chapter 3

what is the expanded basic accounting equation?

Assets + Dividends + Expenses = Liabilities + Common stock + Revenues.

an investment by the stockholders in a biz increases a. assets and stockholders' equity b. assets and liabilities c. liabilities and stockholders' equity d. assets only

a

during january 2025 its first month of operation, cheyenne enterprises earned net income of $5980 and paid dividends to the owners of $1760. At january 31, the amount reported for ending retained earnings on the retained earnings statement would be a. $4220 b. $1760 c. $0 d. $5980

a

Identifying the type of account involved and whether to make a debit or a credit to the account is the purpose of Select answer from the options below a. transaction analysis. b. journalizing transactions. c. posting transactions in the ledger. d. using transactions to create financial documents.

a Analyzing the transaction is the first step in the recording process. The analysis involves determining the effect of the transaction on the accounts. This includes determining which accounts are affected and if the effect will be a debit or a credit to the account.

What effect may result if specific account titles are not used in journalizing? Select answer from the options below a. The financial statements may not be accurate. b. The general ledger will not balance. c. The journal entry will not balance. d. The contents of the account will differ from the name of the account.

a Erroneous account titles can lead to incorrect financial statements because the accounts to which the amounts are posted are the basis of the financial statement.

When calculating the balance of the Sales Revenue account, you find that the balance is lower than expected. However, according to your Balance Sheet and your analysis of the accounting equation, all of your debits and credits are equal across accounts. What is the most likely explanation for this? Select answer from the options below a. You failed to record a sales transaction in the journal, so it never got transferred to the ledger or financial documents. b. You recorded an entry in the Sales Revenue account as a debit rather than a credit. c. You made a digit transpose error while recording an entry in the Sales Revenue account. d. You failed to record an entry in the Sales Revenue account even though it was posted to the Cash account.

a If a transaction is not posted in the journal, both debits and credits will be equally affected. Therefore, even though the Balance Sheet is in balance and the accounting equation is equal, the affected accounts and subsequent financial information will be incorrect.

On November 15, Paulson Painting received a $6,000 cash payment from Apex Inc. in exchange for painting services to be provided in December. When posting the journal entries related to this payment, Paulson's accountant debits the Cash account for $6,000 and credits Service Revenue for $6,000. Which of the following statements best describes the results of this posting? Select answer from the options below a. In Paulson's general ledger, the ending balance for the Cash account will be correct. However, the ending balance for the Service Revenue account will be too high and the ending balance for the Unearned Service Revenue account will be too low. b. In Paulson's general ledger, the ending balances for the Cash and Service Revenue accounts will be too high. However, the ending balance for the Unearned Service Revenue account will be too low. c. In Paulson's general ledger, the ending balances for both the Cash account and the Service Revenue account will be correct. d. In Paulson's general ledger, the ending balance for the Cash account will be too low, the ending balance for the Service Revenue account will be too low, and the ending balance for the Unearned Service Revenue account will be too high.

a Paulson's entry for the transaction described should be a debit (increase) to the asset account Cash and a credit (increase) to the liability account Unearned Service Revenue. Paulson correctly recorded the cash side of the transaction. Paulson incorrectly recorded the other side of the transaction. Because the service has not yet been performed, the revenue is not yet earned which should be reflected as a liability on Paulson's books. Therefore, the credit (increase) to the revenue account caused the balance in the service revenue account to be too high. Likewise, the lack of the entry to credit (increase) the liability account Unearned Service Revenue caused this account to be too low.

You are the accountant responsible for creating financial documents and recording transactions. In which order will you perform the following actions related to these tasks? I. create financial statements II. record transactions in the ledger III. examine business documents IV. record transactions in the journal Select answer from the options below a. III, IV, II, I b. III, II, I, IV c. IV, II, I, III d. III, II, IV, I.

a The first step is to analyze the source documents to determine which accounts the transaction affect. The second step is to record the transactions in the journal. The third step is to record the journal entries to the ledger accounts. Finally, once all information is in the ledger, the financial statements can be prepared.

