000 Right-hand side B)$6,000 Left-hand side C)$7,500 Left-hand side D)$6,500 Left-hand side

C-- Merchandise Inventory XXX Cash XXX The asset merchandise inventory is increased by a debit entry. The asset cash is decreased by the credit entry.

Which account below should be debited to record this transactions: Used cash to purchase merchandise for resale. A) cash B) accounts receivable C) merchandise inventory D) plant and equipment E) accounts payable F) retained earnings

cash: decrease owners equity: decrease Because dividends are a distribution of capital to the owner of the firm, they cause reduction in retained earnings (OE). They are, however paid in cash.

Which of the the following accounts are affected when the board of directors declares and pays dividend to the stockholders? (write increase, decrease and if its not affected leave it blank) -Cash -Notes Payable -Accruals -Owner's Equity -Account's Receivable -Account's Payable -Property, Plant & Equipment -Inventory -Capital (common stock)

Accruals: Increase Owner's Equity: decrease An interest expense incurred and not yet paid is an accrual (L). The expense reduces the retained earnings (OE).

Which of the the following accounts are affected when the firm has incurred an expense for interest on its bank loan, but hasn't yet paid it? (write increase, decrease and if its not affected leave it blank) -Cash -Notes Payable -Accruals -Owner's Equity -Account's Receivable -Account's Payable -Property, Plant & Equipment -Inventory -Capital (common stock)

Cash: decrease Notes Payable: decrease Accruals: decrease In this transaction, the accrued interest expense liability is paid along with the note.

Which of the the following accounts are affected when the firm pay off the notes payable to the bank? (write increase, decrease and if its not affected leave it blank) -Cash -Notes Payable -Accruals -Owner's Equity -Account's Receivable -Account's Payable -Property, Plant & Equipment -Inventory -Capital (common stock)

Owners equity: decrease P, P & E: decrease Depreciation reduces the asset amount of the equipment, and allocation expense reduces the retained earnings (OE).

Which of the the following accounts are affected when the firm records depreciation expense? (write increase, decrease and if its not affected leave it blank) -Cash -Notes Payable -Accruals -Owner's Equity -Account's Receivable -Account's Payable -Property, Plant & Equipment -Inventory -Capital (common stock)

owners equity: decrease accruals: increase The expense reduces retained earnings (OE), and since it has not yet been paid it increases the accruals.

Which of the the following accounts are affected when the firm records salary expenses, but haven't yet written payroll checks? (write increase, decrease and if its not affected leave it blank) -Cash -Notes Payable -Accruals -Owner's Equity -Account's Receivable -Account's Payable -Property, Plant & Equipment -Inventory -Capital (common stock)

Plant, Property, & Equipment: Increase Notes Payable: Increase

Which of the the following accounts are affected when you buy a new office computer to perform the bookkeeping tasks, using a loan from the bank? (write increase, decrease and if its not affected leave it blank) -Cash -Notes Payable -Accruals -Owner's Equity -Account's Receivable -Account's Payable -Property, Plant & Equipment -Inventory -Capital (common stock)

owner's equity: decrease cash: decrease checks are treated like cash and the expenses of the office personnel reduce retained earnings, which is an owner's equity account

Which of the the following accounts are affected when you incur and pay the office employees their weekly salaries? (write increase, decrease and if its not affected leave it blank) -Cash -Notes Payable -Accruals -Owner's Equity -Account's Receivable -Account's Payable -Property, Plant & Equipment -Inventory -Capital (common stock)

Cash: Decrease Inventory: Increase

Which of the the following accounts are affected when you pay cash for merchandise inventory? (write increase, decrease and if its not affected leave it blank) -Cash -Notes Payable -Accruals -Owner's Equity -Account's Receivable -Account's Payable -Property, Plant & Equipment -Inventory -Capital (common stock)

Cash: increase Accounts Receivable: decrease

Which of the the following accounts are affected when you receive cash from the customer who previously purchased merchandise on account? (write increase, decrease and if its not affected leave it blank) -Cash -Notes Payable -Accruals -Owner's Equity -Account's Receivable -Account's Payable -Property, Plant & Equipment -Inventory -Capital (common stock)

Capital (common stock): increase Cash: increase When a company sells stocks it receives cash in exchange for its stock, thus it must increase its capital stock account to accommodate the additional shares being releases.

