Review Study Guide

An intangible asset _________

derives its value from the rights and privileges of its owners.

The double entry system requires that each transaction must be recorded in _____

in at least two different accounts

Accounting communicates financial information about a business to both internal and external users.

True

An account is a standardized format used to accumulate the effects of transactions on each financial state item

True

Assets on the balance sheet are recorded at historical cost or their exchange value TF

True

What is the modern def. of accounting

The information system that indetifies records and communities the economic events of an organization to interested users.

On a classified balance sheet companies usually list current asset in

The order in which they are expected to be converted into cash.

The normal balance of any account in on what side?

The side which increases the account.

Receipts from customers that are given in advance are not treated as _______

revenue. Revenue cannot be recognized until the work is performed.

Name the accounting Equation

Assets= Liabilities +Stockholders Equity

A business organized as a corporation is owned by it's ________

Stockholders

Accounting measures and reports financial data for profit making businesses as well as not for profit organizations.

TRUE

The liability of corporate stockholders is limited to the amount of their investment. TF

TRUE

An income statement presents the revenues expenses and net income or net loss of the business for a period of time. TF

TRue

Transactions have a dual economic effect on the fundamental accounting midel

TRue

The separate entity assumption assumes a stable monetary unit

False

When a company borrows money from a bank, it leads to a cash inflow from an investing activity.

False

Revenue received before it is earned expenses paid before being used or consumed are both initially recorded as liabilities.

False

3 Steps to the Accounting Process

. Identify the relevant economic activity 2. Quantify these activities 3. Record the results

The purchase of a delivery truck for cash increases assets and stockholder's equity

False

Accrued Revenues are revenues that have been received but not yet earned.

False

Normally, asset accounts will have credit balances and liability accounts will have debit accounts

False

Liabilities =

Are debts and obligations.

The cost of assets consumed or services used is also know as _______

As an expense

Three Types of Business Activities

Financing Investing Operating

Issuing new shares of common stock will______

Increase common stock

Name two external users of accounting information

Investors and Creditors

Resources owned by a business are referred to as _______

assets

Stockholders equity =

owners on total assets

A big advantage of corporations relative to partnerships and sole proprietorships

the fact there's a reduced legal liability for investors.

The Balance Sheet indicates

whether the company relies on debt or stockholder's equity to finance its assets.

Which of the Following is not an asset? Equipment, Dividends, Accounts Recievable, Inventory.

B. Dividends

Things that are Retained Earnings

Beginning Balance, Revenues, To find: Revenues- Expenses. Then Subtract dividends to find Retained Earnings.

Things that are Assets

Cash Investments Accounts Receivable Prepaid Accounts Equipment/Property

Declaring a cash dividend will

Decrease retained earnings

What has an effect on retained Earnings

Expense Dividends Revenues. Land purchase WILL NOT have any effect.

The accounting period in which service revenue is recognized is generally the period when cash is collected. TF

FALSE

The retained earnings account is classified on the balance sheet as a liability.

FALSE

When a company ships products to a customer and bills the customer the company should not recognize revenue until the cash is collected. TF

FALSE

One of the disadvantages of a corporation when compared to a partnership is the limited liability of the owners. TF

FALSE, Although there is protective liability over some of the owners the company, (Stockholders)

TF: A business organized as a separate legal entity owned by stockholders is a partnership.

FALSE. A Corporation is a separate legal entity owned by stockholders. A partnership is A voluntary association of two or more persons for the purpose of conducting a business.

A paid dividend will do what to assists and stockholders equity?

It will decrease assets and stockholders equity.

The primary purpose of the balance sheet is to _____

Report the financial position of the reporting entity at a particular point in time.

Revenue has the the effect of increasing what?

Retained Earning

Net Income =

Revenues > Expenses

Expenses are incurred to _______

To generate revenues

Expense recognition often follows revenue recognition.

True

Liabilities are recorded in their order of maturity meaning when they will paid or satisfied by providing goods or services.

True

TF: For account purposes, business transactions should be kept separate from the personal transactions of the stockholders of the business

True

The balance sheet reports assets and claims to those assets at a specific point in time,

True

The payment of a cash dividend to schokholders reduces stockholders equity TF

True

The primary purpose of the statement of cash flows is to provide information about the cash receipts and cash payments of a company for a specific period of time.

True

The revenue recognition principle and the matching principle are helpful guides used in determining net income or net loss for a period.

True

The revenue recognition principle dictates that revenue be recognized in the accounting period in which it is earned.

True

the cash account is debited shen stock is sold to investors and a stockholders equity is credited.

True

If the assets owned by a business total 100,000 and liabilities total 70,000 stockholder's equity totals 30,000. TF

True. Assets = 100. Liabilities =70. 100-70.