BUS 1A Ch. 2

Given the following information for Jackson's Boots, calculate its Debt Ratio for the current year. $ in Thousands 20X2 Total assets $250 Total liabilities $100 Total equity $150

0.4

When preparing a trial balance, there are certain steps that need to be followed. Place the following steps in the correct order.

1. List each account title and its amount from the general ledger. 2. Compute the total of debit balances and the total of credit balances. 3. Verify that total debit balances equal total credit balances.

Which of the following statements is accurate regarding the Building account?

A Building asset account is used to record the costs of purchasing a store, office, warehouse or factory.

Which statement best describes a T-account?

A T-account represents a ledger account and is a tool used to understand the effects of one or more transactions.

Which of the following statements is (are) correct regarding a T-account?

A T-account represents a ledger account. A T-account will show the debit and credit effects of transactions. A T-account may be used as a tool to visualize the effects of a transaction.

Review each of the following statements to determine which is correct regarding the importance of assessing a company's risk of paying debt.

A company that finances their assets by borrowing will need to make enough money to pay off the debt. A company's required debt payments may be greater than its ability to generate money to make those payments. If a company has a lot of debt, they may not be able to afford to take on new debt.

Which of the following statements is the correct definition of a creditor?

A creditor is an individual or organization that has a right to receive payments from a business.

Which of the following statements is the correct definition of a liability?

A liability is a claim by a creditor against the assets of a business.

Which of the following statements is (are) correct regarding the definition of a liability?

A liability is a debt owed by the business. A liability can be settled by transferring assets or providing products or services to others. A liability is a claim by creditors against the assets of a business.

In defining a reporting period, which of the following statements is (are) correct?

A one-year reporting period is known as the fiscal year. A reporting period can be one month, one quarter or one year. A reporting period is determined by the business.

The correct definition of an "account" includes which of the following?

A record of increases and decreases in a specific asset, liability, equity, revenue, or expense item

Which of the following is the best definition of a source document in the accounting process?

A source document identifies and describes transactions and is the basis for entering an event into the accounting system.

Which of the following statements explains what a trial balance is?

A trial balance confirms that the sum of debit account balances equals the sum of credit account balances.

Which of the following statements is accurate regarding Accounts payable?

Accounts payable refer to promises to pay later, which may arise from the purchase of supplies or services.

Which statement is correct regarding entering transactions into the accounting equation?

After recording a transaction, the total of the right side of the accounting equation must equal the total of the left side of the accounting equation.

An annual insurance policy is paid in advance by a company. How will the company treat this initial payment and the subsequent expiration of a portion of the policy over time?

As a portion of the policy expires, the expired portion will be removed and transferred to an expense account. Over time, the expired portion of the policy must be removed from the asset account as it has been used up and is no longer considered an asset. The initial payment will be recorded as an increase to a Prepaid Insurance account.

Which of the following statements is the best definition of an asset?

Assets are resources owned or controlled by a company and that have expected future benefits.

Identify which of the following lists include only examples of assets.

Building, Cash, Accounts receivable

Liabilities

Claims against the assets of a business

There are several types of accounts that impact equity. Which of the accounts below cause equity to increase?

Common Stock and Revenues

Which of the following statements correctly explains how to prepare a trial balance?

Compute the total of debit balances and the total of credit balances. List each account title and its amount from the ledger. Verify that the total debit balances equals the total credit balances.

J. Jackson invested $1,000 in his business in exchange for common stock. Show how to use T-accounts to record this transaction by selecting the correct answer below.

Debit Cash; credit Common stock

Which of the following statements is (are) accurate regarding equipment purchased within a business?

Equipment purchases are reported on the balance sheet. Equipment is reported on the left side of the accounting equation. Equipment cost is initially recorded as an asset and the cost is allocated over time to expense. Equipment is an asset.

Which of the following statements is the correct definition of equity?

Equity is the owner's claim on a company's assets.

Which of the following accounts impact equity?

Expenses Dividends Revenue Common Stock

Which set of accounts below would have a normal debit balance?

Expenses; Dividends; Cash

True or false: Assets are claims (by creditors) against the company.

False

True or false: The cost of land owned by a business is recorded in the Land account and this account is classified as an expense.

False

Which of the following financial statements report(s) the financial position of a business over a period of time?

