Accounting Exam 1
income statement
"resources" generated during period
net income
- "resources" used up during period
Which of the following statements are correct regarding a T-account?
- A T-account represents a ledger account - A T-account will show the debits and credits of the transactions affecting the account.
Borrowing cash from a bank would result in which of the following?
- A debit to cash and a credit to notes payable.
For accounting information to be relevant, the information should:
- Allow users to assess past activities of the business - Allow users to predict future events of the business
Which of the following is used to record the summary of effects on one particular item?
- An account
Which of the following correctly describes the various financial statements?
- An income statement covers a period
Which of the following would most likely increase retained earnings?
- An increase in revenues
In what order would the items on the balance sheet appear?
- Assets, liabilities, common stock, and retained earnings
On balance sheet dollar signs are in front of the numbers:
- At the top and bottom of the asset section - At the top and bottom of the liabilities and stockholders' equity section
Accounts payable would be reported within which of the following financial statements?
- Balance sheet
Assets, liabilities, and stockholders' equity are all found within which of the following financial statements?
- Balance sheet
What are the categories of cash flows that appear on a statement of cash flows?
- Cash flows from operating, investing, and financing activities
The entry to record the issuance of $1 par value common stock to investors for $10 per share in cash results in an increase in:
- Common stock - Assets - cash - Additional paid in capital - Stockholders' equity
Which of the following would result when a company sells additional shares of common stock for cash?
- Common stock increases and a financing cash flow result.
Which of the following qualitative characteristics does the FASB use when deciding what financial information should be reported?
- Comparability - Understandability - Verifiability - Timeliness
Faithful representation exists when the information is:
- Complete - Neutral - Free from error
The formula for calculating the current ratio is:
- Current assets/by current liabilities
Which of the following would result when a company pays a previously declared cash dividend?
- Current liabilities are reduced, and a financing cash flow is created.
Describe where dollar signs are appropriate in financial statements.
- Dollar signs are used beside the first and last numbers in a column
Which of the following is represented by elements of the statement of stockholders' equity?
- Earnings not distributed to owners
what account balances would not be included in the calculation of the current ratio?
- Equipment
Transaction analysis is based on which two principles?
- Every transaction affects at least two accounts - The accounting equations remains in balance with each transaction
The dual effects concept states that:
- Every transaction has at least two effects on the accounting equation.
Posting a transaction refers to the transferring of dollar amounts to each account affected by the transaction in the:
- General ledger
Which financial statement would you use to determine a company's earnings performance during an accounting period?
- Income statement
Since 2002, there has been substantial movement toward the adoption of international financial reporting standard (IFRS) issued by the:
- International accounting standards board
The international accounting standards board has worked to develop global accounting standards known as:
- International financial reporting standards
Which of the following correctly describes retained earnings?
- It is the cumulative earnings of a company less dividends declared
Which of these balance sheet line items is most likely a result of an investing activity?
- Land
A T-account is simplified representation of a:
- Ledger account
What are the basic decisions made by external users of accounting information?
- Lending decisions - Investing decisions
The separate entity assumption assumes the balance sheet of a corporation reports:
- Only the results of the business's activities
what is posting a transaction
- Posting means to transfer journal information to a ledger.
what best describes liabilities?
- Probable debts or obligations of an entity because of past transactions, which will be paid with assets or services.
Which of the following characteristics are needed for accounting information to be useful?
- Relevance - Faithful representation
The ability to conforms past events and to predict future activities are components of which primary qualitative characteristic?
- Relevant information
what best describes assets?
- Resources with probable future economic benefits owned by an entity because of past transactions.
Which of the following equations best describes the income statement?
- Revenue-Expenses = Net income
Which of the following is not considered to be a recordable transaction?
- Signing a contract to have an outside cleaning service clean office nightly.
When a business issues common stock, what does it give to its owners?
- Stock certificates
Which of the following reflects the impact of a transaction where $370,000 cash was invested by stockholders in exchange for stock?
- Stockholder's equity and assets each increased $370,000
When recording journal entries which account titles are indented?
- The account titles that are credited
What describes the amount of insurance expense reported on the income statement?
