BAD 1: CH.3

Which activities are part of the operating cycle? (Check all that apply.) Buying goods and services Paying cash to suppliers Issuing new shares Buying property, plant, and equipment Collecting cash from customers

Buying goods and services Paying cash to suppliers Collecting cash from customers

Amounts on the debit side of the Cash T-account are ______.

cash receipts and may be the result of operating, investing or financing activities

When accrual basis accounting is used and an expense is debited, then ____________ was credited. cash, accounts receivable and/or unearned revenue cash, a payable and/or a prepaid expense only cash revenue

cash, a payable and/or a prepaid expense

The correct journal entry to record a transaction that involves paying cash for an expense incurred in the same period is ______. debit cash and credit an expense Rationale: The debit is to an expense (+E,-SE), not cash, because expenses are increased with debits. The credit is to cash because the cash is decreased when paid. debit a prepaid asset and credit cash debit an expense and credit cash

debit an expense and credit cash

The journal entry a law firm records when it provides legal services for a client who will pay in a later period includes a ______. (Check all that apply.) credit to Accounts Payable debit to Accounts Receivable debit to Accounts Payable debit to Cash credit to Unearned Revenue Rationale: The credit is to Service Revenue because the service has been provided. Unearned Revenue is only credited when cash is received in advance. credit to Service Revenue

debit to Accounts Receivable credit to Service Revenue

Interest Revenue is ______ on the income statement. not included as operating income but is included in net income excluded from operating income and net income included in both operating income and net income included as operating income but not included in net income

not included as operating income but is included in net income

Current assets and current liabilities are often associated with ______ activities.

operating

Cash Expense

outflows or the using up of assets or the increases in liabilities such as wages payable or Utilities payable increase.

Operating Income

profitability from normal operations that equals gross profit less operating expenses gross profit - operating expenses

Accrual basis accounting records ______. (Check all that apply.) revenue even when cash has not been collected revenue when earned expenses only when cash is paid revenue only when cash is collected expenses even when cash has not yet been paid expenses when incurred to generate revenue

revenue even when cash has not been collected revenue when earned expenses even when cash has not yet been paid expenses when incurred to generate revenue

Of the following amounts posted to the Cash account in the general ledger (i.e., the Cash T-account), which of these are investing activities? (Select all that apply.) $20,000 credit for investments in other companies $100,000 credit for payments of supplies $10,000 debit for collections from asset disposals $800,000 debit for collections from customers $90,000 credit for payments to employees $30,000 credit for dividends

$20,000 credit for investments in other companies $10,000 debit for collections from asset disposals

Of the following amounts posted to the Cash account in the general ledger (i.e., the Cash T-account), which of these are operating activities? (Select all that apply.) $10,000 debit for collections from asset disposals $90,000 credit for payments to employees $30,000 credit for prepaid assets $800,000 debit for collections from customers $100,000 credit for payments of supplies

$90,000 credit for payments to employees $30,000 credit for prepaid assets $800,000 debit for collections from customers $100,000 credit for payments of supplies

Accruix, Inc. uses accrual basis accounting. Its balance sheets reported Accounts Receivable of $5,000 at the end of its first year of business. Its income statement reported Sales Revenue of $100,000 for its first year. What would Accruix's revenues have been if it had used cash basis accounting? $95,000 $100,000 Rationale: Cash collected equals $95,000 which is the $100,000 earned minus $5,000 of accounts receivables (i.e., the sales not yet collected). $105,000 Rationale: Cash collected equals $95,000 which is the $100,000 earned minus $5,000 of accounts receivables (i.e., the sales not yet collected).

$95,000

Five Steps to Revenue Recognition

1. Identify the contract 2. Identify the performance obligations 3. Determine the transaction price 4. Allocate the transaction price 5. Recognize revenue when (or as) each performance obligation is satisfied

Income Statement

A financial statement that reports a company's revenues and expenses and resulting net income or net loss for a specific period of time.

________ _________ is the account debited when a service is provided to a customer on account.

Accounts Receivable

When a company makes a payment for amounts owed from prior purchases, it will record a debit to ______ and a credit to ______. Expenses; Cash Rationale: When the items were originally purchased an asset was debited and a liability, Accounts Payable, was credited. When the company pays, the entry is a debit to Accounts Payable, and a credit to Cash. Cash; an expense Rationale: When the items were originally purchased an asset was debited and a liability, Accounts Payable, was credited. When the company pays, the entry is a debit to Accounts Payable, and a credit to Cash. Accounts Payable; Retained Earnings Rationale: When the items were originally purchased an asset was debited and a liability, Accounts Payable, was credited. When the company pays, the entry is a debit to Accounts Payable, and a credit to Cash. Accounts Payable; Cash

Accounts Payable; Cash

Time Period Assumption

Assumption that an organization's activities can be divided into specific time periods such as months, quarters, or years.