What would be the balance in the Accounts Receivable ledger account, if the beginning balance was $6,000, after the following entries: debit for $12,000, credit for $9,000 and credit for $1,000? Select answer from the options below a. $8,000 b. $10,000 c. $4,000 d. $2,000

a The normal balance for Accounts Receivable is a debit. Debits increase Accounts Receivable, and credits decrease Accounts Receivable. Therefore, the new balance of Accounts Receivable is $6,000 + $12,000 - $9,000 - $1,000 = $8,000.

A book designer purchased a new computer monitor for $1,200 cash. As a result of this purchase, Select answer from the options below a. total assets remained unchanged. b. stockholders' equity decreased by $1,800. c. assets increased by $1,800 d.both assets and stockholders' equity decreased by $1,800.

a This transaction's journal entry is a debit (increase) to the asset account equipment and a corresponding credit (decrease) to the asset account cash. The net effect to the total assets is zero.

The normal balances in stockholders' equity accounts are Select answer from the options below a. credits for Common Stock, Retained Earnings, and revenues, but debits for the others. b. credits for Common Stock and Retained Earnings, but debits for all others. c. all credits except for expenses that are debits. d. all credits, like liabilities.

a. Stockholders' equity is comprised of common stock and retained earnings. Common stock has a normal credit balance. Retained earnings can be further broken down into revenue less expenses less dividends. Both retained earnings and revenue's normal balance is a credit. Expenses and dividend's normal balance is a debit.

On September 1, Pike Products purchases $5,000 of supplies from Indigo Industries, with the understanding that Pike will provide payment within 60 days. When posting the journal entries related to this transaction, Pike's accounting staff debits Supplies for $5,000 and debits Cash for $5,000. Which of the following statements best describes the results of this posting? Select answer from the options below a. In Pike's general ledger, the ending balance for the Supplies account will be correct. However, the ending balance for the Cash account will be too high, while the ending balance for the Accounts Payable account will be too low. b. In Pike's general ledger, the ending balance for the Cash account will be correct. However, the ending balance for the Supplies account will be too low, while the ending balance for the Accounts Payable account will be too high. c. In Pike's general ledger, the ending balance for the Cash account will be correct. However, the ending balance for the Supplies account will be too high, while the ending balance for the Accounts Payable account will be too low. d. In Pike's general ledger, the ending balance for the Supplies account will be correct. However, the ending balance for the Cash account will be too low, while the ending balance for the Accounts Payable account will be too high.

a. The correct journal entry for this transaction includes a debit (increase) to Supplies reflecting the supplies purchased and received. Pike Products correctly recorded the increase to Supplies. The correct journal entry also includes a credit (increase) to Accounts Payable, reflecting the amount owed to Indigo. Since Pike did not credit Accounts Payable, its current balance is too low. Likewise, as cash was debited (increased) instead, the cash account will be too high.

which one of the following contains the selected steps of the accounting cycle in the correct order 1. journalize the transactions 2. post transactions to ledger accounts 3. analyze transactions 4. prepare financial statements 5. prepare a trails balance a. 1,2,3,5,4 b. 3,1,2,5,4 c. 3,2,1,4,5 d. 3,1,2,4,5

b

Which of the following accounting entries would you MOST expect to accompany a $2,500 increase in cash, and why? Select answer from the options below a. A $2,500 decrease in unearned service revenue, because unearned service revenue is considered an asset no matter when it is received. b. A $2,500 increase in unearned service revenue, because unearned service revenue is considered a liability until the service is actually performed. c. A $2,500 decrease in notes payable, because this reduction in liabilities would need to be offset by a corresponding increase in assets. d. A $2,500 increase in notes payable, because this increase in stockholders' equity would need to be offset by a corresponding increase in assets.

b Both notes payable and unearned service revenue are considered liabilities (and not a component of stockholders' equity), while cash is considered an asset. Because any change in a firm's assets must be offset by an equal change in the firm's liabilities plus stockholders' equity, the $2,500 increase in cash must be offset by either a $2,500 increase in unearned service revenue or a $2,500 increase in notes payable.