Income statement Statement of retained earnings Statement of cash flows

Creditors

Individuals or organizations that have rights to receive payments from a business

A journal

It is a book of original entry that includes a chronological record of all transactions that have occurred within a business during a period occurred

A general ledger

It is a collection of all accounts with their activity and balances that exist in a business.

A chart of accounts

It is a list of all ledger accounts which exist in a business and includes an identification number assigned to each account

Which of the following statements is the best definition of the Chart of Accounts?

It is a list of all ledger accounts which exist in a business and includes an identification number assigned to each account.

A trial balance

It is a list of each account and its balance at any given time and is used to verify that debits = credits

Which of the following items would be considered "cash" and reflected in a company's Cash account?

Money orders Coins Checks

Which of the following statements is (are) correct regarding the Notes payable account?

Notes payable is a liability account. Notes payable is reported on the balance sheet. Notes payable is a formal promise to pay a certain sum of money on a specified future date.

Given the descriptions below, which is (are) true regarding notes receivable?

Notes receivable is classified as an asset. Another name for a note receivable is a promissory note. It is the promise of another entity to pay a specific sum of money on a specified future date.

Which of the following is correct regarding posting a transaction?

Posting means to transfer journal information to a ledger.

Select the statement below that best defines prepaid accounts.

Prepaid accounts are assets that represent prepayments of future expenses.

Which of the following statements is correct about prepaid expenses?

Prepaid expenses are also called prepaid accounts and are considered assets.

Revenues

Sales of products and services to customers

Which of the following would be considered a source document in an accounting system?

Sales receipt Purchase order Checks Payroll records

Which of the following accounts would be considered an asset?

Supplies Accounts receivable Cash Building

Which of the following statements is accurate about the Land account?

The Land account is used to record the costs of land purchased by the business. The Land account is increased on the left side of its T-account. The Land account is an asset.

Expenses

The costs of doing business

Which of the following are accurate statements regarding how to report or treat prepaid accounts?

The expired portion of prepaid accounts is reported on the income statement as an expense. Over time, the expired portion of prepaid accounts is transferred from the asset account and reported as an expense. The unexpired portion of prepaid accounts are treated as assets.

Which of the following describes a general ledger?

The general ledger is a record containing all accounts used by a company.

Equity

The residual interest in the assets of a business after deducting the business's debts

Assets

Things of value owned by a business

Identify which of the following formulas correctly defines how to calculate the debt ratio.

Total liabilities/Total assets

Choose the account(s) below, that would have a normal credit balance. (Check all that apply).

Unearned Revenues Revenues Accounts Payable Common Stock

Which of the following statements are accurate regarding supplies?

Unused supplies are treated as assets. Supplies are assets until they are used. Unused supplies can be recorded as Store Supplies, Office Supplies or Supplies. When supplies are purchased, they are added to the Supplies account.

Notes receivable is considered a(n) ___.

asset

The Building account is a(n) ___ account and is reported on the ___ side of the accounting equation.

asset left

Equipment is a(n) ___ account. It is reported on the ___ side of the accounting equation and is ___ when equipment is purchased.

asset left increased

Prepaid accounts are ___ that represent prepayments of future expenses and are increased with a ___.

assets debit

When financial statements are prepared, unexpired prepaid accounts are recorded as ___ and the expired portion of the prepaid account is reported as a(n) ___.

assets expense

Supplies are ___ until they are used. When they are used up, their costs are reported as ___.

assets expenses

Accounts payable refer to obligations owed ___ the business and are classified as a(n) ___ account.

by liability

The general ledger can be used to determine which of the following

common and unique accounts used by a business. increases and decreases in all accounts in a business. which accounts are being used by a company and their balances at any given time.

L. Lyons started a business and invested $4,000 in exchange for common stock. Illustrate how to record the transaction in the T-accounts by completing the following sentence. The Cash account would be ___ on the ___ side of the T-account and the Common stock account would be ___ on the ___ side of the T-account.

debited left credited right

An account is a record of increases and ___ in a specific asset, liability, equity, revenue or expense.

decreases

After entering a transaction into the accounting equation, an increase in total assets can be accompanied by a(n) ___ in total liabilities or equity.

increase

The Notes payable account is a(n) ___ account and is increased on the ___ side of the T-account.

liability right

A trial balance is a(n) ___ of accounts and their balances at a point in time and is used to confirm that the sum of debit account balances equals the sum of ___ account balances.

list credit

Transferring entries from the journal to the ledger is called

posting