AC 210 Learnsmart CH. 3

Performing services on account will increase ______.

total assets stockholders' equity

Lord of the Fries, Inc. purchased $1,000 of supplies paying $400 and owing the rest on account. Show the effect of this transaction on the accounting equation.

total assets increase by $600 total liabilities increase by $600

Which of the following would appear only on accrual-based, and not on cash-based, financial statements?

unearned revenue on the balance sheet accounts receivable on the balance sheet

Which of the following would appear only on accrual-based, and not on cash-based financial statements?

accounts receivable on the balance sheet unearned revenue on the balance sheet

Which of the following statement is correct in regards to debiting and crediting an account?

A debit or a credit can increase an account, depending on what kind of account it is.

Supplies Expense Equipment Salaries and Wages Expense Accrued Expense Payable Depreciation Expense

Amounts used to produce and sell products An asset with future economic benefit Amount employees worked to generate sales for the period Amounts owed for services received Cost of long-term assets used during the period

The expense recognition principle dictates _____.

When costs are deducted against revenues on the income statement

Which of the following events would result in an increase in Accounts Payable on X company's balance sheet?

X company purchased $5,000 of supplies on account. X company purchased $5,000 of chairs on credit

Reporting revenues when the goods or services are provided and expenses when they are incurred is called _____ basis accounting.

accrual

Bank 'n' Roll, Inc., paid $55,000 to employees who worked this month for $30,000 and last month for $25,000. The entry to record the payment includes a ____.

credit to accrued expenses payable for $25,000 debit to wages expenses for $30,000 credit to cash for $55,000

Service Revenue would be ______ on the _____ of the T-account, and cash would be _____ on the _____ side of the T-account.

credited right debited left

Expenses decrease net income and retained earnings, so expenses are recorded with a ______, just like all decrease in stockholders' equity.

debit

Moresis Company provided catering services at a wedding. The bride is billed $4,000 and will pay during the following month. Record this transaction in Moresis' accounting equation by:

increasing accounts receivable and increasing revenue

Jackson's Catering provided $3000 worth of cookies to the local college. The college paid immediately. Record this transaction for Jackson's Catering in the accounting equation by:

increasing cash and revenue

Accrual accounting results in recording _____.

revenues when earned regardless of when collected expenses when incurred regardless of when paid

The Retained Earnings is increased with an entry on the ____ side of the account.

right

Performing services on account will increase _____.

stockholders' equity total assets

performing services on account will increase _____.

stockholders' equity total assets

To record the purchase of supplies for cash, the entry in the accounting equation would include an increase to ______ and a decrease to _____.

supplies cash

The two principles underlying accrual accounting are the _____ and ____ recognition principles.

revenues and expenses

Accounts receivable is ____.

the amount the company expects to collect for previous credit sales

To see the detail of increases and decreases in a company's cash account, you should look at ____.

the company's general ledger

Reporting revenues only when cash is received and expenses only when cash is paid is called ______ basis of accounting.

Cash

Bakey Company receives its utility bill of $800 for the month and pays it in cash immediately. How would this transaction affect the accounting equation?

Increase Expenses and decrease cash

Which of the following statements about net income are correct?

Net income on the income statement rarely equals flows from operating activities on the statement of cash flows Net income equals revenues earned minus expenses incurred, regardless of whether cash was collected or paid

Cash Accounts Payable Prepaid Advertising

Payment occurs in the same period as advertisement is run. The advertisement is run prior to the payment. Payment occurs in advance of when the advertisement is run.

Unearned Revenue Revenue Cash collected from customers

Reports the amount of cash collected from customers in advance on the balance sheet Reports the amount earned on the income statement Reports the amount of cash collected from customers on the statement of cash flows

_____ is the quantity sold times the price charged from selling goods or services to customers.

Revenue

Which of the following statements about revenues is correct?

Revenues cause equity to increase, and they are increased on the right side of the T-account.

