accounting ch 1

What are Generally Accepted Accounting Principles?

The concepts and rules that govern financial accounting practice.

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

business entity

Select the account that would be decreased if Hillary's Hair Salon decides to pay $40 cash dividends to its shareholders.

cash

An external user of accounting information

does not directly run the organization

The _____ is the first financial statement to be prepared.

income statement

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

internal and external

The _____ principle states that accounting information is based on actual cost.

measurement

The majority of accounting opportunities are in the area of _____ accounting.

private

Sheldon Company had beginning retained earnings of $1,000, net income of $5,000, and dividends of $250. The ending balance in the retained earnings account is

5,750

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

A company's obligation to provide assets, products or services to others.

Which of the statement(s) below define(s) an asset? (Check all that apply.) Multiple select question. An amount owed to a creditor An amount owned Resources controlled by the business Resources with expected future benefits An amount owed to the owners

An amount owned Resources controlled by the business Resources with expected future benefits

Identify the correct definition of an asset:

An asset is a resource that a business owns or controls

The expanded accounting equation is defined as: _________= Liabilities + Common Stock + _____________-___________ - Dividends. Do not include the word "account" or "accounts" in your answer.

Assets, Revenues, Expense

Identify the main sections on a statement of cash flows. Cash flows from investing activities Cash flows from operating activities Cash flows from financing activities Cash flows from owner activities Cash flows from borrowing activities

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

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

Cash, Building, Supplies, Accounts Receivable

Expenses

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

dividends

Choice, Decrease equity and are the outflows of assets from the company to the shareholders. Decrease equity and are the outflows of assets from the company to the shareholders.

common stock

Choice, Increase equity and are assets owners contribute to the business. Increase equity and are assets owners contribute to the business.

revenues

Choice, increase equity from sales of products and services to customers. increase equity from sales of products and services to customers.

A corporation's equity has two main parts. Identify these two parts. Multiple select question. Contributed capital Retained earnings Services revenue Expenses

Contributed capital Retained earnings

Final totals in a financial statement are __________ underlined.

Double

When using the accounting equation, recording the purchase of equipment for cash would include an increase to the (Cash/Equipment/Supplies)_______ account and a decrease to the (Cash/Equipment/Supplies)________ account.

Equipment, Cash

From the following statements, identify the correct definition of equity.

Equity refers to the claims of the owners on the assets of a business.

Given the accounts below, choose all that affect equity. (Check all answers that apply.) Multiple select question. Notes Payable Cash Expenses Revenues Dividends Accounts Payable Common Stock

Expenses Revenues Dividends Common Stock

The definition of expenses includes which of the following statements? (Check all that apply.) Multiple select question. Expenses decrease equity. Expenses are creditors' claims against the company. Expenses are the assets earned from a company's earnings activities. Expenses are the costs of providing products and services to customers.

Expenses decrease equity. Expenses are the costs of providing products and services to customers.

This area of accounting includes business regulation and law enforcement

Government and not-for-profit agencies

Which of the following statements represent(s) how expenses affect equity? (Check all that apply) If expenses increase, then total equity increases. If expenses decrease, then equity will decrease. Higher expenses result in lower total equity. If expenses increase, then total equity decreases.

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

Jack Pickle decided to start a small business as a corporation. His initial investment was $4,000 cash in exchange for common stock. Demonstrate how to record this transaction in the accounting equation.

Increase Cash by $4,000; Increase Common Stock by $4,000.

To record the purchase of supplies for cash, the correct entry into the accounting equation would include an increase to (Equipment/Supplies/Cash) and a decrease to (Equipment/Supplies/Cash).

Increase Expenses and decrease Cash.

Which statement below defines accounting?

It identifies, records, and communicates business transactions.

A (proprietorship/partnership/corporation/LLC)______ is a business entity legally separate from its owners who are referred to as members.

LLC

Given the following list of accounts, identify which are classified as assets. Select all that apply. Multiple select question. Common Stock Land Wages Payable Accounts Receivable Supplies Dividends Equipment Cash

Land Accounts Receivable Supplies Equipment Cash

Given the statements below, choose the most accurate definition of dividends.