Which of the the following accounts are affected when you sale of additional stock? (write increase, decrease and if its not affected leave it blank) -Cash -Notes Payable -Accruals -Owner's Equity -Account's Receivable -Account's Payable -Property, Plant & Equipment -Inventory -Capital (common stock)

Owner's equity: Increase Accounts Receivable: Increase

Which of the the following accounts are affected when you sell merchandise to a customer on account? (write increase, decrease and if its not affected leave it blank) -Cash -Notes Payable -Accruals -Owner's Equity -Account's Receivable -Account's Payable -Property, Plant & Equipment -Inventory -Capital (common stock)

No transaction-- no accounts affected.

Which of the the following owner agrees to give employees an extra day off over the holidays? (write increase, decrease and if its not affected leave it blank) -Cash -Notes Payable -Accruals -Owner's Equity -Account's Receivable -Account's Payable -Property, Plant & Equipment -Inventory -Capital (common stock)

The concept that it is better to understate rather than overstate revenues and to overstate rather than understate expense is called ________________.

conservatism

The area of financial accounting is designed for the ______________ type of user.

external

A(n) ______________ own(s) a proprietorship.

individual

The area of managerial accounting is designed for the _________________ type of user.

internal

Bookkeeping is a...

measuring and recording system

Information that can make a difference to the decision at hand is considered to be _________________. A) Reliable B) Comparable C) Conservatism D) Understandability E) None of the above

none of the above-- it would be "relevant"

Accounting assists in making major decisions by:

providing relevant economic information on costs and expected profits

A(n) ______________ own(s) a corporation.

stockholder

G.A.A.P is...

the collection of accounting standards and conventions that has evolved over the years to govern the profession

When the bookkeeper or accountant of a business records an economic event, it is called a:

transaction

A(n) ______________ own(s) a partnership.

two or more individuals

A, B, F, Q, R. The current assets are Accounts Receivable, Accrued Interest Receivable, Cash, Office Supplies, and Prepaid Expenses.

Answer the question.

A,D, and E. Current liabilities are payable within a year or an operating cycle. These include Wages Payable, Income Tax Payable, and Interest Payable.

Answer the question.

B) Inventory Note: Assets are listed on the balance sheet in the order of liquidity.

Answer the question.

G Cost of Goods Sold-- Cost of Goods Sold is deducted from net sales to determine Grubbs, Inc. gross margin on sales.

Answer the question.

G) Certificate of Deposit Note: Assets are listed on the balance sheet in the order of liquidity.

Answer the question.

J, W. The equity accounts of Grubbs. Inc. are common stock and retained earnings. If Grubbs Company were a proprietorship, the owners' equity would be called Grubbs, Capital.

Answer the question.

BF A cash disbursement uses cash, and thus decreases assets. The disbursement is a distribution of retained earnings, meaning that owners' equity decreases.

Answer the question. (Provide 2 letters)

Is Accounts Receivable considered an Asset, Liability, or Owners' Equity account?

Asset Accounts Receivable represents the amount of money owed to a company by its customers, generally arising from credit sales. It is a future source of cash so is an asset. They are generally collected within 30-60 days.

Is Plant & Equipment considered an Asset, Liability, or Owners' Equity account?

Asset Plant & Equipment are resources available to a firm for its use, and therefore are considered assets.

