Accounting 1. Chapter 1

Total assets are $19,500.00. Cash is paid for $1,500.00 of supplies. The total assets are now ____.

$19,500.00

Total assets are $22,000.00. Supplies are bought on account for $1,500.00. The total assets are now ____.

$23,500.00

A business has total cash of $30,000.00. Then the business pays $1,000.00 on account, buys insurance coverage of $750.00, buys supplies for $1,200.00, and pays $300.00 more on account. The balance of the cash account is now

$26,750.00

A business has total assets of $30,000.00. Then the business pays $1,000.00 on account, buys insurance coverage of $750.00, buys supplies for $1,200.00, and pays $300.00 more on account. Total assets are now ____.

$28,700.00

To start a business, the owner invested $8,000.00, bought $1,500.00 of supplies, insurance coverage of $500.00, and bought an additional $300.00 of supplies on account. Total assets are ____.

$8,300.00

transaction

A business activity that changes assets, liabilities, or owner's equity

Proprietorship

A business owned by one person

accounting system

A planned process for providing financial information that will be useful to management

sale on account

A sale for which cash will be received at a later date

liability

An amount owed by a business

revenue

An increase in owner's equity resulting from the operation of a business

asset

Anything of value that is owned

Accounting Equation

Assets = Liabilities + Owner's Equity

The accounting equation is most often stated as ____.

Assets = Liabilities + Owner's Equity

Recording and reporting a business's financial information separately from the owner's financial information is an application of the accounting concept ____.

Business Entity

The capital account is a liability account.

FALSE

A decrease in owner's equity because of a withdrawal is a result of the normal operations of a business.

False

A revenue transaction decreases the sum of the balances on the left side of an accounting equation.

False

A withdrawal is an expense.

False

Anything of value that is owned is a liability.

False

Asset accounts are listed on the right side of the accounting equation.

False

If two amounts are recorded on the same side of the accounting equation, the equation will no longer be in balance.

False

Revenue from a sale on account should be recorded when the payment is received.

False

Revenue is a decrease in owner's equity resulting from the operation of a business.

False

The accounting equation does not have to be in balance to be correct.

False

The accounting equation is most often stated as: Assets+Liabilities=Owner's Equity

False

The capital account is the owner's liability account

False

The sum of the assets and liabilities of a business always equals the investment of the business owner.

False

When a company pays insurance premiums in advance to an insurer, it records the payment as a liability because the insurer owes future coverage.

False

When an account on one side of the accounting equation is increased, there must also be an increase on the other side to keep the equation in balance.

False

When an owner invests cash in a business, owner's equity decreases.

False

When cash is paid for expenses, the business has less cash; therefore, the asset account Cash is decreased and the owner's equity account is increased.

False

When cash is paid for supplies, assets increase and liabilities decrease.

False

When cash is paid on account, a liability is increased.

False

Financial Statements

Financial reports that summarize the financial condition and operations of a business

Equities

Financial rights to the assets of a business

The amount remaining after the value of all liabilities is subtracted from the value of all assets is ____.

Owner's Equity

Business Ethics

The use of ethics in making business decisions

A business has two types of equities.

True

A business that performs an activity for a fee is a service business.

True

A proprietorship is also known as a sole proprietorship.

True

A record summarizing all the information pertaining to a single item in the accounting equation is an account.

True

A transaction for the sale of goods or services results in an increase in owner's equity.

True

A transaction is a normal business activity that changes assets, liabilities, or owner's equity.

True

A transaction that increases accounts receivable and increases owner's equity is a sale on account.

True

Accounting is the language of business.

True

After each transaction, the accounting equation must remain in balance.

True

Asset accounts are listed on the left side of the accounting equation

True

Assets have value because they can be used to acquire other assets or to operate the business.

True

Assets such as cash and supplies have value because they can be used to acquire other assets or to operate a business.

True

In the United States, business transactions are recorded in U.S. dollars.

True

Individuals or other businesses to which a business owes money have rights to the business's assets.

True

Keeping personal and business records separate is an application of the business entity concept.

True

Regardless of when payment is made when services are sold, the revenue should be recorded at the time of the sale

True

The accounting equation must be in balance to be correct.

True

The amount in an account is an account balance.

True

The capital account is an owner's equity account.

True

The relationship among assets, liabilities, and owner's equity can be written as an equation.

True

When a company makes a sale of $300.00, assets and owner's equity increase by $300.00.

True

When financial records for a business and for its owner's personal belongings are not mixed, this is an application of the Business Entity accounting concept.

True

When items are bought and paid for at a future date, another way to state this is to say these items are bought on account.

True

When two asset accounts are changed in a transaction, there must be an increase and a decrease.

True

Withdrawals are assets taken out of a business for the owner's personal use.

True

service business

a business that performs an activity for a fee

Buying items and paying for them at a future date is ____.

a common business practice

expense

a decrease in owner's equity resulting from the operation of a business

When supplies are bought on account, the business to whom money is owed is ____.

a liability account

account

a record summarizing all the information pertaining to a single item in the accounting equation

Prepaid Insurance is ____.

an asset account

A decrease in owner's equity resulting from the operation of a business is ____.

an expense

When a transaction changes both sides of the accounting equation, ____.

an increase on the left side must equal an increase on the right side

When a business pays cash for supplies, ____.

assets increase and assets decrease

The account used to summarize the owner's equity in a business is ____.

capital

The asset most commonly withdrawn by business owners is ____.

cash

When a transaction changes only one side of the equation, if one account is increased, the other account on the same side must ____.

decrease

When a business pays cash for insurance, a liability is increased.

false

When a business buys supplies on account, assets ____.

increase

If cash is increased by $2,000.00 when the owner invests cash in the business, then capital is ____.

increased by $2,000.00

When cash is decreased and supplies are increased by an equal amount, ____.

liabilities and capital are not changed

A transaction that increases cash and decreases owner's equity is ____.

none of the above

When cash is paid on account, ____.

one asset and one liability are changed

accounting records

organized summaries of a business's financial activities

Accounting

planning, recording, analyzing, and interpreting financial information

A transaction that increases accounts receivable and increases owner's equity is ____.

revenue

Cash is increased by ____.

revenue

Capital

the account used to summarize the owner's equity in a business

account balance

the amount in an account

Owner's Equity

the amount remaining after the value of all liabilities is subtracted from the value of all assets

account title

the name given to an account

In the United States, recording business transactions in dollars is an application of the accounting concept ____.

unit of measurement