When Pizza Company delivers pizza to customers and bills its customer accounts, it should record a debit to ______ and a credit to ______. Accounts Payable; Revenue Cash; Revenue Accounts Receivable; Unearned Revenue Rationale: Revenue is recorded when the pizza has been delivered, even though cash has not yet been collected. The Pizza Company will record a debit to Accounts Receivable and a credit to Revenue. A credit to Unearned Revenue is recorded only when cash is collected in advance of the revenue being earned, which is not the case in this example. Accounts Receivable; Revenue

Accounts Receivable; Revenue

When AppGame Company delivers pizza to customers on account and bills its customer accounts, it should record a debit to ______ and a credit to ______. Accounts Receivable; Sales Revenue Cash; Sales Revenue Accounts Payable; Sales Revenue Accounts Receivable; Unearned Revenue Rationale: Revenue is recorded when the pizza has been delivered, even though cash has not yet been collected. The Pizza Company will record a debit to Accounts Receivable and a credit to Revenue. A credit to Unearned Revenue is recorded only when cash is collected in advance of the revenue being earned, which is not the case in this example.

Accounts Receivable; Sales Revenue

revenue

An increase in owner's equity resulting from the operation of a business

What type of an account is Accounts Receivable? Expense Rationale: When a seller delivers services/goods in advance of collecting the cash, it records a debit to Accounts Receivable (+A) and credits Revenue (+SE). Later when the cash is collected, the seller will debit Cash (+A) and credit Accounts Receivable (-A). Revenue Rationale: When a seller delivers services/goods in advance of collecting the cash, it records a debit to Accounts Receivable (+A) and credits Revenue (+SE). Later when the cash is collected, the seller will debit Cash (+A) and credit Accounts Receivable (-A). Liability Rationale: When a seller delivers services/goods in advance of collecting the cash, it records a debit to Accounts Receivable (+A) and credits Revenue (+SE). Later when the cash is collected, the seller will debit Cash (+A) and credit Accounts Receivable (-A). Asset

Asset

In June, Jackson Programming Company paid its June rent of $500. This transaction causes a decrease in (Expenses/Cash/Revenue) and an increase in (Expenses/Cash/Revenue)Input Field 2 of 2 revenue unavailable incorrect

Cash Expenses

In May, Pasta Disasta, Inc. paid its suppliers $500 that it owed for the pizza pans purchased and received in April. Which accounts are affected? (Check all that apply.) Cash is decreased. Accounts Receivable is increased. Rationale: In April, when the pizza pans were purchased on account, it recorded an increase in Equipment (+A) and Accounts Payable (+L). In May, it recorded a decrease in Cash (-A) and Accounts Payable (-L) for the amount paid. Accounts Payable is increased. Rationale: In April, when the pizza pans were purchased on account, it recorded an increase in Equipment (+A) and Accounts Payable (+L). In May, it recorded a decrease in Cash (-A) and Accounts Payable (-L) for the amount paid. Accounts Receivable is decreased. Rationale: Accounts Payable, not Accounts Receivable, should be decreased. In April, when the pizza pans were purchased on account, it recorded an increase in Equipment (+A) and Accounts Payable (+L). In May, it recorded a decrease in Cash (-A) and Accounts Payable (-L) for the amount paid. Cash is increased. Rationale: In April, when the pizza pans were purchased on account, it recorded an increase in Equipment (+A) and Accounts Payable (+L). In May, it recorded a decrease in Cash (-A) and Accounts Payable (-L) for the amount paid. Accounts Payable is decreased.

Cash is decreased. Accounts Payable is decreased.

Which of the following would affect the operating activities section of the statement of cash flows? (Check all that apply.) Cash paid to repay debt Rationale: Cash paid to reduce debt would be included in the financing section of the statement of cash flows. Cash paid for land Rationale: Cash paid for land would be included in the investing section of the statement of cash flows. Cash paid to employees Cash received from customers Cash paid to suppliers

Cash paid to employees Cash received from customers Cash paid to suppliers

Brown Company provided services to a customer and immediately collected $1,900 cash. Show how to record the transaction to the T-accounts by completing the following sentence. Service Revenue would be Input Field 1 of 4 credited unavailable correct credited (debited/credited) on the Input Field 2 of 4 right unavailable correct right (left,/right) side of the T-account, and Cash would be Input Field 3 of 4 credited unavailable incorrect credited (debited/credited) on the Input Field 4 of 4 right unavailable incorrect right (left/right) side of the T-account.

