Accounting Exam 1
recognizing accrued expense is a claims _____________ transaction
exchange
investors and creditors rely on ________ accounting
financial
investors and creditors rely on _______________ accounting to meet their information needs
financial
external users such as; investors, creditors, lawyers
financial accounting
- issuing common stock - paying dividends - borrowing cash - repaying principle balances
financing activities
issuing stock for cash
financing activity
paying a dividend to stockholders
financing activity
the measurement rules established by the financial accounting standards board are called ?
generally accepted accounting principles (GAAP)
Providing services on account ______.
has no effect on the statement of cash flows
most companies report what statement first ?
income
The total benefits, both cash and other items, received from operating the business are shown on the ______.
income statement
acquiring cash from the issue of common stock does not affect
income statement
how the business performed during a specific accounting period =
income statement
When a company collects cash from an account receivable, cash ______.
increases and accounts receivable decreases
When a company borrows money by issuing a note, the balance in the cash account ______.
increases and the balance in the notes payable account increases
- purchasing land - purchasing a vehicle - selling vehicle
investing activities
buying and selling long term assets =
investing activity
- cash flow from financing activity - stockholder's equity - common stock - assets
issuing stock for cash increases
what is not provided by a CPA?
legal
- obligations to repay creditors - sources of assets
liabilities
in accounting terms, the obligations of a business owes to its creditors are called
liabilities
total assets =
liabilities + stockholders equity
When a company recognizes accrued salary expense, ______.
liabilities increase
companies are not required to follow GAAP for _______________ accounting reports
management
internal users such as; stakeholders, employees, managers
managerial accounting
business that make and sell goods to other people are what type of business?
manufacturing
a group of people or entities organized to exchange items of value
market
accounting term can be used to describe organizations that are not motivated by earnings =
nonprofit
acquiring cash from common stock does what to the income statement?
nothing it is not a revenue
purchasing and selling short term assets
operating activity
statement in changes of stockholder's equity captures info related to the company's ___________
owners
users of accounting information are called _______________.
stakeholders
which financial statement reports effects on common stock and retained earnings?
statement of changes in stockholders equity
creditors are motivated to provide resources to businesses in return for what?
the receipt of interest payments
Gomez Company borrowed $10,000 from the State Bank on April 1, Year 1. The one-year note has a 6% rate of interest. On the Year 1 statement of cash flows, the amount of cash flow from operating activities reported by Gomez is ______.
zero Reason: The total amount of cash is paid at the maturity date March 31, Year 2. Accordingly, zero would be paid in Year 1.
what happens when you collect an accounts receivable?
- accounts receivable decreases - revenue not affected - cash increases
investors are motivated to provide resources to businesses because they receive ...
- an ownership interest in the business - a share of the companies earnings
A company recognized an accrued salary expense in Year 1 and paid its employees in Year 2. The financial statements affected in Year 2 are the ______.
- balance sheet - statement of cash flows because cash decreased on balance sheet which means statement of cash flows decreased
the amount of cash dividends a company can pay are limited to the company's _________ & _____________
- cash - retained earnings
Providing services on account will ______.
- cause a increase in the amount of retained earnings shown on the statement of changes in stockholders equity - cause an increase in the amount of net income shown on the income statement
stockholder's equity may be divided into
- common stock - retained earnings
the market for business resources involves ____________ ______________ & ________________.
- consumers - conversion agents - resource owners
asset source transactions include
- earning through profitable operations - issuing common stock for cash - borrowing money
A change in stockholders' equity is caused by ______.
- earnings - incurring a cash expense - issuing stock
profit is also called
- earnings - income
Acquiring cash by issuing common stock ______.
- increases common stock - increases cash
Grey Company earned $5,000 of revenue on account during Year 1, but collected the cash associated with the receivables in Year 2. Based on this information alone, under accrual accounting, the company will report ______.
- net income of zero and cash inflow from operations of $5,000 in Year 2. - net income of $5,000 and cash inflow from operations of zero in Year 1.
the difference between the cost of a product/service and the selling price of that product/service is what?
