Accounting Exam 1

Assets are $150,000 and total liabilities are $90,000. Total stockholders' equity will be:

$60,000 (Stockholder's equity = assets -liabilities)

Net income is $29,000. Beginning retained earnings were $34,000. Ending retained earnings are $55,000. What amount of cash dividends was paid out?

$8,000 (Beg RE +NI - Div = End RE)

Order of accounts in ledger:

1.Assets in order of liquidity 2.Liabilities in order of due date 3.Contributed Capital (Stock accounts) 4.Retained Earnings 5.Dividends 6.Revenues 7.Expenses

Accounting equation formula

Assets = liabilities + stockholder's equity

balance sheet formula:

Assets = liabilities + stockholder's equity

A corporation pays cash dividends. How does the payment of these dividends affect the accounting equation?

Assets decrease; stockholders' equity decreases

The business collects a $5,000 account receivable from its customer. How is the accounting equation affected?

Assets increase $5,000; stockholders' equity increases $5,000.

What accounts are increased with a DEBIT?

Assets, Expenses, Dividends

Which accounts are Permanent accounts?

Assets, Liabilities, Contributed Capital, Retained Earnings

common stock is on which financial statement?

Balance Sheet and Statement of SE

Which accounts appear on which financial statements?

Balance Sheet: cash, receivables, payable Income Sheet: revenues, expenses

example of long term assets:

Buildings, Machinery, Equipment, Land, Notes Receivable

Assets - Liabilities =

Contributed Capital + Retained Earnings

What are the classifications of accounts?

Current Assets, Long-Term Assets, Contra Assets, Current Liabilities, Long-Term Liabilities, Contributed Capital, Retained Earnings, Dividends, Revenues, Expenses

The adjustment that allocates the cost of a fixed asset over the periods benefited by it use is

Depreciation

If prepaid insurance expires over time (is used up) this asset account becomes a(n) ____.

Expense

What accounts have a normal debit balance?

Expenses and Assets

In accounting, the Matching Principle means to match which of the following?

Expenses to Revenues

Who is the major accounting standard-setting body in the U.S?

Financial accounting standards board (FASB)

Accountants often refer to GAAP. What do the letters GAAP represent in accounting?

Generally accepted accounting principles

What is the correct order of steps to journalize an entry?

Identify each account affected, determine increase or decrease in each account, record the transaction.

Where are temporary accounts found?

Income Statement. Revenues & Expenses--- AND Dividends. All temporary accounts are zeroed out at the end of the accounting period.

Who is the major accounting standard-setting body for international reporting?

International accounting standards board (IASB)

For Accounts payable, the classification of the account and its normal balance are:

Liabilities and a credit balance

What accounts are increased with a CREDIT?

Liabilities, Contributed Capital, Retained Earnings, Revenues

Which of the following are DECREASED with a debit?

Liabilities, Contributed Capital, Retained Earnings, Revenues

In the T-Account LEDGER, where would you find the ending balance of an account?

On the increase side for that account

Ensuring that accounting information is updated each period is the purpose of the:

Periodicity (time-period) concept.

4. Journalizing a transaction means:

Recording the information in a journal entry

What permanent account is included in the closing journal entries?

Retained Earnings

net income (net loss) formula:

Revenues - Expenses

What is the equation for the Income Statement?

Revenues - Expenses = Net Income

Which accounts are Temporary accounts?

Revenues, Expenses and Dividends

The normal sequence of information in an accounting system is:

Source document, journal, ledger

retained earnings is on which financial statement?

Statement of SE and Balance sheet

Which financial statements illustrates the fundamental accounting equation?

The Balance Sheet

An increase in an expense account could be balanced in a journal entry by:

a decrease in an asset account

A debt that a corporation owes to an outside is called:

a liability

Which of the following statements about closing entries is true?

all expense accounts will be reduced, all revenue accounts will be reduced, after closing entries are recorded, all temporary accounts will have a zero balance

current asset is:

an asset that is expected to be converted to Cash or "Used Up" within the next year or operating cycle, whichever is LONGER. Since the Operating cycle is typically 120-180 days, we will use the year.

items such as buildings and land are:

assets

expanded accounting equation

assets = liabilities + contributed capitol + retained earnings + revenue - expenses - dividends

statement of stockholder's equity

beg SE + issuance of stock + net income - net loss - dividends = end SE

calculate ending retained earnings formula

beg retained earnings + net income - net loss- dividends = end retained earnings

Which of the following accounts would not be found in an adjusting entry?

cash

accumulated depreciation is a

contra-asset

Those obligations of a firm that must be either paid in cash or settled by providing goods or services within one year are referred to as:

current liabilities

closing entries

debit retained earnings, credit expenses debit retained earnings, credit dividends debit revenue, credit retained earnings

statement of stockholder's equity has which accounts?

dividends, retained earnings, and common stock

Closing entries are prepared for:

dividends, revenues, expenses

How many financial statements are reported to external users?

four (income statement, statement of SE, balance sheet, Statement of cash flows)

Which of the following describes how assets are listed on the balance sheet?

from most liquid to least liquid

normal balance of an account is?

how you increase that account

What is the order for the preparation of the financial statements?

income statement, statement of stockholder's equity, balance sheet, cash flow

what are the basic business activities?

investing, operating, financing

Current liability:

is a liability that is due within the next year or Operating Cycle, whichever is LONGER.

A characteristic feature of corporations is

its ability to make contracts in its own name

Transactions are originally recorded in a

journal

after initially recording a transaction, the data is then copied or posted to which of the following?

ledger

What are the major functions of financial accounting?

measuring business activities and communicating to users

periodicity

measuring performance

example of long term liabilities:

notes payable

The process of transferring information from the journal to the ledger is called

posting

A trial balance

proves that debits and credits are equal in the ledger, supplies a listing of open accounts and their balances that are used in preparing financial statements, is normally prepared three times in the accounting cycle

net income - dividends =

retained earnings

Which of the following are likely to be users of financial accounting information?

taxing authorities, creditors, potential investors

Where are permanent accounts found?

the Balance Sheet. Assets, Liabilities, Contributed Capital (Stock account) and Retained Earnings

The basis for classifying assets as current or noncurrent is conversion to cash within

the operating cycle or one year, whichever is longer

What must result if the revenue minus the expenses is less than the amount of the dividends paid?

the retained earnings account decreases

what is required required to be shown in the heading of a financial statement?

the title of the financial statement, the date with appropriate terminology, the name of the business entity`

what does closing the books mean?

to reduce temp acct to 0, transfer to Retained Earnings

what are examples of operating activities?

using office supplies, paying employee salaries, selling merchandise (purchasing land is NOT one)

The matching principle controls

when costs are recognized as expenses on the income statement

recognizing revenue

when it is earned

matching principle for expenses

when it is incurred