Accounting Chapter 2 Exercise Q's
True or false: The purchase of supplies on account impacts both the balance sheet and income statement.
False bc
True or false: The balance sheet must be prepared before the statement of changes in stockholders' equity.
False bc The balance sheet is prepared using ending balances from the statement of changes in stockholders' equity
On September 1 of Year 1, a law firm collected cash for services to be provided in Year 2. Based on this information, how would the recognition of earned revenue affect the Year 2 income statement and statement of cash flows?
Net income will increase and cash flows will not be affected.
balance sheet
The balance sheet shows the financial position at a point in time, not the benefits.
Expenses that are recognized before cash is paid are called
accrued
The entry to recognize accrued salary expense is called a(n)
adjusting entry
Which of the following are reported on the income statement?
advertising expense, consulting expense
Accounts receivable is a(n)
asset
Cash payment for salary expense is a(n)
asset use
Assets, liabilities and stockholders' equity at a particular point in time are reported on the
balance sheet
Incurring a cash expense affects
balance sheet, statement of cash flows only/ changes in stockholders equity, income statement
Which of the following are found on the statement of changes in stockholders' equity?
beginning retained earnings, dividends
When an employee works in Year 1 but is paid in Year 2, ______.
both an expense and liability are recorded in Year 1, there is no income statement affect in Year 2, there is no cash flow affect in Year 1
When a company collects an account receivable, ______.
cash increases, revenue is not affected, accounts receivable decreases
Recognizing a cash expense will ______.
cause a decrease in the net cash flow from operations shown on the statement of cash flows cause the amount of assets shown on the balance sheet to decrease
Issuing stock for cash increases ______.
common stock, stockholders equity, assets, cash flow from financing activities
Net income and cash flow from operating activities will ______.
differ due to accrual accounting used on the income statement
Acquiring cash from the issue of common stock ______.
doesn't affect the income statement
Recognizing accrued expense is a claims___ transaction
exchanged
An economic sacrifice resulting from operating activities undertaken to generate revenue is a(n)
expense
Signing a contract to provide future services
has no effect on the financial statements
The total benefits, both cash and other items, received from operating the business are shown on the ______.
income statement
Recording accrued salary expense impacts the
income statement, balance sheet
Acquiring cash by issuing common stock _
increases common stock increases cash
The cash payment of salary expense:
is a cash outflow from operating activities decreases Retained Earnings by the payment amount
Salaries payable represents an ______ in the future.
obligation to pay employees cash in the future
Adjusting journal entries
only update accounting records
When an accrued expense is recognized, total claims ______.
remain unchanged
When the Accrued Salaries Expense account is closed,
retained earnings decreases salaries expense decreases
A company recognized an accrued salary expense in Year 1 and paid its employees in Year 2. In Year 2 ______.
salaries expense will not be affected salaries payable will decrease cash will decrease
An obligation to pay cash to employees in the future is normally called
salaries payable
When a company recognizes an accrued salary expense, ______.
salaries payable increases expenses increase cash is not affected
Which of the following accounts is closed at the end of the accounting cycle?
salary expense
A company recognized an accrued salary expense in Year 1 and paid its employees in Year 2. The financial statements affected in Year 2 are the
statement of cash flows balance sheet
statement of cash flows
this only shows cash benefits
Earning service revenue on account means cash
will be collected in the future, even though the related service has been performed
When an employee works in Year 1 but is paid in Year 2, the company must recognize an expense in Year(s)
1 only
Recognizing revenue on account will
-cause an increase in the amount of net income shown on the income statement -not affect the statement of cash flows
Closing entries are examples of ______ transactions.
Claims exchange
Recognizing revenue on account affects the financial statements by increasing:
Retained earnings, accounts receivable, revenue, net income
income statement
The total benefits, both cash and other items, received from operating the business are shown on the ______.
statement of changes in stockholder's equity
This shows only the "net" benefits (i.e. net income), not the total benefits (i.e. revenue)
Accrued salary expense occurs when an employee ______.
Works year 1, but is paid year 2