One purpose of the statement of retained earnings is to show__________________. A) how well a company performed in the previous year B) the financial position of a company at a point in time C) distribution of earnings to the stockholders D) claims of the company's resources E) none of the above

C-- The statement of retained earnings reconciles the increases and decreases in the retained earnings account over a period of time. Retained earnings increases as a result of profitable operation of a business during a period. It decreases due to operating losses and distributions to stockholders in the form of dividends.

Owners' equity can also be shown on the balance sheet as __________. A) net worth B) net assets C) stockholders' equity D) A & B E) A, B, & C

E-- Owners' equity represents the residual claim of the owners of a firm against the assets of the firm; that is, after creditors have made their claim to the assets they have financed, what remains for the equity holders? Net worth, net assets, and stockholders' equity are all descriptive of the same thing.

True or False-- A company's property holdings are usually listed at fair market value on the balance sheet.

False-- Property, like any asset, is carried on a company's books and is listed on its balance sheet at its original purchase price. This is known as historical cost or acquisition cost of the asset. Only in those instances where an asset's value has shown material decline in value from it acquisition cost is it proper to adjust the asset value. This another example of the conservatism principle at work in accounting.

True or False: Retained earnings are the earnings that a company saves and reinvests; they can be used whenever the company needs cash.

False-- Retained earnings is the total net income of a company since it was incorporated, less any dividends paid over that time. In accural-based accounting, net income is not in the form of cash, thus neither is retained earnings. It is wrong to think of retained earnings as a pool of funds which are available to the corporate treasurer, because retained earnings are nothing more than the accumulated successes of the enterprise which have not been distributed as dividends.

True or False: Current assets almost always equal current liabilities.

False-- The resources of an organization are composed of current and noncurrent assets. The claims on those assets are current and noncurrent liabilities, as well as equity of the owners. In total, assets must equal liabilities plus equity; however, the components of each side of the equality need not be equal since an increase in current assets could be financed by an increase in current liabilities, noncurrent liabilities or owners' equity. Because current assets and current liabilities are independent, they need not be equal.

True or False: The statement of financial position shows how well a company has performed over a period of time.

False-- The statement of financial position, more frequently referred to as the balance sheet, lists a company's assets, liabilities, and owners' equity. While it is possible to gather a general idea about the financial performance of a company from the statement of financial position, it is difficult to tell over what time period this took place. The income statement is used explicitly for this purpose.

True or False: The statement of retained earnings shows the revenues, expenses and net income of an enterprise over a period of time.

False-- The statement of retained earnings shows the retained earnings at the beginning of the period, plus net income, less dividends. Finally, the ending retained earnings are shown.

True or False: Financial accounting, like managerial accounting, has no firm guidelines that it must follow.

False-- follows the general accepted accounting principles (GAAP)

True or False: C.P.A stands for "Certified Private Accountant"

False-- it's "Certified Public Accountant"

True or False: A company's annual report is used primarily by taxing authorities.

False-- used by all kinds of entities (ex. shareholders, SEC, lenders)

True or False: In order to obtain a copy of a corporation's financial reports, you must be either a stockholder or lender to the firm.

False--- Coporations are only required to send a copy of their financial statement to the SEC, their stockholders, and creditors. But are usually happy to provide it to anybody that makes a formal request.

True or False: The 10-K is required by the F.A.S.B.

False--- The SEC requires the 10-K (which is a financial report filed annually by publicly-traded corporations).

True or False: Managerial accounting must follow strict rules which govern internal accounting procedures.

False--- discretionary to what managers deem helpful and relevant to their informational needs

True or False: The SEC is the rule-making body for generally accepted accounting principles (GAAP).

False--- it is the FASB

True or False-- Dividends can be paid to stockholders only following a year in which a company has generated net income.

False--A company can pay dividends any time its board of directors chooses, whether the firm has operated profitably or at a net loss for the year. The only restriction placed on dividend declarations is that retained earnings cannot become negative in order to pay the dividend. In addition, because dividends are discretionary, not contractual, uses of cash, it is generally not advisable to pay a dividend if the payment will severely strain the cash position of the company.