Outflows of cash or other assets paid to the owners of a corporation

This area of accounting is where employees work for businesses

Private accounting

This area of accounting includes offering tax advice and auditing services

Public accounting

Select internal users of accounting information from the choices below. (Check all that apply.) Multiple select question. Lenders Customers Purchasing managers Research and development managers

Purchasing managers Research and development managers

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 word for each blank. ABC Co. would increase the Accounts (Payable/Receivable)__________ account and increase the (Cash/Revenue)____________ account in the accounting equation.

Receivable, Revenue

All of the following are part of the FASB conceptual framework: (Select all that apply). Multiple select question. Recognition and measurement Assumptions Principles Elements Qualitative characteristics Objectives

Recognition and measurement Elements Qualitative characteristics Objectives

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.

Identify which of the following lists of accounts would belong on the statement of retained earnings.

Retained earnings and Dividends

The definition of revenues includes which of the following statements? (Check all that apply.) Multiple select question. Revenues are the sales of products or services to customers by a business. Revenues are resources owned or controlled by a company. Revenues increase equity. Revenues are creditor's claims against the company.

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

Which of the following statements is correct regarding revenues? Multiple choice question. Revenues cause equity to decrease. Revenues will cause assets to decrease. Revenues cause equity to increase. Revenues do not affect equity.

Revenues cause equity to increase.

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

SEC

Identify the broad opportunity areas of accounting. (Check all that apply.) Multiple select question. Mechanical Taxation Financial Managerial Sales

Taxation Financial Managerial

Given the following list of accounts, identify which are classified as liabilities. (Check all that apply.) Taxes Payable Wages Payable Dividends Common Stock Accounts Payable Accounts Receivable Notes Payable Cash

Taxes Payable Wages Payable Accounts Payable Notes Payable

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.

Which of the following statements explain(s) how the accounting equation applies to businesses? The equation reflects the fact that, at any point in time, total revenues will always equal total liabilities and assets. The equation states that Revenues - Expenses = Assets. The equation states that Assets = Liabilities + Equity. 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 equation applies to all transactions and events. The relation of assets, liabilities and equity is reflected in the equation.

The equation states that Assets = Liabilities + Equity. 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 equation applies to all transactions and events. The relation of assets, liabilities and equity is reflected in the equation.

The correct definition of a balance sheet includes which of the following statements? (Check all that apply.) Multiple select question. The statement reports revenues and expenses over a period of time. The statement explains the changes in equity over a period of time. The statement reports assets, liabilities and equity at a point in time. The statement reports the financial position of a company at a point in time. The statement reports the equality of the accounting equation at any point in time.

The statement reports assets, liabilities and equity at a point in time. The statement reports the financial position of a company at a point in time. The statement reports the equality of the accounting equation at any point in time.

The heading of every financial statement contains several line items. Identify the correct items from the list below. The auditor of the financial statement The date the financial statement was prepared The title of the statement The company name. The date or time period the financial statement covers

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

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.

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

An internal user of accounting information is: (Check all that apply.) Multiple select question. a customer. a marketing manager. a user who is directly involved in managing and operating an organization. a user who is not directly involved with running a business. a human resource manager.

a marketing manager. a user who is directly involved in managing and operating an organization. a human resource manager.

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

analytics or data analytics

Ethics are defined as: (Check all that apply.) beliefs that distinguish right from wrong. determining the value of financial information in a business. accepted standards of good and bad behavior. choosing the alternative that will increase the net income of the company.

beliefs that distinguish right from wrong. accepted standards of good and bad behavior.

Select the account that would be decreased if Hillary's Hair Salon pays $40 in dividends. Multiple choice question.

cash

A company pays dividends to its shareholders. Record this transaction in the accounting equation by decreasing the (cash/dividends)_________ account and (increasing/decreasing)_________ the Dividends account.

cash, increasing

The FASB conceptual framework consists of all of the following except: Multiple choice question. elements qualitative characteristics objectives recognition and measurement concepts

concepts

The constraint that states that information disclosed by the entity must have benefits to the user which are greater than the costs of providing it is called:

cost-benefit

Dividends cause a(n) (increase/decrease)__________ in equity and are recorded directly in (common stock/dividends/equity)___________

decrease, dividends

A customer of Landen Consulting Company makes a $400 payment of cash on a bill for services provided last month. Record the receipt of cash in the accounting equation of Landen Consulting by: (Check all that apply.) Multiple select question. increasing Revenue, $400. decreasing Accounts Receivable, $400. decreasing Accounts Payable, $400. increasing Cash, $400.