Correct Answer credited right debited left Concept Resources

Ace Electronics paid $4,000 of the $5,000 its employees had earned during the period. Ace Electronics should report Wages Expense of $5,000 on the income statement and Wages Payable of ______ on the balance sheet prepared in accordance with generally accepted accounting principles. $1,000 $4,000 Rationale: The amount owed, Wages Payable on the balance sheet, is the $5,000 incurred as an expense minus the $4,000 that has been paid. $5,000 Rationale: The amount owed, Wages Payable on the balance sheet, is the $5,000 incurred as an expense minus the $4,000 that has been paid. $0 Rationale: The amount owed, Wages Payable on the balance sheet, is the $5,000 incurred as an expense minus the $4,000 that has been paid.

Correct Answer $1,000

The business receives advertising services and immediately pays the $300 advertising bill. How would this payment affect the total equity of a business? Expenses would be increased, so stockholders' equity is decreased. Expenses would be decreased, so stockholders' equity is increased. Rationale: Stockholders' equity is decreased. There is no effect on total stockholders' equity. Rationale: Expenses are increased, so stockholders' equity is decreased. Expenses would be decreased, so stockholders' equity would be decreased. Rationale: Expenses are increased which causes stockholders' equity to decrease.

Correct Answer Expenses would be increased, so stockholders' equity is decreased.

If Notes Payable is on the balance sheet at the end of the accounting period, it is most likely that ______. (Select all that apply.) Interest expense will be listed as an operating expense Rationale: Interest expense is a non-operating expense and is listed below income from operations on the income statement. Loss from disposal of assets will be on the income statement Rationale: Interest expense is a non-operating expense and is listed below income from operations on the income statement. Interest expense will be listed below income from operations Loss on notes will be on the income statement Rationale: Interest expense is a non-operating expense and is listed below income from operations on the income statement. Interest expense will be on the income statement

Correct Answer Interest expense will be listed below income from operations Interest expense will be on the income statement

Which of the following events would result in an increase in Accounts Payable on X Company's balance sheet? (Check all that apply.) X Company purchased $5,000 of supplies on account. X Company paid $5,000 owed for chairs previously purchased. Rationale: This will decrease Accounts Payable since amounts owed are being paid. The entry is a debit to Accounts Payable and a credit to Cash. X Company ordered $5,000 of supplies to be delivered and paid for in the future. Rationale: X Company does not have a liability until the supplies are delivered. Once the supplies are delivered, X Company will debit Supplies and credit Accounts Payable. X Company purchased $5,000 of chairs on credit. X Company paid $5,000 for supplies purchased. Rationale: Since cash is paid, X Company does not have an account payable.

Correct Answer X Company purchased $5,000 of supplies on account. X Company purchased $5,000 of chairs on credit.

During the month of October, Pizza Company paid its employees $16,000 for wages earned in the last week of September and the first week of October. In September, $8,000 had been recorded as a liability in Wages Payable. Which of the following is the correct entry? Debit Wages Expense for $16,000 and credit Cash for $16,000 Debit Wages Payable for $8,000 and Wages Expense for $8,000 and credit Cash for $16,000 Debit Cash for $8,000 and credit Wages Expense for $8,000 Debit Wages Expense for $8,000 and credit Wages Payable for $8,000 Correct Answer Debit Wages Payable for $8,000 and Wages Expense for $8,000 and credit Cash for $16,000

Debit Wages Payable for $8,000 and Wages Expense for $8,000 and credit Cash for $16,000

_________ are the costs of operating a business that are incurred to generate revenues in the period covered by the income statement. (Enter one word per blank)

Expenses

Which are the sections found in a classified income statement? (Check all that apply.) Income before income taxes Noncurrent liabilities Rationale: This is a classification on the balance sheet, not the income statement. Income from operations Noncurrent assets Rationale: This is a classification on the balance sheet, not the income statement. Current assets Rationale: This is a classification on the balance sheet, not the income statement. Current liabilities Rationale: This is a classification on the balance sheet, not the income statement.

Income before income taxes Income from operations

Which of the following are subtotals found on a multiple step income statement? (Select all that apply.) Current assets Income from operations Current liabilities Income before income taxes

Income from operations Income before income taxes

In its 1st year of operation, Jetway Airlines paid Salaries Expense of $40 million. On December 31, it recorded an entry for additional Salaries Expense of $2 million that will be paid at the beginning of the 2nd year. What should Jetway report in the income statement and balance sheet for its first year ended December 31? Income statement: Salaries Expense $40 million; Balance sheet: Salaries Payable $0 Income statement: Salaries Expense $42 million; Balance sheet: Salaries Payable $2 million Income statement: Salaries Expense $40 million; Balance sheet: Salaries Payable $2 million Rationale: Salaries Expense equals $42 million which includes the $40 million paid and the $2 million owed to employees.