- The amount of insurance used up (incurred) in the current period to help generate revenue
A company purchases a delivery van by paying $9,000 cash and by signing a $29,000 note payable. Which of the following correctly describes the recording of the delivery van purchase?
- The delivery van account is debited for $38,000
Where is dividends both reported on?
- The dividends reported on the statement of stockholders' equity are also reported as dividend expense on the income statement.
What does the income statement affect?
- The income statement affects the results of the statement of stockholders' equity
Which of the following transactions will not change a company's total stockholders' equity?
- The purchase of a factory building
what best describes liabilities and stockholders' equity?
- They are the sources of financing an entity's assets
Why would a banker want a copy of a company's financial statements?
- To decide if a company is doing well enough to repay the amounts it has borrowed.
Which of the following describes the primary objective of the balance sheet?
- To report the financial position of the reporting entity at a particular point in time
When a company buys equipment for $152,000 and pays for one half in cash and the other one half is financed by a note payable, which of the following are the effects on the accounting equation?
- Total assets increased $152,000
Which of the following describes the impact on the balance sheet when a company uses cash to purchase the stock of another company?
- Total assets remain the same.
Select the statements below that are correct regarding entering transactions in a journal.
- Total dollar amount of debits must equal the total dollar amount of credits - Credited accounts should be indented
what is something debit and credits have in common?
- Total dollar amount of debits must equal the total dollar amount of credits.
Which of the following accounting cycle steps describes the process of recording journal entries?
- Transactions are recorded chronologically showing the accounts debited along with the corresponding accounts credited.
Which of the following statements is incorrect concerning balance sheets prepared under IFRS and GAAP?
- Under GAAP assets are usually listed in increasing order of liquidity, while under IFRS assets are usually listed in decreasing order of liquidity.
Financial information is enhanced when it is:
- Understandable - Verifiable - Timely - Comparable
Accounts are:
- Used to accumulate and report the effects of each different business activity.
The primary purpose of financial reporting is to provide:
- Useful information to providers of capital
What does the financial statement tell us?
- tell us different things about the resources of a corporation
Creditors hope to gain in two ways- they hope to receive dividends and to sell their shares at higher price.
- true o Investors, not creditors, hope to receive dividends and to sell their shares at a higher price. Borrowers are legally obligated to pay creditors interest, not dividends, and repay the principal.
Accrual Accounting
Accounting method where revenue or expenses are recorded when a transaction occurs rather than when CASH is received or paid.
Which of the following equations is the balance sheet equation?
Assets = Liabilities + stockholders' equity
List the steps in the accounting cycle in chronological order:
1. Analyze transaction 2. Record journal entries in the general journal 3. Post amounts to the general ledger 4. Adjusts revenues and expenses in the journal and post to the ledger 5. Prepare financial statements 6. Close revenues, expenses, gains, and losses to retained earnings.
what are the four basic financial statements?
1. Balance Sheet 2. Income Statement 3. Statement of Stockholder's Equity 4. Statement of Cash Flows
Which of the following would be classified as financing cash flows on a statement of cash flows?
1. Paying cash dividends 2. Issuing stock for cash
why do businesses have assets?
1. assets turn into, 2.sales turn into, 3. earnings/profits turn into, 4. cash
what is an example of financing activity?
Cash received from issuing common stock to stockholders is reported as a financing activity cash flow within the statement of cash flows
what is the bottom line of statement of retained earnings?
a company how profitable it was during a period and how much it has available for dividends and retained earnings. What's retained can be used to pay off debts, fund projects, or reinvest in the company.
Dividends
a portion of a company's earnings which it returns to investors, refers to a reward, cash or otherwise, that a company gives to its shareholders.
operating activity
all the things a company does to bring its products and services to market on an ongoing basis. Non-operating activities are one-time events that may affect revenues, expenses or cash flow but fall outside of the company's routine, core business.
What is common stock?
amounts invested in business by stockholders
what are resources?
are always equal to the sum of what the company owes and owns
What type of account appears on the left side of the accounting equation and is increased with amounts on the left side of T-accounts?
asset
Intangibles
assets that have no physical substance like patents or copyrights.
