ACCT: Smartbook Chapter 1

An employee that has unpaid bills might exhibit the following fraud factor:

Pressure

Melton's Door Company pays rent on the building facilities of $5,000 on May 1. Show how to record this transaction in the accounting equation of Melton's Door Company.

Rent Expense will be increased.

Balance Sheet

Reports the balance of assets, liabilities and owner's equity at a point in time

Statement of Owner's Equity

Reports the changes in equity during a period of time

Sheldon Company had owner investments of $1,000; net income during the period of $5,000; and owner withdrawals of $250. The ending balance in the owner's capital account is

$5,750

Identify the correct definition of an asset.

An asset is a resource that a business owns or controls.

Which of the following correctly depicts the accounting equation?

Assets = Liabilities + Equity

Identify the expanded accounting equation from the options below.

Assets = Liabilities + Owner's Capital - Owner's Withdrawals + Revenues - Expenses

Which of the following formulas is correct in depicting the expanded accounting equation?

Assets = Liabilities + Owner, Capital - Owner, Withdrawal + Revenues - Expenses

Given the statements below, choose the most accurate definition of owner withdrawals.

Assets an owner takes from the business for personal use

True or false: An external user uses internal reports for their decision making needs.

False

True or false: Return on assets is computed as Net Income divided by Assets.

False

Statement of Cash Flows

Identifies the cash inflows and outflows over a period of time

Which of the following statements represent(s) how expenses affect equity? (Check all that apply.)

If expenses increase, then total equity decreases. Higher expenses result in lower total equity.

Jack Pickle decided to start a small business. His initial investment was $4,000. Demonstrate how to record this transaction in the accounting equation.

Increase Cash by $4,000; Increase J. Pickle, Capital by $4,000

Bob's Bakery receives its utility bill of $800 for the month and pays it immediately. Record this transaction in the accounting equation.

Increase Expenses and decrease Cash.

Describe the order in which a company prepares financial statements.

Income statement, statement of owner's equity, balance sheet, statement of cash flows

Which of the following statements is/are true regarding the effect of revenues on the equity of a business? (Check all that apply.)

Revenues that increase equity have many forms, such as consulting services and rental revenue. Revenues cause owner's equity to increase.

Which organization has the legal authority to create Generally Accepted Accounting Principles?

SEC

Johna's Plant Nursery pays the salaries of its two employees. How will this transaction affect the accounting equation? Check all that apply.

Salaries expense will be increased. Equity will be decreased.

Which of the following statements below lists the rules of entering transactions into the accounting equation?

The accounting equation must always remain in balance so that assets always equal the sum of liabilities and equity.

A process of analyzing data to identify meaningful relations and trends is called data___________

analytics, data analytics, analytic, analysis, or analyst

The accounting assumption related to separating business transactions from the owner's transactions is called the:

business entity

A (proprietorship/partnership/corporation)________is a separate entity with the same rights as a person.

corporation or corporations

A company that loans money to an organization is a(n)

creditor

During September, Sally's Hair Salon purchased $900 of supplies on account. In October, Sally's wants to make a payment of $200 on this bill. Record the October transaction into Sally's accounting equation by: (Check all that apply.)

decreasing Cash, $200. decreasing Accounts Payable, $200.

Pete Jackson purchased office equipment costing $3,000 for his business and paid immediately. Record this transaction in the accounting equation by:

decreasing Cash; increasing Equipment

The four general accounting principles include: (Check all that apply.)

expense recognition revenue recognition full disclosure measurement

A(n) _____ user of accounting information does not directly run the organization.

external

Users who do not directly run the organization and have limited access to accounting information are called (internal/external) ______ users.

external

Generally accepted accounting principles (GAAP) wants information to have: Check all that apply.

faithful representation relevance

Revenues

increase equity from sales of products and services to customers.

On May 1, Mary's Morsels provided catering services at a wedding. The bride is billed $4,000 and will pay during the following month. Record this transaction on May 1 in the accounting equation of Mary's Morsels by:

increasing Accounts Receivable and increasing Revenue

If a customer makes a partial payment of $100 on a service for which you have already billed him, you would record this transaction into the accounting equation by:

increasing Cash and decreasing Accounts Receivable.

A customer of Landen Consulting Company makes a $400 payment of cash on a bill for services provided last month. Record this transaction into the accounting equation of Landen Consulting by: (Check all that apply.)

increasing Cash, $400. decreasing Accounts Receivable, $400.

The three factors that must exist for a person to commit fraud include __, __, and __.

opportunity pressure rationalization

Which of the statements correctly represents the accounting equation?

What a business owns will always equal what it owes to creditors and owners.

From the following statements, select the one that describes the effect of withdrawals on owner's equity.

Withdrawals cause owner's equity to decrease.