Income statement: Salaries Expense $42 million; Balance sheet: Salaries Payable $2 million

______ is a criminal offense for which managers may be sentenced to jail. (Check all that apply.) Intentionally recording cash collected in advanced that has not been earned as revenue Intentionally recording revenue in advance of collecting cash Fraud Falsifying revenues and expenses

Intentionally recording cash collected in advanced that has not been earned as revenue Fraud Falsifying revenues and expenses

Which of the following are not used in the calculation of operating income? (Check all that apply.) Sales Interest expense General and administrative expenses Cost of sales Gain on sale of land

Interest expense Gain on sale of land

In January, Pizza Company bought pizza ingredients on account for $100, with payment due to the supplier in March. The pizza ingredients were used for pizzas made in January. In which month should Pizza Company record the cost of the pizza ingredients as an expense? February April January March Rationale: The pizza ingredients are expensed in the month the ingredients are used (January), not in the month when the payment is made.

January

Morris Lest, Inc. received and paid a $500 electric bill in June for services received in May. In which month should Morris Lest record the expense? June Rationale: The expense recognition principle requires expenses be estimated and recorded in the period incurred, regardless of whether the expense has been paid. Since the services were incurred in May, the expense should be recorded in May, not in June when it is paid. Even if the bill has not yet been received, management must use historical information to estimate the amount of the expense. Half in May and half in June May

May

Which of the following statements about net income are correct? (Select all that apply.) Net income equals the amount of cash generated by the business during the reporting period. Net income on the income statement rarely equals cash flows from operating activities on the statement of cash flows. Net income equals the total change in assets during the period. Net income equals revenues earned minus expenses incurred, regardless of whether cash was collected or paid

Net income on the income statement rarely equals cash flows from operating activities on the statement of cash flows. Net income equals revenues earned minus expenses incurred, regardless of whether cash was collected or paid.

If a company incorrectly records cash received for services to be provided in the future with a debit to Cash and a credit to Sales Revenue, how will this error affect net income? Net income will be too high in the current period. Net income will be too high in the following period. Rationale: Net income will be too high because the credit should have been to Unearned Revenue, a liability, and not to Sales Revenue which makes net income too high. Net income will not be affected by this error in the current period. Rationale: Net income will be too high because the credit should have been to Unearned Revenue, a liability, and not to Sales Revenue which makes net income too high. Net income will be too low in the current period. Rationale: Net income will be too high because the credit should have been to Unearned Revenue, a liability, and not to Sales Revenue which makes net income too high.

Net income will be too high in the current period.

Which of the following financial statement line items is not an expense? Prepaid Rent Salaries and Wages Expense Advertising Expense Rent Expense

Prepaid Rent

Which of the following statements are true about rent paid in advance? (Check all that apply.) Prepaid Rent is on the balance sheet and reports the amount paid in advance. Rationale: Prepaid Rent is an asset on the balance sheet and represents the amount of rent paid in advance. Prepaid Rent will be expensed during the period the rent is used. The amount of rent used during the period is reported on the income statement as Rent Expense. Prepaid Rent is an asset because cash has been paid in advance for future use. Rationale: Prepaid Rent is an asset on the balance sheet and represents the amount of rent paid in advance. Prepaid Rent will be expensed during the period the rent is used. The amount of rent used during the period is reported on the income statement as Rent Expense. Rent Expense on the income statement reports the amount of rent paid in advance for future use. Rationale: Prepaid Rent is an asset on the balance sheet and represents the amount of rent paid in advance. Prepaid Rent will be expensed during the period the rent is used. The amount of rent used during the period is reported on the income statement as Rent Expense. Prepaid Rent is on the income statement and reports the amount of rent used during the period. Rationale: Prepaid Rent is an asset on the balance sheet and represents the amount of rent paid in advance. Prepaid Rent will be expensed during the period the rent is used. The amount of rent used during the period is reported on the income statement as Rent Expense.

Prepaid Rent is on the balance sheet and reports the amount paid in advance. Prepaid Rent is an asset because cash has been paid in advance for future use.