- profit - earnings - income
the market for business resources involves who?
- resource owners - consumers - conversion agents
common stock and retained earnings are
- sources of assets - commitment to investor
liabilities may be viewed as
- sources of assets - obligations of the business
other terms for investors =
- stockholders - owners
who relies on accounting information to evaluate which businesses are worthy of receiving resources?
- workers - investors
Recognizing an expense on account affects the ________.
-Balance sheet -Income statement -Statement of changes in stockholders equity
Providing services on account affects the ______
-Balance sheet -Statement of changes in stockholders equity -Income statement
A company recognized an accrued salary expense in Year 1 and paid its employees in Year 2. In Year 2 ______.
-salaries expense will not be affected -salaries payable will decrease -cash will decrease
True or false: A company recognized an accrued salary expense in Year 1 and paid its employees in Year 2. In Year 2 neither Salaries expense nor Salaries payable will change as a result of this transaction.
False Reason: Salaries expense will not change, but Cash and Salaries payable will.
Issuing a note to borrow money affects the ______.
Statement of cash flows Balance sheet
- assets = liabilities + stockholders equity - assets = claims - assets = liabilities + common stock + retained earnings
accounting equation
relationship between a business's assets and claims on its assets is expressed in what equation
accounting equation
economic occurrence that changes assets, liabilities, or stockholder's equity is called
accounting event
accounting equation is maintained in records called
accounts
When a company recognizes an expense on account ______.
accounts payable and expenses increase
to recognize the revenue before you get cash
accrual accounting
accounting information is used by
all businesses and organizations
what is a business asset?
an obligation to repay debt
What is this describing? - auditors report - MD&A - financial statements - notes to financial statements
annual report
yearly document is called
annual report
used to describe interrelationships among the financial statements
articulation
accounts receivable is an
asset
The collection of cash in settlement of an account receivable is a(n) ______ transaction. Multiple choice question. asset use
asset exchange
one asset account decreases, one increases =
asset exchange transaction
event that increases total assets and total claims is an __________ __________ transaction
asset source
A cash payoff of an account payable is a(n) ______ transaction.
asset use
event that causes assets and liabilities to decrease is what type of transation?
asset use transaction
Issuing a note to borrow money increases ______.
assets liabilities
Interest on a Notes Payable is recognized ______.
at the end of the accounting period
The financial statements affected when a company pays cash to settle an accounts payable are the ______,
balance sheet statement of cash flows
expenses are recognized __________ cash is paid is called accrued expenses
before
When a company pays cash to settle an account payable, ______
both cash and accounts payable decrease
When a company pays cash to settle an account payable, ______.
both cash and accounts payable decrease
liability, common stock, and retained earnings do not contain
cash
recognizes cash only when you get the cash
cash basis accounting
date on income statement is the same as what other statement
cash flows
dates for what statement? - for the year ended Dec 31, Year 3 - for the quarter ended June 30, Year 2 - for the month ended April 30, Year 1
cash flows and income statement
CPA =
certified public accountant
Recognizing an accrued expense is a(n) ______ transaction.
claims exchange
when a business grants an investor an ownership interest in a business, the specific commitments made to the investor are described in certificates called
common stock
stockholder's equity =
common stock + retained earnings
an accounting event is a(n) ______________
economic transaction that changes enterprise
the accounting equation is composed of _________ called assets, liabilities, and stockholders equity
elements
asset use transactions ______________ the total amount of assets + total amount of claims
decrease
recognizing cash expense will cause the amount of cash to _________ and revenue to _______________
decrease, decrease
Declaring and paying a cash dividend ______.
decreases cash and retained earnings
Recognizing an expense on account ______.
decreases net income increases expenses
when an accrued expense is recognized, total claims do what?
remain unchanged
assets - common stock - liabilities =
retained earnings
which account is affected by recognition of expenses?
retained earnings
economic benefit that a company derives from providing goods and services to its customers called _________
revenue