accounting chap 2
the first step for analyzing the effect of transactions is:
1. Determine one account in the accounting equation that will increase or decrease
Long issued 5,000 shares of stock for $10,000. Long used $2,000 of the proceeds to purchase supplies, and borrowed $8,000 cash from the bank. Long's total assets are
18,000
If a transaction decreases cash by $100, the balance sheet will balance
A liability is decreased - Another asset is increased
Accounts receivable are assets which represent
Amounts owed by customers Accounts receivable only represent services or sales on account. Since the company could also have cash sales, accounts receivable do not represent total revenues for the period.
Analysis of Mueller Company's accounts show that as a result of a single transaction, both cash and notes payable increased by $10,000. Which of the following transactions would have caused this increase?
Borrowing cash and signing a promissory note
On January 1, Kim pays for two years of rent in advance. The effect of this transaction
Cash will decrease and prepaid rent will increase; therefore, the total effect is no change in total assets.
Rawlings Corp. borrows $3,000 on a note payable from Third National Bank. Which of the following is used to record this transaction?
Debit cash $3,000; credit note payable $3,000.
True or false: The accounting equation must always remain in balance
False Rationale: In a double entry system, debits must equal credits, and the balance sheet must always balance.
Rory purchases supplies for cash. What will happen?
The total assets remain the same.
When supplies are purchased on account, which of the following occurs?
a liability increases
When cash is received in advance for services to be performed at a later date, an asset is increased and
a liability is increased
f a transaction decreases cash by $100, the balance sheet will balance if which of the following occur
a liability is increased another asset is decreased
When a company performs services for a customer, and the customer agrees to pay for the services at a later date, the transaction is recorded in which account?
accounts receivable
Smith Company's journal shows a debit to cash and a credit to notes payable, both for $15,000. This indicates that Smith Company:
borrowed 15,000 cash and signed a note
London Corp. issues 1,000 shares of stock for $20 per share. What are the effects of this transaction?
cash and common stock increase
Slim purchases equipment with cash. The accounts affected are
cash and equipment
Shriver Corp. borrows $25,000 from a bank and signs a two-year promissory note. What accounts will be affected by this transaction and what is the effect?
cash increases notes payable increases
eo Corporation issues stock to investors for $100,000. Recording this transaction will include which of the following?
credit common stock debit to cash
In a double-entry accounting system, a(n)_________ represents the left side of the account.
debit
Pluto Inc. borrows $3,000 from Second National Bank by signing a promissory note. Recording this transaction will include which of the following?
debut cash accounts payable
Dividends paid to stockholders will cause retained earnings to
decrease
What is the effect of expenses on retained earnings?
decrease
On January 1, Lorna pays $36,000 of rent in advance. The effects of this transaction are to
decrease cash and increase pre paid rent
Crane purchases equipment by signing a note payable with the equipment dealer for $10,000. The accounts affected for Crane are
equipment ]and notes payable
Revenues cause retained earnings to
increase
LMN Enterprises performs accounting services for a client for $3,000 cash. What is the effect on the accounting equation?
increase assets and retained earnings
Zelda purchases $10,000 of supplies on account. The effects of this transaction are to
increase both liabilities and assets
Rice borrows $20,000 from the bank. Which of the following is an effect of this transaction?
increase liabilities
What is the effect of net income on retained earnings?
increases retained earnings
A chronological record of all economic events affecting a firm are recorded in a(n)
journal
On May 1, Ace Electronics ordered office equipment. The equipment was delivered to Ace on May 15, and Ace agreed to pay for it by the end of the month. Ace paid for the equipment on May 31. When will Ace make the first entry in its accounting system for this purchase?
may 15 Ace received the equipment and owes the company money; therefore, a transaction has occurred.
The two roles of financial accounting are to:
measure business activities of a company and to com- municate those measurements to external parties for decision-making purposes.
The purpose of a general ledger is to
provide in a single location the list of transactions affecting each account and the account's balance.
Ursula Company's bookkeeper records revenue relating to a customer transaction. This indicates that the company
provided goods or services to a customer
Prepaid rent is
rent paid in advance
An increase in revenues increases net income, which results in an increase to:
retained earnings
consistent with the ________ recognition principle, companies record revenue at the time goods are provided to customers. (Enter only one word.)
revenue
Which of the following are components of calculating net income?
revenues and expenses
What are the three components of retained earnings?
revenues, expenses, dividends
Claire purchases equipment for $10,000 by paying $3,000 in cash and borrowing $7,000 from the bank. The number of accounts affected by this transaction is
three. Rationale: Three accounts are affected: equipment, notes payable, and cash.
Rory purchases supplies for cash. Which of the following occurs?
total assets remain the same
A list of all accounts and their balances at a particular date showing that debits equal credits is referred to as a(n
trial balance
A transaction will always affect at least ______ accounts.
two
When should revenue be recorded
when companies services are performed