What issues arise that accountants must address in reporting periodic income to external users? Recognition issues: When should the effects of operating activities be recognized? Operating cycle issues: At which point of the operating cycle should be considered the beginning of operations? Measurement issues: What amounts should be recognized? Ownership perspective issues: How should owners' investments be reported?

Recognition issues: When should the effects of operating activities be recognized? Measurement issues: What amounts should be recognized?

Earned Revenue

Revenue is considered earned when the company substantially accomplishes what it must do to be entitled to the benefits represented by the revenues. When revenue is earned, assets, usually cash or accounts receivable, often increase.

On May 30, Blade for Blade, Inc. collected $10,000 from customers in advance. In June, it earned $2,000 of the amounts collected in advance. In June, ______. (Select all that apply.) Unearned Revenue is increased Rationale: Revenue is not earned until June. The entry in May is to increase Cash and Unearned Revenue. In June, Unearned Revenue is decreased and Revenue is increased. Accounts Receivable is increased Rationale: Revenue is not earned until June. The entry in May is to increase Cash and Unearned Revenue. In June, Unearned Revenue is decreased and Revenue is increased. Accounts Receivable is decreased Rationale: Revenue is not earned until June. The entry in May is to increase Cash and Unearned Revenue. In June, Unearned Revenue is decreased and Revenue is increased. Cash is increased Rationale: Revenue is not earned until June. The entry in May is to increase Cash and Unearned Revenue. In June, Unearned Revenue is decreased and Revenue is increased. Revenue is increased Unearned Revenue is decreased

Revenue is increased Unearned Revenue is decreased

Operating Cycle

The time span during which cash is paid for goods and services, which are then sold to customers from whom the business collects cash.

On May 30, The Merchant of Tennis, Inc. collected $1,000 from customers in advance. In June, it earned $600 of the amounts collected in advance. What is the effect of these events on The Merchant of Tennis in May and June? (Select all that apply.) Cash is increased in June Rationale: The entry in May is to increase Cash and Unearned Revenue. In June, Unearned Revenue is decreased and Revenue is increased. Revenue is increased in May Rationale: Revenue is not earned until June. The entry in May is to increase Cash and Unearned Revenue. In June, Unearned Revenue is decreased and Revenue is increased. Revenue is increased in June Unearned Revenue is decreased in June Cash is increased in May Unearned Revenue is increased in May

Revenue is increased in June Unearned Revenue is decreased in June Cash is increased in May Unearned Revenue is increased in May

Which are the 2 accounting principles underlying accrual accounting. (Check all that apply.) Cash basis Earnings per share Historical cost Revenue recognition Expense recognition

Revenue recognition Expense recognition

Which of the following are operating expenses on the income statement of a merchandising company? (Check all that apply.) Salaries expense Supplies Rationale: Supplies is an asset on the balance sheet, not an expense on the income statement. Accounts receivable Rationale: Accounts receivable is an asset on the balance sheet, not an expense on the income statement. Salaries payable Rationale: Salaries payable is a liability on the balance sheet, not an expense on the income statement. Supplies expense

Salaries expense Supplies expense

Which one of these activities is part of the operating cycle? Issuing new shares Rationale: This is a financing activity. Buying property, plant and equipment Rationale: This is an investing activity. Selling goods and services

Selling goods and services

Which of the following statements are true about supplies? (Check all that apply.) Supplies are assets because they have not yet been used. Supplies are on the income statement and report the amount of supplies used during the period. Supplies Expense is on the income statement and reports the amount of supplies used during the period. Supplies is on the balance sheet and reports the amount of supplies on hand. Supplies Expense on the income statement reports the amount of supplies on hand.

Supplies are assets because they have not yet been used. Supplies Expense is on the income statement and reports the amount of supplies used during the period. Supplies is on the balance sheet and reports the amount of supplies on hand.

True or false: A multiple step income statement displays subtotals that indicate multiple steps before reaching net income at the bottom. True Rationale: The subtotals displayed include income from operations and profit before taxes. False Rationale: The subtotals displayed include income from operations and profit before taxes.

True Rationale: The subtotals displayed include income from operations and profit before taxes.

In its first year of business, Wok 'n' Roll, Inc. earned $100,000 of revenues of which $80,000 was collected. It also incurred $90,000 in expenses for which $80,000 was paid. Which of the following statements are correct? (Check all that apply.) Wok 'n' Roll should use accrual basis accounting for external reporting purposes to conform with GAAP and IFRS. Wok 'n' Roll should report net income of $10,000 for external reporting purposes. Wok 'n' Roll should report net income of $20,000 for external reporting purposes. Rationale: Wok 'n' Roll should report net income of $10,000 (revenues of $100,000 minus expenses of $90,000) for external reporting purposes. Wok 'n' Roll should report $0 net income for external reporting purposes. Rationale: Net income should be $10,000 (revenues of $100,000 minus expenses of $90,000). GAAP and IFRS require companies to use accrual basis, not cash basis.