When supplies are purchased on credit it means that: (Check all that apply.)

a liability has been incurred. the Accounts Payable account will be increased. the business will pay for the supplies at a later time.

A (proprietorship/partnership/corporation) __________is a business entity that has one owner and has unlimited liability.

proprietorship

Which of the following statements is correct regarding revenues?

Revenues cause equity to increase.

Given that Jacob's Chocolates had owner investments of $4,000; net income during the period of $10,000; and owner withdrawals of $300 calculate the ending balance in the owner's capital account.

13,700

Boaz Company had beginning of year assets of $100 million and end of year assets of $120 million. Boaz's net income is $5 million. Calculate Boaz Company's return on assets. Round your answer to 1 decimal place.

4.5% Reason: $5 million/[($100 million + $120 million/)2] = 4.5%

The SEC has delegated the task of standard setting to:

FASB

Which statements below define a liability? (Check all that apply.)

A creditor's claims against the assets of a business The company obligations to provide assets, products or services to others An amount owed to a creditor

From the following statements, identify the correct definition of a liability.

A liability is an amount owed to a creditor.

In every financial statement, there exists single and double underlines. Choose the statement below that describes what these are for and when to use them.

A single-ruled line denotes an addition or subtraction and double underlines indicate the final totals.

Identify what accounting is by selecting the correct statement.

Accounting is a system that identifies, records and communicates financial information.

What is accounting?

Accounting records business transactions and communicates financial information.

On 6/25, supplies costing $1,000 were purchased, but only $400 of this amount was paid on 6/25. The remainder of the bill went on account. To record this transaction on 6/25: Supplies would be increased by $____(1,000/400/600); Cash would be decreased by $____(1,000/400/600) and Accounts Payable would be increased by $____(1,000/400/600).

Blank 1: 1,000, 1000, or $1,000 Blank 2: 400 or $400 Blank 3: 600 or $600

The expanded accounting equation is defined as ____ = Liabilities + Owner's Capital + ___ - _____--Owner's Withdrawals. Do not include "account" or "accounts" in your answer.

Blank 1: Assets Blank 2: Revenues or Revenue Blank 3: Expenses or Expense

Record the purchase of equipment for cash in the accounting equation would include an increase to the ____(Cash/Equipment/Supplies) account and a decrease to the ____(Cash/Equipment/Supplies) account.

Blank 1: Equipment Blank 2: Cash

Bob's Bakery is making a partial payment of $70 for baking supplies it purchased in a previous month. Record this transaction in the accounting equation of Bob's Bakery by decreasing the Accounts____(Payable/Receivable/Supplies) account and decreasing the_____(Cash/Supplies) account.

Blank 1: Payable Blank 2: Cash

ABC Co. performs $200 of services for a customer, but does not get paid right away. Demonstrate how ABC Co. would record this transaction in the accounting equation by completing the following sentence. Note: enter one answer for each blank. ABC Co. would increase the Accounts (Payable/Receivable)____account and increase the (Cash/Revenue)____account in the accounting equation.

Blank 1: Receivable Blank 2: Revenue

To record the purchase of supplies for cash in the accounting equation, the company would increase _____ (Equipment/Supplies/Cash) and decrease_____ (Equipment/Supplies/Cash).

Blank 1: Supplies or supplies Blank 2: Cash

Enter one word for each blank. The expanded accounting equation is:_______=______+ owner's capital +____-___- owner's withdrawals. Do not include the word "account(s)" in your answers.

Blank 1: assets or asset Blank 2: liabilities or liability Blank 3: revenues or revenue Blank 4: expenses or expense

Jackson's Programming paid its June rent of $500 cash. Demonstrate how to use the accounting equation to record the transaction by completing the following sentence. Jackson would decrease _______(expenses/cash/revenues) and increase_____(expenses/equity/revenues) in the accounting equation.

Blank 1: cash Blank 2: expenses

Owner withdrawals cause a(n) (increase/decrease) ____in owner's equity and are recorded directly in owner's (capital/withdrawal/equity)____

Blank 1: decrease Blank 2: withdrawal

Owner investments cause a(n) (increase/decrease)____in equity and are entered directly in Owner's____(Capital/Withdrawals/Revenue).

Blank 1: increase Blank 2: Capital

The correct definition of revenues is: Revenues_____(increase/decrease)_____(liabilities/equity) and are earned from the sale of products and services.

Blank 1: increase Blank 2: equity

Define what the income statement reports by completing the following sentence: The income statement describes a company's_____(assets/revenues) and_____(expenses/liabilities) along with the resulting net income or loss over a period of time due to earnings related activities.

Blank 1: revenues Blank 2: expenses

Net income is calculated using the following formula:_____(expenses/revenues/assets) minus_____(expenses/revenues/assets) equals Net income. Use one word for each blank.

