Chapter 2

Which of the following accounts would be debited when a company pays $12,000 in advance for one year of rent?

Prepaid rent

6 step measuring external transactions

Use source documents to identify accounts affected by an external transaction 1 Analyze the impact of the transaction on the accounting equation 2 Assess whether the transaction results in a debit or credit to account balances 3 Record the transaction in a journal using debits and credits 4 Post transactions to the general ledger 5 Prepare a trial balance 6

Which of the following events will not pose an immediate impact on the accounting equation of a retail company? Sale of merchandise A change in marketing strategy Payment of employee salaries Purchase of supplies

A change in marketing strategy

Which of the following is not an asset account? Accounts Payable Supplies Cash Equipment

Accounts payable

General ledger

Accumulate the balances of the accounts

Beta Company paid utilities expense of $2,000 for the current month. Which of the following statements correctly shows the effect of this transaction on the accounting equation?

Assets will decrease by $2,000, liabilities will remain unchanged, and stockholders' equity will decrease by $2,000

Sampson Corporation pays dividends of $9,000 to shareholders. Which of the following statements correctly shows the effect of this transaction on the accounting equation?

Assets will decrease by $9,000, liabilities will remain unchanged, and stockholders' equity will decrease by $9,000

Microlith received $20,000 cash in advance from customers. Which of the following statements correctly shows the effect of this transaction on the accounting equation?

Assets will increase by $20,000, liabilities will increase by $20,000, and stockholders' equity will remain unchanged

Amber Corporation provided services to customers on account for $26,000. Which of the following statements correctly shows the effect of this transaction on the accounting equation?

Assets will increase by $26,000, liabilities will remain unchanged, and stockholders' equity will increase by $26,000

Palmer Corporation borrows $40,000 cash by signing a note with the bank. Which of the following statements correctly shows the effect of this transaction on the accounting equation?

Assets will increase by $40,000, liabilities will increase by $40,000, and stockholders' equity will remain unchanged

Bell Company purchased supplies for $700 cash. Which of the following statements correctly shows the effect of this transaction on the accounting equation?

Assets will remain unchanged, liabilities will remain unchanged, and stockholders' equity will remain unchanged

Which of the following accounts would appear in the credit column of a trial balance?

Common stock

A company bills customers for services provided. The company records this transaction with a:

Credit to Service Revenue

A company pays cash for utilities. The company records this transaction with a:

Credit to cash

Callahan Corporation provides services to customers on account, $900. How would this transaction be recorded?

Debit Accounts Receivable $900, credit Service Revenue $900

Kelly Corporation borrows $120,000 from First Community Bank. How would this transaction be recorded?

Debit Cash $120,000, credit Notes Payable $120,000

Timmons Corporation purchases office supplies for $350 cash. How would this transaction be recorded?

Debit Supplies $350, credit Cash $350

Livingston Company pays utilities of $2,500 in cash. How would this transaction be recorded?

Debit Utilities Expense $2,500, credit Cash $2,500

A company borrows cash from a local bank. The company records this transaction with a:

Debit to Cash

A company purchases supplies for cash. The company records this transaction with a:

Debit to supplies

A transaction involving a debit to an asset account should be posted on the right side of the T-account. T or F

False

All business events have an immediate and quantifiable effect on the accounting equation. T or F

False

In a journal entry, the account to be credited is listed on the first line. T or F

False

In preparing journal entries, it is acceptable for the amount of total debits to be higher than the amount of total credits. T or F

False

What does the word debit mean?

Left side.

Trial balance

Summarized listing of all the debit and credit accounts

Which of the following is used to provide a chronological record of all transactions affecting a firm?

The journal

What would be the effect on total assets if a company purchased land for $200,000 cash?

There would be zero effect on total assets.

An account is defined as a record of the business activities related to a particular item. T or F

True

An increase in revenues increases net income, and net income increases stockholders' equity. T or F

True

In a journal entry, there are two amount columns: the left-hand column is for debits, and the right-hand column is for credits. T or F

True

In posting transactions to a T-account, debits are posted on the left side and credits are posted on the right side. T or F

True

Income statement

financial statement used to determine whether the business was profitable