Reporting revenues when they are earned and expenses when they are incurred is called ____ basis accounting

accrual

_____ basis accounting is the only acceptable method for external reporting of net income.

accrual

When a business provides a service to a customer "on account", it means that ____.

an asset has been created or increased the business will receive payment for its services at a later time accounts receivables will be increased

What type of an account is Accounts receivable?

asset

Paying cash for an expense incurred in the same period has what affect on the account equation?

assets decrease stockholders' equity decreases

______, _____, stockholders' equity, _____ and ______.

assets, liabilties, revenues, expenses

After increases and decreases in an account are recorded, the amount remaining in the account is its ending

balance

Revenues is recognized when _____.

cash is collected from customers, if using cash basis accounting services are provided even if cash has not yet been collected, if using accrual basis accounting

In May, Pasta Disasta, Inc. paid its suppliers $500 that it owed for the pizza pans purchased and received in April. Which accounts are affected?

cash is decreased accounts payable is decreased

Under which of the following circumstances would cash basis accounting report higher expenses than accrual basis accounting in the current accounting period?

cash is paid in advance of services being provided

When a company receives cash from a customer in advance of performing the service, the company will debit ____ and credit ____.

cash, deferred revenue,

When pizza company delivers pizza to customers for $100 cash, it should record a $100 debit to _____ and a $100 credit to ______.

cash; sales revenue

cash Accounts Receivable Deferred Revenue

collections occur in the same period as the services The service is performed prior to the collections Collections occur in advance of the performance of the service

Revenues increase net income and retained earnings, so revenue are recorded with a _____, just like all increases in stockholders' equity.

credit

revenues increase net income and retained earnings, so revenue are recorded with a _____, just like all increases in stockholders' equity.

credit

The journal entry to record the purchase of $400 of supplies paying $100 and owing the rest on account includes a _____.

credit to AP for 300 debit to supplies for 400 credit to cash for 100

Pizza Company sold pizzas on the account. The journal entry to record the sales will include a ____.

debit to Accounts Receivable credit to sales revenue

The journal entry a law firm records when it provides legal services for a client who will pay in a later period includes a ____.

debit to accounts receivable credit to service revenue

Pastabilities, Inc. delievered 1,000 of pasta to buy & large, inc. of which 200 was collected and the rest was on account. The journal entry to record this sale includes all of the following _____.

debit to accounts receivable for 800 credit to sales revenue for 1000 debit to cash for 200

Pizza Company sold pizzas on account. The journal entry to record the sales will include a ____.

debit to accounts receivables credit to sales revenue

Utilities expense is ____.

debited when the service is received

The totals on a trial balance reveal whether the total ___ equal the total _____.

debits and credits

Since expenses are the costs of doing business and cause equity to _______, expenses are increased on the ______ side of their T-account

decrease and left

Expenses _____ stockholders' equity, so expenses are increased with a ______.

decrease; debit

Expenses ______ stockholders' equity, so expenses are increased with a ______.

decrease; debit

Last month, Hair Salon company purchased $900 of supplies on account. Today, Hair Salon wants to make a payment of $200 on this bill. Record this transactions into the accounting equation of Hair Salon Company by

decreased cash, $200 decreasing accounts payable $200

When a company collects cash in advance from customers it records a liability called

deferred revenue

The trial balance is an internal report used to determine whether total debits _____ total credits.

equals

Under the accrual basis of accounting, the ____ recognition (matching) principle requires that expenses be recognized in the same period as the related revenues.

expense

____ are the costs of operating a business that are incurred to generate revenues in the period covered by the income statement.

expenses

Accrual basis accounting differs from cash basis accounting in that accrual basis accounting records _____.

expenses in the period incurred, even though cash has not yet been paid revenues in the period when the revenue is earned, even though the cash has not yet been collected

The financial statement that reports revenues and expenses is the ____

income statement

Revenues cause equity to _____ and they are increased on the _____ side of the T-account.

increase right

Bakery Company 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

Revenues may result in _____.

increases in accounts receivable increase in cash

If revenues are greater than expenses, the company generated net income. If expenses are greater than revenues, the company generated a net __________.

loss

Under the accrual basis of accounting, the expense ____ principle requires that expenses be deducted on the income statement in the same period as the related revenues.

matching

Under the accrual basis of accounting, the expenses ______ principal requires that expenses be deducted on the income statement in the same period as the related revenues.

matching

The period from buying goods and services through to collecting cash is known as the ____ cycle.

operating

ABC Co. performs $200 of services for a customer, but does not get paid right away. Demonstrate how ABC Co. would record this transaction in the accounting equation by completling the following sentence

receivable Revenue

In accrual accounting, according to the _____ recognition principle, revenues should be recognized when the seller performs the work promised, not necessarily when cash is received.

revenue

In accrual accounting, according to the _____ recognition principle, revenues should be recognized when they are earned, not necessarily when cash is received.

revenue

______ is the quantity sold times the price earned from selling goods or services to customers.

revenue