Chapter 2

*** [Select all that apply] The type of information included in a t-account includes + columns for debits and credits. + the account title. + a daily total. + a posting reference.

+ columns for debits and credits. + the account title.

Place the three steps for analyzing the effect of transactions in the correct order. + Determine one account in the accounting equation that will increase or decrease + Confirm that assets are equal to liabilities plus stockholder's equity + Determine a second account in the accounting equation that will increase or decrease

1) Determine one account in the accounting equation that will increase or decrease 2) Determine a second account in the accounting equation that will increase or decrease 3) Confirm that assets are equal to liabilities plus stockholder's equity

[Select all that apply] Which of the following are stockholder equity accounts? + Accounts receivable + Retained earnings + Common stock + Notes payable + Inventory

1) Retained earnings 2) Common stock

[Select all that apply] The two roles of financial accounting are to: + communicate information to external parties for decision making purposes. + report cost accounting information for internal decisions. + measure and report results to taxing authorities. + measure business activities of the company.

1) communicate information to external parties for decision making purposes. 2) measure business activities of the company.

Lassiter Industries purchased equipment for $140,000. Lassiter expects to use the equipment over the next 10 years. Recording this transaction would include a ________ A) credit to equipment $140,000. B) debit to equipment $140,000. C) debit to equipment expense $140,000. D) debit to cash $140,000.

B) debit to equipment $140,000.

Net income ______ retained earnings. A) decreases B) increases C) has no effect on

B) increases

[Select all that apply] Farmer, Inc. purchases a tractor for $80,000 cash. Recording this transaction will require which of the following? Credit cash Debit equipment Credit equipment Debit cash

Credit cash Debit equipment

A ledger provides a chronological record of all transactions affecting the firm. (T/ F)

False

Define: Computerized system Define: Manual System

Journal entries are instantly posted to the general ledger. Journal entries are posted periodically to the general ledger.

An external transaction is a transaction the firm conducts with a separate economic entity. (T/ F)

True

The accounting equation must always remain in balance. (T/ F)

True

(Select all that apply) The types of accounts which affect retained earnings are liabilities. expenses. revenues. dividends. assets.

expenses. revenues. dividends.

A(n) _____________ transaction involves an exchange between the company and a separate economic entity.

external

An increase in revenues increases ________ ________ , which increases retained earnings, which increases stockholders' equity. (Enter one word per blank)

net income

The process of transferring information from a journal entry to the specific accounts affected in the general ledger is referred to as _____________. (Enter only one word.)

posting

*** Consistent with the __________ recognition principle, companies record revenue at the time goods are provided to customers. (Enter only one word.)

revenue

When a company performs services for a customer, and the customer agrees to pay for the services at a later date, the transaction is recorded in which account? A) Accounts receivable B) Prepaid services C) Deferred revenue D) Accounts payable

A) Accounts receivable

What is the effect of expenses on retained earnings? A) Decrease B) Increase C) No effect

A) Decrease

The first step for analyzing the effect of transactions is: A) Determine one account in the accounting equation that will increase or decrease B) Determine a second account in the accounting equation that will increase or decrease C) Confirm that assets are equal to liabilities plus stockholders' equity

A) Determine one account in the accounting equation that will increase or decrease

*** Which of the following includes the list of transactions affecting each individual account and the account's balance? A) Ledger B) Account C) Journal

A) Ledger

Smith Company's journal shows a debit to cash and a credit to notes payable, both for $15,000. This indicates that Smith Company: A) borrowed $15,000 cash and signed a note B) received cash of $15,000 from an investor C) paid a loan in the amount of $15,000

A) borrowed $15,000 cash and signed a note

Klick's journal shows a debit to cash and a credit to common stock. This journal entry indicates that Klick: A) paid dividends to its stockholders B) issued shares to stockholders C) purchased shares from investors

B) issued shares to stockholders

Stockholders' equity is increased by revenues because revenues increase _________. A) liabilities. B) net income. C) common stock. D) expenses.

B) net income.

*** An simplified version that is used informally for analysis instead of drawing a formal general ledger account is referred to as a: A) debit account B) t-account C) journal account D) credit account

B) t-account

What effect does revenue have on retained earnings? A) Decreases B) No effect C) Increases

C) Increases

The accounting equation is: Assets = Liabilities + __________ A) Revenues B) Creditors' Interest C) Stockholders' Equity D) Net Income E) Retained Earnings

C) Stockholders' Equity

Yeung Corp. purchases supplies on account. Recording this transaction will include a ________ A) debit to revenues. B) credit to cash. C) debit to supplies. D) credit to supply expense.

C) debit to supplies.

Dividends paid to stockholders will cause retained earnings to A) increase. B) remain the same. C) decrease.

C) decrease

A debit is on the ______ side of the account. A) A debit can be either side of the account depending on effect. B) right C) left

C) left

*** The purpose of a journal is to _________ A) maintain a balance for each account. B) record all transactions for a particular item. C) record a chronological listing of every transaction for a company.

C) record a chronological listing of every transaction for a company.

LMN Enterprises performs accounting services for a client for $3,000 cash. What is the effect on the accounting equation? A) Decrease assets and increase liabilities B) Increase one asset and decrease another asset C) Increase liabilities and decrease retained earnings D) Increase assets and increase retained earnings

D) Increase assets and increase retained earnings

Which type of account is increased with a credit? A) Asset B) Dividend C) Expense D) Revenue

D) Revenue

Gondel Company's journal shows a debit to prepaid rent and a credit to cash. This means that Gondel Company _______ A) utilized rented space during the current period. B) rented space to a business associate. C) purchased a building and paid cash. D) paid rent in advance.

D) paid rent in advance.

A list of all accounts and their balances at a particular date showing that debits equal credits is referred to as a(n) _________ _________.

trial balance