Which of the following is MOST likely prepared after using the trial balance? Select answer from the options below a. budget b. financial statements c. general ledger d. journal entries

b Financial statements are generally prepared using the trial balance. Journal entries are posted to the general ledger which is in turn used to prepare the trial balance.

During the month of May, Apex Industries recorded a $3,000 debit to an expense account. Which of the following explanations of this transaction is the MOST accurate? Select answer from the options below a. This entry indicates that Apex incurred $3,000 in expenses. It also suggests that the firm may have recorded a $3,000 debit to an asset account in order to offset the corresponding increase in stockholders' equity. b. This entry indicates that Apex incurred $3,000 in expenses. It also suggests that the firm may have recorded a $3,000 credit to an asset account in order to offset the corresponding decrease in stockholders' equity. c. This entry indicates that Apex incurred $3,000 in expenses. It also suggests that the firm may have recorded a $3,000 debit to an asset account in order to offset the corresponding decrease in stockholders' equity. d. This entry indicates that Apex incurred $3,000 in expenses. It also suggests that the firm may have recorded a $3,000 credit to an asset account in order to offset the corresponding increase in stockholders' equity.

b Stockholders' Equity = Common Stock + Revenues - Expenses - Dividends. Therefore, a $3,000 increase in expenses causes a $3,000 decrease in stockholders' equity. To keep the accounting equation (Assets = Liabilities + Stockholders' Equity) in balance, Apex must make an entry to decrease assets, increase liabilities, or increase stockholders' equity by $3,000. Since assets are decreased through credit entries, one of Apex's options is to credit an asset account to offset the corresponding decrease in stockholders' equity.

Some of the balances on Carla's Cookies June 30th trial balance include Cash $100,000, Accounts Receivable $50,000, Equipment $25,000, and Accounts Payable $75,000. During the month of July, the company used cash to purchase $8,000 of equipment. How will this transaction affect the equipment account balance on the July 31st trial balance? Select answer from the options below a. An increase of $4,000. b. An increase of $8,000. c. A decrease of $4,000. d. A decrease of $8,000.

b The equipment account balance will increase by the dollar amount of the equipment being purchased. In this case equipment account increases $8,000

Geyer Company has the following account balances: Accounts Receivable: $40, Accounts Payable: $45, Cash: $70, and Notes Payable: $65. If the Notes Payable balance is listed as $56 in the trial balance, what impact will this have on the accounts? Select answer from the options below a. The total debit balance will be $9 less than the total credit balance. b. The total credit balance will be $9 less than the total debit balance. c. There will be no impact on the accounts. d. The total credit balance will be $9 more than the total debit balance.

b The normal balance for notes payable is a credit balance. If Notes Payable should be $65 but is listed as $56, the total credit balance will be $9 less than it should be. Since total debits should equal total credits, the total credit balance will be $9 less than the total debit balance.

kingbird inc.'s trial balance at the end of its first month of operations reported the following accounts and amounts with normal balances cash - $18240 prepaid insurance - 570 accounts receivable - 2850 accounts payable - 2280 notes payable - 3420 common stock - 5700 dividends - 570 revenues - 25080 expenses - 14250 a. 37620 b. 36480 c. 37050 d. 35910

b acc. payable + not. pay. + com.st. +rev 2280 + 3420 + 5700 + 25080

equipment costing $193000 is purchased by paying $73000 cash and signing a note for the remainder. The journal entry to record this transaction should include a a. debit to notes recievable for 120000 b. debit to notes payable for $120000 c. credit to cash for $73000 d. credit to equipment for $193000

c

if a company has performed a service but has not yet received payment, the journal entry to record the transaction a. debits service revenue and credits accounts receivable b. debits service revenue and credits accounts payable c. debits accounts receivable and credits service revenue d. makes no entry until the cash is received

c

if a company pays dividends of $8000 a. total stockholders' equity will be reduced by $8000 b. net income will be reduced by $8000 c. both retained earnings and total stockholders' equity will be reduced by $8000 d. retained earnings will be reduced by $8000

c

What is a T-account? Select answer from the options below a. a special account used instead of a trial balance b. a way of organizing information for current assets c. the basic form of an account that aligns information in three parts d. a special account form used instead of the basic form

c A T-account is a basic form of account that aligns information into 3 parts: 1) title of the account; 2) debit (left) side and 3) credit (right) side.

