Accounting Chapter 1

On 6/25, supplies costing $1,000 were purchased, but only $400 of this amount was paid on 6/25. The remainder of the bill was on credit. To record this transaction on 6/25: supplies would be increased by $____; cash would be decreased by $______ and accounts payable would be increased by $_______.

1,000, 400, 600

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

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

Which statements below define a liability?

A creditor's claims on the assets of a business Obligations to provide assets, products or services to others An amount owed to a creditor

An internal user of accounting information is:

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

What is a shareholder?

An owner of a corporation

Identify the expanded accounting equation from the options below.

Assets = Liabilities + Common Stock - Dividends + Revenues - Expenses

Which of the following correctly depicts the accounting equation?

Assets = liabilities + equity

The expanded accounting equation is defined as: ______ = Liabilities + Common stock + _________ - __________ - Dividends.

Assets; revenue; expenses

Ethics are defined as

Beliefs that distinguish right from wrong Accepted standards of good and bad behavior

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

Business entity

Given the following lists of accounts, choose the one that includes ONLY assets

Cash, building, accounts receivable, supplies

Which statements below define equity?

Claims of the owner(s) on the asset of the business Equity equals assets minus liabilities

A ________ is a separate entity with the same rights as a person.

Corporation

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

Smith Company purchased $100 of supplies for her business and paid immediately. She would record this transaction in the accounting equation by which of the following?

Decrease cash; increase supplies

Dividends

Decrease equity and are the assets removed from the company and paid to the stockholders

Dividends cause a(n) ______ in equity and are recorded directly in _____ account.

Decrease, dividends

Expenses

Decreases equity and are the cost of assets or services used to earn revenue

From the following statements, select the one that describes the effect of dividends on equity.

Dividends cause equity to decrease

An external user of accounting information

Does not directly run the organization

All of the following are part of the FASB conceptual framework:

Elements Objectives Recognition and measurement Qualitative characteristics

When using the accounting equation, recording the purchase of equipment for cash would include an increase to the _______ account and a decrease to the _______.

Equipment, cash

Johna's Plant Nursery Company pays the salaries of its two employees. How will this transaction affect the accounting equation?

Equity will be decreased Salaries expense will be increased

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

Given the accounts below, choose all of the ones that affect equity.

Expenses Dividends Revenues Common Stock

The definition of expenses include which of the following statements:

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

Which of the following statements describes the effect of expenses on equity?

Expenses cause equity to decrease

A company pays monthly office rent of $1,500 in cash. Demonstrate how to use the accounting equation to record the transaction by completing the following sentence: The company would increase _______ and ________ _______ in the accounting equation.

Expenses, decrease, assets

A company pays monthly office rent of $1,500 in cash. Demonstrate how to use the accounting equation to record the transaction by completing the following sentence: the company would increase ______ and _______ ________ in the accounting equation.

Expenses, decrease, assets

The SEC has delegated the task of standard setting to:

FASB

The details behind the financial statement are often disclosed in the:

Footnotes to the statements

The principle that states that a company should report the details behind the financial statements which would impact users' decisions is called the:

Full disclosure principle

The revenue recognition principle states that revenue is recognized when:

Goods or services are provided to customers

Which of the following statements represent(s) how expenses affect equity?

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

Ethical decision making steps in correct order:

Identify ethical concerns Analyze options Make ethical decisions

Owner investments cause a(n) ________ in equity.

Increase

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

Investments

Increase equity and are assets an owner puts into the business

Revenues

Increase equity and are the assets earned from a company's earning activities

Bob's Bakery receives its utility bill of $800 for the month and pays it immediately. Record this transaction in the accounting equation.

Increase expenses and decrease cash

The correct definition of revenue is: revenues _______ _________ and are earned from the sale of products and services.

Increase, equity

On May 1, Mary's Morsels Company provided catering services at a wedding. The bride is billed $4,000 and will pay during the following month. Record this transaction on May 1 in the accounting equation of Mary's Morsels by:

Increasing accounts receivable and increasing revenue

Russell's Consulting Services Company provided $1,000 of services to the local college and immediately collected $700, but the college wants to pay the rest next month. Record this transaction in the accounting equation for Russell's Consulting Service by:

Increasing both cash and accounts receivable; and increasing revenues

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

Increasing cash and decreasing accounts receivable

A customer of Landen Consulting Company makes a $400 payment of cash on a bill for services provided last month. Record this transaction in the accounting equation of Landen Consulting by:

Increasing cash, $400 Decreasing accounts receivable, $400

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

Jackson's Catering Company provided cookies worth $3,000 to the local college. The college paid immediately. Record this transaction in Jackson's accounting equation by:

Increasing cash; increasing revenues

Jackson Company purchased office equipment costing $3,000 for his business and paid immediately. Record this transaction in the accounting equation by:

Increasing equipment; decreasing cash

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

Increasing supplies, and increasing accounts payable

How would you characterize a company's accounts receivable account?