FASB
Financial Accounting Standards Board
GAAP
Generally Accepted Accounting Principles
what unit assumption states that financial statements elements should be measures in terms of the United States dollar?
Monetary
SEC
Securities and Exchange Commission
what basic questions does the income statement answer?
The Income Statement reports ability to sell goods for more than their cost to produce and sell. "are they making money"
what are some examples of financing activities?
borrowing and repaying short-term loans. Borrowing and repaying long term loans and other long-term liabilities.
· A company typically receives___________, an asset, when it issues stock to its owners.
cash
what are some examples of operating activities?
cash, goods sold, payments to employees, taxes, payment to suppliers.
CPA
certified public accountant
Current assets divided by current liabilities is the __________ ratio
current
The totals on a trial balance reveal whether the total ______ equal the total ________
debits, credits
· The trial balance is an internal report used to determine whether total debits________ total credits.
equal
· The line item, equipment, on the balance sheet results from_______________activity
investing
what kind of statement of cash flow activity is cash proceeds received from sale of invest in another company?
investing activities
what kind of statement of cash flow activity is purchase of property, plant, and equipment?
investing activity
Revenue
is earned when a company performs a service or delivers a good. - Increases in assets or settlements of liabilities from the major or central ongoing operations of the business
Expense
is incurred when a company uses ("uses up") resources in running the business. - Decreases in assets or increases in liabilities from ongoing operations incurred to generate revenue during the period.
The primary objective of financial reporting to external users
is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity.
Accounts are updated by posting the effects listed in the general _______________ to the respective accounts in the general ______________
journal, ledger
Assets appear on the___________ side of the accounting equation and are increased by amounts that appear on the _________ side of asset T-accounts.
left, left
Stockholders' equity is the residual interest in the assets of the entity after subtracting what?
liabilities
what is the statement of stockholders equity?
reports change in each stockholders' equity account during the period.
When information is complete, neutral, and free from error, it possesses the qualitative characteristics of faithful
representation
what basic questions does the balance sheet answer?
resources owned and financing those resources.
What accounts are temporary?
revenues, expenses, dividends
Liquidity
the ease with which an asset can be converted into cash
cash accounting
the other accounting method, which recognizes transactions only when payment is exchanged
Accumulated Depreciation
the total amount of the depreciation spending assigned to a particular asset since the asset was used.
what is the bottom line of a balance sheet
the total of assets, liabilities, stockholders equity
Financing Activities
transactions involving debt, equity, and dividends. Cash flow from financing activities provides investors with insight into a company's financial strength and how well a company's capital structure is managed.
true or false: An external event is a transaction the firm conducts with separate economic entity.
true
investing activity
· activities include purchases of physical assets, investments in securities, or the sale of securities or assets. Negative cash flow is often indicative of a company's poor performance.
what is the bottom line of an income statement?
Net income (or net loss if negative); also called earnings
what kind of statement of cash flow activity is cash paid for dividends to stockholders?
financing activities
what kind of statement of cash flow activity is repayment of borrowings?
financing activities
what does the statement of stockholders equity focus on?
focuses on what a company did with the resources generated through operating the company.
what basic questions does the statement of retained earnings answer?
includes information regarding a firm's retained earnings, along with the net income and amounts distributed to stockholders in the form of dividends.
· After entering a transaction into the accounting equation, an ___________ in total assets can be accompanied by an increase in total liabilities and _________
increase, equity
what are some examples of investing activities?
o Purchase of property plant, and equipment (PP&E), also known as capital expenditures o Proceeds from the sale of PP&E o investments of other businesses or companies o Proceeds from the sale of other businesses (divestitures) · Purchases of marketable securities (i.e., stocks, bonds, etc.) · Proceeds from the sale of marketable securities
what kind of statement of cash flow activity is cash paid to employees?
operating activities
what kind of statement of cash flow activity is income taxes paid?
operating activities
what kind of statement of cash flow activity is cash paid to suppliers?
operating activity
what kind of statement of cash flow activity is cash received from others?
operating activity
what are the three types of statement of cash flow?
operating, investing, and financing
what is retained earnings?
past earnings not distributed to stockholders