Blank 1: revenues or revenue Blank 2: expenses or expense

The four major types of transactions that affect equity in a business are______, _____, owner's withdrawals, and owner's investments. Note: enter one word for each blank. Do not use the word "account" or "accounts" in your answer.

Blank 1: revenues, revenue, or revenue earned Blank 2: expenses or expense

True or false: Owner withdrawals are resources taken from the business for personal use.

True

Given the following list of accounts, identify which are classified as assets. Select all that apply.

Cash Land Building Supplies Accounts Receivable

Identify the main sections on a statement of cash flows. (Check all that apply.)

Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities

Given the following lists of accounts, choose the list that contains only assets.

Cash, Building, Supplies, Accounts Receivable

Sally Smith purchased $100 of supplies for her business and paid immediately. She would record this transaction in the accounting equation by which of the following?

Decrease Cash; increase Supplies.

Expenses

Decrease equity and are the cost of providing products and services to customers.

Owner Withdrawals

Decrease equity and are the outflows of assets from the company for the owner's personal use.

Which of the following statements describes the effect of expenses on equity?

Expenses cause owner's equity to decrease.

The definition of expenses includes which of the following statements? (Check all that apply.)

Expenses decrease equity. Expenses are the costs necessary to earn revenue.

Owner Investments

Increase equity and are assets an owner puts into the business.

Which of the following statements is correct regarding owner investments?

Owner investments cause owner equity to increase.

Given the accounts below, choose all that affect equity. (Check all answers that apply.)

Owner's Withdrawals Expenses Revenues Owner's Capital Owner's Investments

Income Statement

Reports the revenues and expenses incurred by a business for a period of time

Which of the statement(s) below define(s) an asset? (Check all that apply.)

Resources controlled by the business Resources with future benefits A resource owned

Recall how to calculate net income using the following information: Total Assets: $50,000 = Liabilities: =$10,000 + Owner's Capital: +$10,000 - Owner's Withdrawals: - $2,000 +Revenues: + $35,000 - Expenses: - $3,000

Revenues - Expenses = Net Income

The definition of revenues includes which of the following statements?

Revenues are the sales of products or services to customers by a business. Revenues increase equity.

When recording transactions into the accounting equation, which of the following statements are correct? (Check all that apply.)

The accounting equation must always remain in balance. After recording the transaction, total assets will always equal total liabilities plus owner's equity.

The heading of every financial statement contains several line items. Identify the correct items from the list below.

The company name. The date or time period the financial statement covers The title of the statement

What are Generally Accepted Accounting Principles?

The concepts and rules that govern financial accounting practice.

Which of the following statements explain(s) how the accounting equation applies to businesses? Check all that apply.

The equation reflects that the total of what a business owns at any point in time will equal the total of what it owes creditors and owners. The relation of assets, liabilities and equity is reflected in the equation. The equation applies to all business transactions. The equation states that Assets = Liabilities + Equity.

The correct definition of an income statement includes which of the following?

The statement describes a business's revenues and expenses over a period of time.

Which of the following statements best represents the reason for the accounting equation?

The total of everything owned by a business must always equal the total of what the business owes to creditors and owners.

Jackson's Catering Services sold cookies to the local college. The college paid immediately. Record this transaction in Jackson's accounting equation by:

increasing Cash; increasing Revenues

Sally Smith decided to start a sea shell business. Her initial investment in the business consisted of $10,000 in cash. Record this transaction in the accounting equation of the new business by:

increasing Cash; increasing S. Smith, Capital.

On 8/1, supplies costing $500 were purchased on credit. Record this transaction in the accounting equation by:

increasing Supplies, and increasing Accounts Payable

Russell's Consulting Services provided $1,000 of services to the local college and immediately collected $700, but the college wants to pay the rest next month. Record this transaction in the accounting equation for Russell's Consulting Service by:

increasing both Cash and Accounts Receivable; and increasing Revenues

Users of accounting information can be divided into two main groups. These groups include:

internal and external

Managerial accounting is focused on the needs of

internal users

Return on assets

is computed as Net Income divided by Average Total Assets.

The accounts payable account is a(n) _____ account

liability

A lender (creditor):

loans money or other resources to a business

The area of accounting that serves the decision-making needs of internal users is referred to as (managerial/financial/research) ______ accounting.

managerial

______ principle states that accounting information is based on actual cost.

measurement

The accounting assumption related to expressing transactions and events in monetary units is called the:

monetary unit

The ________ recognition principle states that revenue is recognized when goods or services are provided to customers and at an amount expected to be received.

revenue

A graphical presentation of data to help in understanding their significance is called data

visualization, data visualization, or visualizations