Wok 'n' Roll should use accrual basis accounting for external reporting purposes to conform with GAAP and IFRS. Wok 'n' Roll should report net income of $10,000 for external reporting purposes.

Which of the following events would result in an increase in Accounts Payable on X Company's balance sheet? (Check all that apply.) X Company purchased $5,000 of supplies on account. X Company paid $5,000 for supplies purchased. Rationale: Since cash is paid, X Company does not have an account payable. X Company paid $5,000 owed for chairs previously purchased. Rationale: This will decrease Accounts Payable since amounts owed are being paid. The entry is a debit to Accounts Payable and a credit to Cash. X Company ordered $5,000 of supplies to be delivered and paid for in the future. Rationale: X Company does not have a liability until the supplies are delivered. Once the supplies are delivered, X Company will debit Supplies and credit Accounts Payable. X Company purchased $5,000 of chairs on credit.

X Company purchased $5,000 of supplies on account. X Company purchased $5,000 of chairs on credit.

When supplies are purchased on credit it means that ______. (Check all that apply.) the business will be paying for the supplies right away a liability has been incurred the Accounts Payable account will be increased the business will pay for the supplies at a later time

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

Adjusting entries are required before financial statements are prepared to ensure that ______. (Select all that apply.) all expense incurred during the period are recorded all revenues earned during the period are recorded revenues earned equals the cash collected from customers during the period the expenses include only the amounts paid during the period

all expense incurred during the period are recorded all revenues earned during the period are recorded Concept Resources Text

Paying cash for an expense incurred in the same period has what affect on the accounting equation? (Select all that apply.) liabilities increase Rationale: The debit is to Expense, a stockholders' equity account. Expenses decrease stockholders' equity. The credit is to Cash because the cash is decreased when paid, which decreases assets. stockholders' equity increase Rationale: The debit is to Expense, a stockholders' equity account. Expenses decrease stockholders' equity. The credit is to Cash because the cash is decreased when paid, which decreases assets. assets decrease stockholders' equity decreases assets increase Rationale: The debit is to Expense, a stockholders' equity account. Expenses decrease stockholders' equity. The credit is to Cash because the cash is decreased when paid, which decreases assets. liabilities decrease Rationale: The debit is to Expense, a stockholders' equity account. Expenses decrease stockholders' equity, not liabilities. The credit is to Cash because the cash is decreased when paid, which decreases assets.

assets decrease stockholders' equity decreases

Lord of the Fries, Inc. purchased $1,000 of supplies paying $400 and owing the rest on account. The journal entry to record the purchase includes ______. (Select all that apply.) credit to Accounts Payable for $600 debit to Supplies for $1,000 credit to Cash for $400 debit to Supplies Expense for $1,000 Rationale: Supplies are assets when purchased. Later, when the supplies are used Supplies Expense will be debited and Supplies will be credited. credit to Accounts Receivable for $600

credit to Accounts Payable for $600 debit to Supplies for $1,000 credit to Cash for $400

On February 28, AppGame Company paid for a one-year insurance policy that begins March 1. AppGame's entry to record this transaction includes a ______. (Check all that apply.) credit to Prepaid Insurance credit to Cash debit to Prepaid Insurance debit to Insurance Expense Rationale: Because the insurance is paid in advance of receiving the service, the debit is to Prepaid Insurance. Later, as the services are delivered, Insurance Expense will be debited and Prepaid Insurance will be credited. debit to Cash

credit to Cash debit to Prepaid Insurance

The journal entry to record the purchase of $400 of supplies paying $100 and owing the rest on account includes a ______. (Select all that apply.) debit to Supplies Expense for $400 credit to Cash for $100 credit to Accounts Receivable for $300 credit to Accounts Payable for $300 debit to Supplies for $400

credit to Cash for $100 credit to Accounts Payable for $300 debit to Supplies for $400

On May 10, BC Company ordered $500 of supplies, promising to pay for them in June. The supplies were received and recorded on May 15. BC paid the $500 on June 1. The journal entry that BC makes on June 1 would include a ______. (Check all that apply.) credit to Cash of $500 debit to Supplies of $500 Rationale: The debit is to Accounts Payable and the credit is to Cash since $500 was paid on June 1. Back on May 15, when the goods were delivered, BC recorded a debit to Supplies and a credit to Accounts Payable. debit to Accounts Payable of $500 debit to Cash of $500 Rationale: The debit is to Accounts Payable and the credit is to Cash since $500 was paid on June 1. Back on May 15, when the goods were delivered, BC recorded a debit to Supplies and a credit to Accounts Payable. credit to Accounts Payable of $500 Rationale: The debit is to Accounts Payable and the credit is to Cash since $500 was paid on June 1. Back on May 15, when the goods were delivered, BC recorded a debit to Supplies and a credit to Accounts Payable.

