ACCOUNTING 111 EXAM 1 Chapter 2 REVIEW

Order of accounts listed on trial balance

Assets, Liabilities, Equity It follows the accounting equation A = L + E

What accounts are increased with a debit and decreased with a credit?

Assets; Owner, Withdrawals; and Expenses

Name 5 steps when journalizing and posting transactions

Identify accounts; Decide whether accounts increase or decrease then do debits/credits; Record in journal; Post to Ledger; See if accounting equation is balanced.

Janet Company began the year with total assets of $129,000, liabilities of $77,000, and equity of $52,000. During the year, the company earned revenue of $113,000 and paid expenses of $34,000. Calculate the amount of company's equity at year-end.

$131,000 52k+113k-34k=131k

Total assets of Fitch, Inc. include Accounts Receivable of $65,000, Furniture of $205,000, and Cash of $52,000. The business has $189,000 in equity. Calculate the amount of total liabilities.

$133,000 Assets = 65k+205K+52k=322k 322k=x + 189k so x=$133K

Which comes first, the journal or ledger?

1st transactions recorded in journal and THEN to ledger.

Nathville Laundry reported assets of $800 and equity of $480. What is the debt ratio? 60%, 40%, 67% or not enough info?

40 percent

Sarah, Inc. reported assets of $291,562, liabilities of $221,587, and equity of $69,975. What is Sarah's debt ratio?

76% Debt Ratio: Total Liabilities/Total Assets =221,587/291,562 =75.999

Which of the following statements is correct? Prepaid Expenses are decreased with a debit. Unearned Revenue is increased with a debit. Rent Expense is increased with a credit Accounts Payable is increased with a credit

Accounts Payable is increased with a credit

Which of the following accounts decrease with a credit? Owner Capital, Accounts Payable, or Cash?

Cash

What is Unearned Revenue?

Cash in advance of doing work or delivering good so this creates a LIABILITY.

Company recorded following journal entry. Cash $9,000 Unearned Revenue $9,000 What happened?

Company was paid $9,000 for services to be received at a later date.

What is the correct sequence summarizing the accounting process?

Journalize transactions, post to the ledger, prepare a trial balance

Debits are always on which side?

Left

Pixel Copies recorded a cash collection on account by debiting Cash and crediting Accounts Payable. What will the trial balance show for this error? Cash is overstated; Liabilities are overstated? Expenses are overstated? or Trial Balance will not balance

Liabilities overstated

Kevin Copies recorded a cash collection on account by debiting Cash and crediting Accounts Payable. How will this error affect the trial balance? Assets understated? Liabilities overstated? Profits overstated? Equity understated?

Liabilities will be overstated Journal entry should be: Dr Cash and Cr AR NOT Dr Cash and Cr AP

What accounts are increased with a credit and decreased with a debit?

Liabilities; Owner, Capital; and Revenues

What is a trial balance?

List of all ledger accounts with balances at point in time. Used to prepare financial statements

What is a chart of accounts?

Lists company's accounts along with account numbers

Company transactions: Mar 15 Purchase supplies on account $4200; Mar 28 Paid $900 on account Journalize and then Post to T accounts (ledger)

Mar 15 Supplies Dr $4200 Accounts Payable Cr $4200 Purchase off supplies on account Mar 28 Accounts Payable Dr $900 Cash Cr $900 Paid cash on account 2) Post Cash Bal $24,000 | $900 Mar 28 Bal $23,100 Accounts Payable Mar 28 $900 | $4,200 Mar 15 | $3,330 Bal Office Supplies Mar 15 $4,200 | Bal $4,200 |

What is Notes Payable?

More formal than Accounts Payable as it is a written promise made to pay debt usually with interest in future

What is Notes Receivable?

More formal than Accounts Receivable as it is a written promise to pay the company money and interest in the future.

The posting of purchase of office supplies on account for $1,500 will be shown as:

Office Supplies _______________________ Dr $1500 | Accounts Payable __________________________ | Cr $1500

Which of the following accounts is an equity account? Accounts Receivable,Unearned Revenue, Accounts Payable, or Owner's Withdrawals

Owner's WIthdrawals

What is a Prepaid Expense?

Payment of an expense in advance. Considered an ASSET because the prepayment provides a benefit in the future. Examples: Prepaid Rent, Prepaid Insurance, Office Supplies

What is an Accrued Liability?

Payment will happen LATER but amount is owed

What is it called when recording transaction in ledger?

Posting

What is a ledger?

Record holding all of the accounts of a business (T accounts)

Musings, Inc. paid $500 as rent for the current month. While journalizing this entry, which of the following accounts will be debited?

Rent Expense Dr: Rent Exp $500 Cr: Cash or AP $500

What is double-entry accounting?

Requires transactions to be recorded into at least two accounts.

Credit are always on which side?

Right

What is a "normal" balance?

The increase side of an account

What does a ledger show?

The increases and decreases in each account and their balances.

Debt Ratio shows proportion of assets financed with debt. What is the Debt Ratio Equation?

Total Liabilities/Total Assets (get from Balance Sheet)

What is a compound journal entry?

Transaction that has more than 2 accounts but debits must still equal credits. Nov 15 Rent Expense Dr. 2,000 Salaries Expense Dr 1,200 Cash Cr 3,200 Paid cash for expenses

Which of the following accounts is a liability? Accounts Receivable, Service Revenue, Unearned Revenue, or Prepaid Rent Expense

Unearned Revenue

The detailed record of all increases and decreases that have occurred in an "individual" asset, liability, or equity during a specific period is called a(n) ________.

account