ACCT 201 (Exam 1)

True or False: Recording expenses early overstates current-period income; recording expenses late understates current period income.

False

What is a business source document?

Identify and describe transactions and events entering the accounting system.

Accrual basis accounting:

Increases the comparability of financial statements from period to period.

Inventory vs. Supplies

Inventory: represents items that the business sells to customers for a profit (external) Supplies: represents items that organizations use to support daily business operations (internal)

The contra account that includes total depreciation expense for all prior periods for which an asset was used:

Is referred to as accumulated depreciation.

A complete record of each transaction in one place is called a(n):

Journal.

What side is the debits always on?

LEFT side

What is the collection of all accounts and their balances called?

Ledger (or general journal)

What are unearned revenues?

Liabilities recorded when customers pay in advance for products or services.

True or False: Unearned revenue is a liability that is recorded when customers pay in advance for products or services.

TRUE

True or false: If insurance coverage for the next two years is paid for in advance, the amount of the payment is debited to an asset called prepaid insurance

TRUE

A double-entry accounting system is an accounting system:

That records the effect of each transaction in at least two accounts, with at least one debit and one credit.

True or False: Under the cash basis of accounting, no adjustments are made for prepaid, unearned, and accrued items.

True

A list of accounts and balances before adjustments are recorded is known as a(n):

Unadjusted trial balance

Accrued revenues:

At the end of one accounting period result in cash receipts in a future period.

If cash is received from customers in payment for services that have not yet been performed, the business would record the cash receipt as:

A credit to an unearned revenue account.

A business uses a credit to record:

A decrease in an asset account.

Unearned revenue is reported in the financial statements as:

A liability on the balance sheet.

A credit is used to record an increase in which of the following accounts?

Accounts Payable

A credit is used to record a decrease in which of the following accounts?

Accounts receivable

True or False: Revenues increase equity

TRUE

Identify the statement that is correct: A) When a future expense is paid in advance, the payment is normally recorded in a liability account called Prepaid Expense. B) Accounts receivable are held by a seller and are promises of payment from customers to sellers. C) Prepaid revenue accounts are used to record when customers pay in advance for products or services. D) A liability account is commonly used to record increases and decreases in both the land and buildings owned by a business. E) Accrued liabilities include accounts receivable.

Accounts receivable are held by a seller and are promises of payment from customers to sellers.

Beginning Balance

Beginning of the year/period/month, day 1

The difference between the cost of an asset and the accumulated depreciation for that asset is called:

Book Value

Cost vs. Expense

Cost: amount paid to acquire an asset (or paid towards creating an asset) ; generally ONE TIME payment, capitalized, and on balance sheet) Expense: amount paid or spent (regularly) on ongoing business operations to earn revenue (reflected on income statement (profit, loss statement)

Does expenses increase or decrease equity?

Decrease

True or False: A debit entry always increases an account.

FALSE

True or False: A journal entry that affects only two accounts is called a compound entry.

FALSE; its simple journal entry

True or False: The right side of an account is called the debit side

FALSE; right is credit, left is debit

True or False: The balance sheet is not a financial statement but a tool for checking equality of debits and credits in the ledger.

FALSE; the balance sheet is a financial statement

True or False: Increases in liability accounts are recorded as debits.

FALSE; they are credits

When posting journal entries to the ledger, the identification numbers of the individual ledger accounts are entered in the:

Post reference (PR) column

The process of transferring journal entry information to the ledger is called:

Posting

Used/received during the period

Purchased, earned, used

Ending Balance

Remains/remained, unused; still available; left over

True or False: The expense recognition (matching) principle requires that expenses be recorded in the same accounting period as the revenues that are recognized as a result of those expenses.

TRUE

Identify the accounts that would normally have balances in the credit column of a business's trial balance.

Revenues and liabilities.

What side is the credit always on?

Right side

What are examples of a source document?

Sales receipt, bills from suppliers, purchase orders, bank statements

Which is an asset account? -unearned revenue, accounts payable, supplies, wages expense, service revenue

Supplies

True or False: The income statement reports net income for a business over a period of time.

TRUE

True or False: A trial balance is a list of all ledger accounts and their balances at a point in time.

TRUE

True or False: Accrual basis accounting records revenues when services and products are delivered and records expenses when incurred.

TRUE

True or False: Asset accounts normally have debit balances and revenue accounts normally have credit balances.

TRUE

Account Balance:

The difference between the total debits and total credits for an account including the beginning balance

What is true about accounts receivable?

They are held by a seller, they arise from credit sales, they are assets, and increase by billing to customers

Identify the correct formula below used to calculate the debt ratio.

Total Liabilities/Total Assets.

Unearned Revenues:

Transferred to revenue when products and services are delivered

What is the liability? -cash, unearned revenue, salaries expense, accounts recievable, supplies

Unearned revenue

Which impacts the equity of a business? A) Utilities Expense B) Accounts Payable C) Accounts Receivable D) Cash E) Unearned Revenue

Utilities expense

Financial Statement 3 W's:

What, Why, When

Accrued Expenses:

expenses incurred but not yet paid in cash or recorded

What is true about profit margin:

reflects percent of profit of sales, also called "return sales", compare performance, calculated by dividing net income by net sales