credit to Cash of $500 debit to Accounts Payable of $500

Pasta Disasta received $500 in cash for interest earned on investments. The journal entry to record this transaction includes a $500 ______. (Check all that apply.) credit to Investment Income debit to Cash debit to Dividends debit to Investment Income credit to Cash

credit to Investment Income debit to Cash

Florist Gump, Inc. sold 1,000 vases of flowers for $50 each for cash. The entry to record the sale includes a ______. (Select all that apply.) credit to Sales Revenue for $50,000 credit to Cash for $50,000 debit to Cash for $50 credit to Sales Revenue for $50 debit to Sales Revenue for $50,000 debit to Cash for $50,000 debit to Accounts Receivable for $50

credit to Sales Revenue for $50,000 debit to Cash for $50,000

When Interest revenue is earned it is ______. debited credited credited but only if the cash is received debited but only if the cash is received

credited

Which of the following account types are often associated with operating activities? (Check all that apply.) current liabilities common stock noncurrent assets noncurrent liabilities dividends current assets

current liabilities current assets

The entry to record the sale of services for cash includes a ______. (Check all that apply.) debit to Accounts Receivable Rationale: A debit to Accounts Receivable means the company has received the promise to receive cash in the future from the customer. credit to Cash Rationale: Credits decrease Cash. debit to Sales Revenue Rationale: Revenue is increased with credits, not debits. debit to Cash debit to Deferred Revenue Rationale: Debits decrease Deferred Revenue (-L). credit to Service Revenue

debit to Cash credit to Service Revenue

The entry to record cash received in advance of earning the revenue includes a ______. (Check all that apply.) credit to Accounts Receivable credit to Cash debit to Cash debit to Unearned Revenue credit to Unearned Revenue debit to Accounts Receivable credit to Revenue

debit to Cash credit to Unearned Revenue

Pizza Company prepaid 3 months' store rent. The journal entry to record this transaction includes a ______. (Check all that apply.) debit to Prepaid Rent credit to Rent Expense debit to Rent Expense credit to Cash debit to Cash credit to Prepaid Rent

debit to Prepaid Rent credit to Cash

Last month, Hair Salon Company purchased $900 of supplies on account. Today, Hair Salon wants to make a payment of $200 on this bill. Record this transaction into the accounting equation of Hair Salon Company by ______. (Check all that apply.) decreasing Accounts Payable, $200 increasing Supplies, $900 Rationale: Hair Salon already recorded the initial purchase of supplies last month. increasing Supplies, $200 Rationale: Hair Salon did not buy another $200 of supplies. It is paying for the supplies purchased last month. decreasing Accounts Receivable, $200 Rationale: Accounts Payable, not Accounts Receivable, is affected. decreasing Cash, $200

decreasing Accounts Payable, $200 decreasing Cash, $200

Income distributed to stockholders are ______ and ______ Retained Earnings common stock; increase net income; decrease Rationale: The company may retain some or all of the earnings (Net Income) which increases Retained Earnings or it may distribute some of the earnings to stockholders as dividends which decreases Retained Earnings. dividends; increase common stock; decrease dividends; decrease net income; increase Rationale: The company may retain some or all of the earnings (Net Income) which increases Retained Earnings or it may distribute some of the earnings to stockholders as dividends which decreases Retained Earnings.

dividends; decrease

Receiving cash from a customer for payment on account for a sale that was recorded previously will ______. increase total assets Rationale: The entry to record receiving cash for payment on account includes a debit to Cash (+A) and a credit to Accounts Receivable (-A). Cash and Accounts Receivable are both assets and offset each other causing total assets to remain the same. have no effect on total assets increase stockholders' equity Rationale: The entry to record receiving cash for payment on account includes a debit to Cash (+A) and a credit to Accounts Receivable (-A). Cash and Accounts Receivable are both assets and offset each other causing total assets to remain the same. decrease total liabilities Rationale: The entry to record receiving cash for payment on account includes a debit to Cash (+A) and a credit to Accounts Receivable (-A). Cash and Accounts Receivable are both assets and offset each other causing total assets to remain the same.