It is an asset account

A ________ is a business entity legally separate from its owners who are called members.

LLC

The Accounts Payable account is a(n) _____ account.

Liability

A lender (creditor):

Loans money or other resources to a business

Another name for the expense recognition principle is:

Matching principle

In addition to the cost-benefit constraint, two other constraints include:

Materiality Conservatism

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

Measurement

The principle which states that accounting information is based on actual cost is called the:

Measurement principle

The accounting assumption related to expressing transactions and events in monetary units is called the:

Monetary units

Other names for equity in a corporation include:

Net assets

Given the following list of accounts, identify which are classified as liabilities:

Notes payable Taxes payable Accounts payable Wages payable

The three factors that must exist for a person to commit fraud include ________, _________, and _______.

Opportunity, pressure, rationalization

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

Outflow of resources to stockholders

Which of the following statements is correct regarding owner investments?

Owner investments cause equity to increase

A _______ 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 transaction in the accounting equation of Bob's Bakery by decreasing the accounts _____ account and decreasing the _______ account.

Payable, cash

An employee that has unpaid bills might exhibit the following fraud factor:

Pressure

The FASB conceptual framework consists of all the following except:

Quantitative

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 account equation by completing the following sentence. ABC Co. would increase the accounts _______ account and increase ______ account in the accounting equation.

Receivable, revenue

Generally accepted accounting principles (GAAP) wants information to have:

Relevance Faithful representation

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.

Which of the following statement(s) below define(s) an asset?

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

Equity is composed of contributed capital and ______ ______.

Retained earnings

A corporation's equity has two main parts. Identify these two parts:

Retained earnings & contributed capital

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:

Revenue recognition principle

The four major types of transactions that affect equity in a business are _____ accounts, ______ accounts, dividends and common stock.

Revenue, expense

Which of the following statements is correct regarding revenues?

Revenues cause equity to increase

Which of the following statements is/are true regarding the effect of revenues on the equity of a business?

Revenues cause equity to increase Revenues that increase equity have many forms, such as consulting services and commission from services

The definition of revenues includes which of the following statements?

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

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

SEC

Identify the correct definition of an asset:

Something of value that a business owns or controls

Given the statements below, choose the most accurate definition of owner investments.

Stock issuances

Given the following list of accounts, identify which are classified as assets.

Supplies Accounts receivable Building Cash Land

To record the purchase of supplies for cash, the correct entry into the accounting equation would include an increase to _______ and a decrease to _______.

Supplies, cash

Given the following lists of accounts, choose the one that contains ONLY liabilities.

Taxes payable, accounts payable, wages payable

Identify the roles of the International Accounting Standards Board (IASB) and International Financial Reporting Standards (IFRS):

The IASB issues IFRS to increase compatibility of accounting reports between companies in different countries. The IASB issues IFRS that identify preferred accounting practices. The FASB and IASb are working to reduce differences between U.S GAAP and IFRS.

When recording transactions into the accounting equation, which of the following statements are correct?

The accounting equation must always remain in balance

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.

When supplies are purchased on credit that means that:

The business will pay for the supplies at a later time The accounts payable account will be increases A liability has been incurred

When supplies are purchased on credit it means that:

The business will pay for the supply at a later time A liability has been incurred The accounts payable account will be increased

When a business provides a service to a customer "on credit," it means that:

The business will receive payment for its services at a later time. Accounts receivable will be increased An asset has been created or increased

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

The claims of the owner on the assets of a business

What are Generally Accepted Accounting Principles?

The concepts and rules that govern financial accounting practice

Which of the following statements explain how the accounting equation applies to businesses?

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 The relation of assets, liabilities and equity is reflected in the equation.

Which of the following statements best represents 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.

T/F: Both US GAAP and IFRS include similar guidance for accounting.

True

T/F: by definition, owner investments cause increase equity and are called stock issuances.

True

T/F: dividends are resources paid to stockholders.

True

Identify which of the following statements is correct as to why accounting is important.

We live in an information age whereby accounting information impacts everyone

Which of the statements correctly represents the accounting equation?

What the business owns will always equal what it owes to creditors and owners