Chapter 2 Accounting

What are the three steps for analyzing the effect of transactions in the correct order?

1. Determine one account in the accounting equation that will increase or decrease 2. Determine a second account in the accounting equation that will increase or decrease 3. Confirm that assets are equal to liabilities plus stockholders' equity

The steps for measuring transactions

1. Use a source document to identify accounts affected 2. Analyze the impact of the transaction on the accounting equation 3. Assess whether the transaction results in a debit or credit to account balances 4. Record the transaction in a journal 5. Post the transaction to the general ledger

The two roles of financial accounting are to?

1.Communicate information to external parties for decision making purposes 2. Measure business activities of the company

The full set of accounting procedures used to measure and communicate business transactions is referred to as the

Accounting cycle

The primary purpose of a source document is to assist in:

Analyzing a transaction

Expense

Cost of conducting business during the period

Larkin Company pays $300 for utilities for the month. Which of the following is used to record this transaction?

Debit utilities expense; credit cash.

What effect will the payment of salary expense have on stockholders' equity?

Decrease

Dividend

Distribution of cash to stockholders

Which of the following are internal transactions? Paying salaries to an employee Borrowing cash that will be repaid in five years to the bank Earning revenues after cash is received in advance from customers Using supplies purchased and paid for last month

Earning revenues after cash is received in advance from customers & Using supplies purchased and paid for last month.

A () () is a collection of accounts used to keep track of increases and decreases in financial position elements.

General ledger

An event that affects the financial position of a company but does not include an exchange with a separate economic entity is an

Internal transaction

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

Posting

External transaction

Purchasing supplies from a vendor

Which of the following is an external transaction?

Purchasing supplies from a vendor

What are the stockholder equity accounts?

Retained earnings & Common Stock

Match the effect of dividends with the correct terms: Stockholders & Company

Stockholders- Increase in resources Company- Decrees in resources

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

T-account

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

Trial balance

Internal transaction

Using supplies on hand

A separate () is used to post transactions and provides a summary of the effects of all transactions for a particular item.

account

A proper journal entry includes the (), the account and amount debited, the account and amount credited, and a brief explanation of the transaction.

date

In a double-entry accounting system, a () represents the left side of the account.

debit

For every journal entry, () must be equal to credits

debits

A t-account has space at the top for the account title and two sides for recording () and () to the account.

debits; credits

An () transaction involves an exchange between the company and a separate economic entity.

external

The term "accounting cycle" refers to the full set of () utilized to measure and communicate business transactions to external decision makes.

procedures

Prepaid rent is

rent paid in advance

Accounting transactions are classified as which of the following?

External transactions & Internal transactions

A chronological record of all economic events affecting a firm is a ().

journal

If a transaction decreases cash by $100, the balance sheet will balance if which of the following occurs?

A liability is decreased & Another asset is increased

Which of the following are internal transactions?

Using supplies purchased and paid for last month. & Earning revenues after cash is received in advance from customers.