have no effect on total assets

Gains on Sale of Investments are reported on the ______ and result from sales of investments at a price ______ than the original cost. income statement under Other Items; higher income statement under Operating Activities; lower balance sheet under Other Items; lower balance sheet under Current Assets; higher

income statement under Other Items; higher

Jackson's Catering provided $3,000 worth of cookies to the local college. The college paid immediately. This transaction is recorded by ______. decreasing Cash and increasing Revenue Rationale: Cash is increased, not decreased. increasing Supplies and Revenue Rationale: Increasing Cash and increasing Revenue. increasing Cash and Revenue increasing Cash and Expenses Rationale: Increasing Cash and increasing Revenue.

increasing Cash and Revenue

Unearned Revenue is a(n) ______ and is _____ when cash is collected in advance of being earned. revenue; debited revenue; credited Rationale: When cash is collected in advance of the revenue being earned the entry is a debit to Cash, an asset, and a credit to Unearned Revenue, a liability. Unearned Revenue is a liability because the company owes the customer goods or services (or its money back). liability; debited asset; credited Rationale: When cash is collected in advance of the revenue being earned the entry is a debit to Cash, an asset, and a credit to Unearned Revenue, a liability. Unearned Revenue is a liability because the company owes the customer goods or services (or its money back). expense; debited Rationale: When cash is collected in advance of the revenue being earned the entry is a debit to Cash, an asset, and a credit to Unearned Revenue, a liability. Unearned Revenue is a liability because the company owes the customer goods or services (or its money back). liability; credited

liability; credited

cash expenditures

money paid out by a business to purchase items, assets, or pay interest due

Retained Earnings represents ______. (Check all that apply.) net income generated by the company through profitable operations that has not been distributed to its stockholders amounts earned (revenues minus expenses) that have been kept by the company amounts given to the company by its stockholders in exchange for stock

net income generated by the company through profitable operations that has not been distributed to its stockholders amounts earned (revenues minus expenses) that have been kept by the company

Earnings Per Share (EPS)

net income/shares outstanding A measure of the net income earned on each share of common stock; computed as net income minus preferred dividends divided by the average number of common shares outstanding during the year.

Although the unadjusted trial balance's debits equal credits, some balances are not properly stated because ______ have not yet been recorded. (Check all that apply.)

some revenues earned some expenses incurred adjusting entries

When supplies, purchased previously, are used to generate revenues, ______. liabilities are decreased supplies are expensed cash is decreased the asset, Supplies, is decreased liabilities are increased

supplies are expensed the asset, Supplies, is decreased

T-accounts (general ledger) show ______. (Check all that apply.) the activity for the current period the prior period ending balances as beginning balances for all income statement accounts beginning balances of zero for all income statement accounts beginning balances of zero for all balance sheet accounts the prior period ending balances as beginning balances for all balance sheet accounts

the activity for the current period beginning balances of zero for all income statement accounts the prior period ending balances as beginning balances for all balance sheet accounts

Interest Revenue is ______. (Check all that apply.) an operating revenue central to its normal operations the amount earned from lending money a result of investments in bonds in other companies reported only when collected a peripheral revenue meaning it is normal but not central to the operations of the business

the amount earned from lending money a result of investments in bonds in other companies a peripheral revenue meaning it is normal but not central to the operations of the business

To see the detail of increases and decreases in a company's Cash account, you should look at ______. the company's income statement either the company's balance sheet or its income statement the company's general ledger the company's balance sheet Rationale: The balance sheet only shows the ending Cash balance and not the detail of the increases and decreases in Cash.

the company's general ledger

Dividing the long life of a company into shorter periods such as months, quarters, or years for reporting purposes is called the ______. accounting equation expense matching principle time period assumption

time period assumption

On the income statement, Income from Operations differs from Income before Income Taxes in that ______ are subtracted from Income from Operations to arrive at Income before Income Taxes. interest and income tax expenses Rationale: Tax expense is subtracted from Income before income taxes. The correct answer is "transactions that are non-operating or infrequently occurring" because these expenses are subtracted after Income from operations but before Income before income taxes. operating results and all other one-time transactions Rationale: It is correct that operating results are subtracted to arrive at operating income; however, one-time, infrequent transactions are below operating income and are not considered part of operations. transactions that are non-operating or infrequently occurring

transactions that are non-operating or infrequently occurring

Interest Revenue

using excess cash to purchase bonds

When reporting net income to users, accountants must determine _____. the amount of cash received and paid when the effects of operating activities and what amounts should be recorded how much owners' investments changed the length of the operating cycle

when the effects of operating activities and what amounts should be recorded