Which statement is true concerning any account? Select answer from the options below a. The identification of the debit or credit side as left or right depends upon the type of account. b. The left side is the credit, and the right side is the debit. c. The right side is the credit, and the left side is the debit. d. The debit side indicates an increase, and the credit side indicates a decrease.

c All accounts have debits on the left and credits on the right. Whether the debit or credit increases or decreases the account is dependent on what type of account it is.

On December 30, Mega Industries pays employee salaries of $50,000 in cash. When posting the journal entries related to this transaction, Mega's accounting staff credits Cash for $50,000 and credits Accounts Payable for $50,000. Which of the following statements best describes the results of this posting?Select answer from the options below a. In Mega's general ledger, the ending balance for the Cash account will be too high, while the ending balance for the Accounts Payable account will be too low b.In Mega's general ledger, the ending balance for the Cash account will be correct. However, the ending balance for the Accounts Payable account will be too low and the ending balance for the Salaries Expense account will be too high. c. In Mega's general ledger, the ending balance for the Cash account will be correct. However, the ending balance for the Accounts Payable account will be too high and the ending balance for the Salaries Expense account will be too low. d. In Mega's general ledger, the ending balance for the Cash account will be too low, while the ending balance for the Accounts Payable account will be too high.

c The correct journal entry is a debit (increase) to the expense account, Salaries Expense, and a credit (decrease) to the asset account, Cash. The payment of salaries with cash eliminates a need to record a payable.Mega Industries correctly recorded a credit to cash and the cash account is stated correctly in the general ledger.Mega Industries mistakenly recorded a credit (increase) to the liability account, Accounts Payable, causing this account to be overstated. At the same time, Mega did not record an entry to Salaries expense. The correct entry would have been a debit (increase) to Salaries expense. Therefore, Mega's mistake made the balance of Accounts Payable too high and the balance of Salaries Expense too low.

Which of the following is used to initially record transactions in the recording process? Select answer from the options below a. the ledger b. the income statement c. the journal d. the balance sheet

c Transactions are initially recorded in the journal, which is then posted to the ledger. From there, a trial balance is usually created, which aids in the creation of the financial statements, including the balance sheet and the income statement.

a revenue generally a. increases assest and decreases stockholders' equity b. leaves total assets unchanged c. increases assets and liabilities d. increases assets and stockholders' equity

d

which one of the following is NOT true of the terms debit and credit? a. they can be used to describe the balance of an account b. they can be interpreted to mean left and right c. they can be abbreviated as Dr. and Cr. d. they can be interpreted to mean increase and decrease

d

________ that require recording in the financial statements are called accounting transactions. Select answer from the options below a. Tax hikes b. Explanations c. Regulations d. Economic events

d Accounting transactions are recorded when an. economic event occurs that affect the assets, liabilities, or stockholders' equity of a company.

For September 30th, Cathy's Catering's trial balance has a debit column totaling $110. The credit column totals $128, which of the following would explain this difference? Select answer from the options below a. Notes payable balance of $25 listed in the trial balance $52. b. Cash balance of $51 listed in the trial balance $15. c. Accounts payable balance of $18 listed in the trial balance as $81. d. Accounts receivable balance of $75 listed in the trial balance as $57.

d The difference between the total debit and total credit columns is $18. If the correct accounts receivable balance is $75 and it was listed in the trial balance as $57, this would cause the total debit column to be understated by $18. Therefore it is the Accounts Receivable balance that caused this difference.