Accounting Chapter 2

The Accounting Cycle

1.The preparation of general journal entries. 2.Posting these general journal entries to the ledger 3.The preparation of a trial balance before adjustment

An owner investment of a building,valued at $100,000 with an outstanding $85,000 mortgage,into the business will (Assume the business takes over the mortgage)

100,000 -85,000 ___________ 15,0000 B.Increase stockholder's equity by $15,000

The beginning cash account was $5,000.At the end of the period,the balance was $6,200.If total cash paid out during the period was $24,600,the amount of cash receipts was?

6,200 -5,000 _______ 1,200 24,600 +1,200 _______ 25,800 C.

When a double-entry accounting system is used

A debit entry is recorded on the left-hand side of a T-account

Trial Balance

A list of all the ledger accounts with their balances

Which of the following is not a temporary retained earning account? A.common stock B. Salary expense C.Service Revenue D.Dividends

A.Common Stock

The Journal entry to record the purchase of supplies on account consists of a

A.Debit to supplies and a credit to accounts payable Supplies XX AP XX

Which of the following statements is false? A.Dividends are increased by credits B.Assets are increase by debits C.Revenues are increased by credits D. Liabilities are decreased by debits

A.Dividends are increased by credits

Which of the following transactions would increase an asset and increase SE? A.Performing a service on account for a customer B.Collecting cash from a customer on an AR c.Borrowing money from a bank D.Purchasing supplies on account

A.Performing a service on account for a customer AR XX Rev XX

Waco Building supply paid $7,000 on accounts payable related to inventory purchased in #23

AP 7,000 cash 7,000

Waco Building Supply made credit sales of $2,000

AR 2,000 Revenue 2,000

What is an account?

An account is simply is a place to group and summarize all of the transactions that affect one particular asset,liability,equity,revenue,expense,gain or loss item.

Double-entry Accounting

An accounting system that uses debit and credits to record the dual effects of each business transaction;each transaction affects at least 2 accounts.

List 3 Permanent Accounts

Assets,Liabilities and Equity

Permanent (Real ) Accounts

Assets,Liabilities, and Equity Accounts (BS).

Receiving payment from a customer on account (collection of an account receivable) will A.Increase total assets B. Have no effect on total assets C.Decrease liabilities D.Increase stockholder's equity

B. Have no effect on total assets Cash XX AR XX

Accounts Payable had a normal beginning balance of $1,000.During the period,there were debit postings of $600 and credit postings of $400.What was the ending balance?

B.800 credi

Which of the following statement is false? A.A trial balance is a listing of all accounts with their current balances B.A trial balance is the same as a balance sheet C.A trial balance is used to check on the equality of debits and credits D. A trial balance may be taken at any times

B.A trial balance is the same as a balance sheet

The Journal entry to record an owner investment of land and building into the business includes a?

B.Debit to land and a credit to common stock Land XX CS XX

Purchasing a building for $100,000, by paying cash of $20,000 and obtaining a mortgage for $80,000 will

B.Increase both total assets and total liabilities by $80,000 building 100,000 cash 20,000 mortgage 80,000

A debit entry to an account

B.Increases assets

Waco Building Supply purchased $10,000 worth of inventory on account

Inventory 10,000 Accounts Payable 10,000

Waco Building Supply Purchased $5,000 worth of inventory for cash

Inventory 5,000 Cash 5,000

Accrual Accounting

Record all events (transactions) that have a financial impact on a business an that can be measured reliably (when a business performs a service,makes a sale,or incurs an expense)

Cash Accounting

Record only those transactions that affect cash

SE Retained Earning

Retained Earning debit (-)/credit (+) Expenses Debit (+)/Credit (-) Dividends Debit (+)/Credit (-) Common Stock Debit (-)/Credit (+)

Calculate Income statement

Revenues -expenses =net income

Temporary(Nominal) Accounts

Revenues,Expenses,Gains and Losses (IS),dividends.Balances

List 5 temporary accounts

Revenues,Expenses,Gains and Losses,Dividends

Credit

Right Side

Increases in liabilities are recorded on the?

Right Side- credit side

What is the effect on total assets and stockholder's equity of paying the electrical bill as soon as it is received each month?

Utility expense XX Cash XX Total assets decrease,Equity decrease

Generally Accepted Accounting Principles

businesses use accrual accounting

Business record revenues as they are _____ and expenses as they are _____.

earned and incurred- not necessarily when cash changes hands

Calculate Statement of Retained Earning

Beg Retained Earning +Net Income -Dividends =Ending Retained Earnings

If the debit amount of an entry to record the purchase of supplies on account is not posted:

C. Assets will be understated Supplies XX AP XX

The journal entry to record a payment on account will include a

C.Debit to accounts payable and a credit to cash AP XX Cash XX

Which of the following account types does not normally have a credit balance?

C.Expenses

What is the first place a transaction is recorded?

C.Journal

Purchasing office equipment will

C.have no effect on total assets,liabilities or SE Equipment XX Cash XX

Assets

Cash Accounts Receivable Inventory Notes Receivables Prepaid Expense Land Buildings Equipent Furniture Fixtures

An Owner Investment of cash into the business will

Cash XX CS XX A.Increase Total Assets

Stockholder's Equity

Common Stock-form of paid in capital Retained Earning-+ with net income Dividends-not an expense Revenues-+ Retained Earning Expenses

If the credit amount of an entry to record the payment of an account payable was not posted:

D. Assets will be overstated AP XX Cash XX

Purchasing Office Equipment on account will? A.Increase total assets B.Increase total liabilities C.Have no effect on Stockholder's equity D.All of the above

D.All of the above Equipment XX AP XX

Which of the following transactions would increase an asset and increase a liability? A.Payment of account payable B.Purchasing of office equipment for cash C.An owner investment of cash into the business D.Borrowing money from a bank

D.Borrowing money from a bank Cash XX NP XX

Performing a service on account will A.Increase total assets B.Increase SE C.Decrease total liabilities D.Both A and B

D.Both A and B AR XX Revenue XX

Which of the following lists gives the correct sequence of accounting procedures?

Journal,ledger,trial balance,financial statements

Debit

Left Side

Increases in assets are recorded on the?

Left side- debit side

Liabilities

Notes Payable Accounts Payable Accrued Liabilites

A doctor purchases medical supplies of $670,and pays $200 cash as a down payment and the rest on account.The correct journal entry for this transaction would be?

Supplies 670 Cash 200 AP

Which of the following errors can cause the trial balance to be out of balance?

The balance of an account is incorrectly computed

The list of all accounts with their balances is the

Trial Balance