Is Bonds Payable considered an Asset, Liability, or Owners' Equity account?

Liability A bond is a long-term debt certificate, generally issued in $1000 increments. Bonds usually carry fixed interest charges known as coupon payments. The Bond Payable is a liability; the interest is an expense.

Is Accounts Payable considered an Asset, Liability, or Owners' Equity account?

Liability Accounts Payable represents claims for payment of cash to creditors. Accounts Payable are usually short-term liabilities, typically arising from the purchase of goods, materials or supplies.

Stapling Incorporated projects sales revenues will exceed $100 million next year. This is an example of ________________.

Managerial Accounting

Is Capitol Stock considered an Asset, Liability, or Owners' Equity account?

Owners' Equity Capitol Stock represents the equity or ownership of a corporation. A corporation issues shares of stock in order to raise equity capital. Unlike debt financing, a company is not legally bound to repay its equity.

Is Cost of Goods Sold considered an Asset, Liability, or Owners' Equity account?

Owners' Equity Cost of Goods Sold is a nominal, income statement account which measures the decrease in Owners' Equity from recognizing the cost of the goods removed from inventory during a period.

Is Interest Expense considered an Asset, Liability, or Owners' Equity account?

Owners' Equity Expenses, like interest, are incurred during the process of earning income, and they decrease Owners' Equity.

Is Retained Earnings considered an Asset, Liability, or Owners' Equity account?

Owners' Equity Retained Earnings measures the cumulative net income of a corporation, less any distributions to its owners, from the time of its incorporation. It is classified as an owners' equity account.

Is Salaries Expense considered an Asset, Liability, or Owners' Equity account?

Owners' Equity Salaries are an operating expense which would decrease the equity of the owners of the business. Therefore, Salaries Expense is considered an Owners' Equity account.

Is Sales considered an Asset, Liability, or Owners' Equity account?

Owners' Equity Sales affect the income statement for a period, causing Owners' Equity to increase.

$190,000

Remember: Totals Assets = Total liabilities + Owners' Equity [aka (Current Assets + Plant & Equipment) = (Current Liabilities + Long-term liabilities) + Owners' Equity] Solve for Current Assets.

$0

Remember: Totals Assets = Total liabilities + Owners' Equity [aka (Current Assets + Plant & Equipment) = (Current Liabilities + Long-term liabilities) + Owners' Equity] Solve for Long-Term Liabilities.

$5000

Remember: Totals Assets = Total liabilities + Owners' Equity [aka (Current Assets + Plant & Equipment) = (Current Liabilities + Long-term liabilities) + Owners' Equity] Solve for Long-Term Liabilities.

Which of the following is NOT an accounting entity? -The Coca-Cola company -A limited partnership -An unincorporated beauty parlor owned by Andrea Jones -The loan department of a bank

The loan department of a bank (the bank is the business/accounting entity)

True or False: A partnership is the same as a proprietorship except that it is owned by two or more individuals.

True

True or False: Accounting is a set of rules and methods by which economic information of a business is collected and made into reports that are useful to end users.

True

True or False: An accounting entity is considered to be an organization for which separate accounting data is gathered and processed.

True

True or False: Congress has authorized the SEC to govern the financial reporting of public corporations.

True

True or False: Depreciation can be considered an allocated cost of using an asset with a life of more than one year.

True-- Depreciation is a process of systematically and rationally allocating the cost of an asset over its useful life. It is a good example of the matching principle, in which expenses are recognized in the periods that they will provide benefit to the firm.

Ellen Jones owns a small proprietorship. She keeps her personal checking account separate from her proprietorship's checking account. This is an example of the fundamental concept of ___________________.

economic entity

The area of tax accounting is designed for the __________________ type of user.

government

The quality that assumes that information is reasonably free from error is ___________________. A) Relevant B) Conservatism C) Understandability D) Consistency E) None of the above

none of the above --- it would be "reliable"