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

Jackson Company 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 statement of retained earnings explains changes in equity from net income (or loss) and from any ______ over a period of time. (Select the accounts below which will correctly complete this question.)

dividends

The four general accounting principles include: (Check all that apply). Multiple select question. going concern business entity expense recognition measurement time period full disclosure revenue recognition

expense recognition measurement full disclosure revenue recognition

The principle which states that a company should record expenses it incurred in the same period as the revenue it generated is known as the

expense recognition principle

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

external

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

false

The details behind the financial statement are often disclosed in the

footnotes to the statements

The accounting assumption which presumes that a business will continue operating is called the:

going-concern

Describe the order in which a company prepares financial statements.

income statement statement of retained earnings balance sheet statement of Cash flow

owner investments cause a(n) (increase/decrease) _________ in equity.

increase

The definition of revenues is: Revenues (increase/decrease)______ (liabilities/equity)__________ and are earned from the sale of products and services.

increase, equity

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

increasing Cash and decreasing Accounts Receivable.

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

increasing Cash; increasing Common Stock

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

increasing Supplies, and increasing Accounts Payable

On February 1, Russell's Consulting Services Company provided $1,000 of services to the local college. On February 1, Russell's collected $700, and the college will pay the balance next month. Record this transaction in the accounting equation on February 1 for Russell's Consulting Service by:

increasing both Cash and Accounts Receivable; and increasing Revenues

Managerial accounting is focused on the needs of

internal users

Buying and selling of long-term assets such as land and equipment would be included in the (operating/investing/financing)_____ activities section of the statement of cash flows.

investing

The three sections of the statement of cash flows includes all of the following: investing financing cash operating accounting

investing financing operating

A company that loans money to an organization is a(n) Multiple choice question.

lender

The accounts payable account is a(n) ______ account.

liability

A(n) (proprietorship/partnership/corporation/LLC) ______ is a business owned by two or more partners.

partnership

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

payable, cash

According to the fraud triangle, the three factors that must exist for a person to commit fraud include __, __, and __. incentive rationalization pressure opportunity justification

rationalization pressure opportunity

Recording transactions and events is known as

recordkeeping or bookkeeping

Each of the following are one of the four areas of accounting opportunities except regulators managerial financial taxation

regulators

Equity is composed of contributed capital and ________ __________

retained earnings

The principle which says that revenue is recognized when goods or services are provided to customers at an amount expected to be received from the customer is known as the

revenue recognition principle

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.

revenues, expenses

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.

revenues, expenses

Net income is calculated using the following formula: (expenses/revenues/assets)______ minus (expenses/revenues/assets)________ = Net income. Use one word for each blank.

revenues, expenses

An owner of a corporation is called a

shareholder

Given the statements below, choose the most accurate definition of owner investments. Multiple choice question. Assets earned from a company's earning activities Resources owned or controlled by a company Cost of assets or services used to earn revenues Stock issuances

stock issurances

To record the purchase of supplies for cash, the correct entry into the accounting equation would include an increase to (Equipment/Supplies/Cash)_________ and a decrease to (Equipment/Supplies/Cash)_________.

supplies, cash

True or False: The date line of a balance sheet lists one specific day and not a period of time. True false question.

true

True or false: Both U.S. GAAP and IFRS include similar standards for accounting.

true

True or false: Dividends are resources paid to the owners of a corporation.

true

True or false: Dividends are resources paid to the stockholders.

true

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

visualization or data visualization

Jacob's Chocolates had beginning retained earnings of $4,000; net income of $10,000; and dividends of $300, calculate the ending balance in the retained earnings account.

$13,700