Accounting Exam 1

recognizing accrued expense is a claims _____________ transaction

exchange

investors and creditors rely on ________ accounting

financial

investors and creditors rely on _______________ accounting to meet their information needs

financial

external users such as; investors, creditors, lawyers

financial accounting

- issuing common stock - paying dividends - borrowing cash - repaying principle balances

financing activities

issuing stock for cash

financing activity

paying a dividend to stockholders

financing activity

the measurement rules established by the financial accounting standards board are called ?

generally accepted accounting principles (GAAP)

Providing services on account ______.

has no effect on the statement of cash flows

most companies report what statement first ?

income

The total benefits, both cash and other items, received from operating the business are shown on the ______.

income statement

acquiring cash from the issue of common stock does not affect

income statement

how the business performed during a specific accounting period =

income statement

When a company collects cash from an account receivable, cash ______.

increases and accounts receivable decreases

When a company borrows money by issuing a note, the balance in the cash account ______.

increases and the balance in the notes payable account increases

- purchasing land - purchasing a vehicle - selling vehicle

investing activities

buying and selling long term assets =

investing activity

- cash flow from financing activity - stockholder's equity - common stock - assets

issuing stock for cash increases

what is not provided by a CPA?

legal

- obligations to repay creditors - sources of assets

liabilities

in accounting terms, the obligations of a business owes to its creditors are called

liabilities

total assets =

liabilities + stockholders equity

When a company recognizes accrued salary expense, ______.

liabilities increase

companies are not required to follow GAAP for _______________ accounting reports

management

internal users such as; stakeholders, employees, managers

managerial accounting

business that make and sell goods to other people are what type of business?

manufacturing

a group of people or entities organized to exchange items of value

market

accounting term can be used to describe organizations that are not motivated by earnings =

nonprofit

acquiring cash from common stock does what to the income statement?

nothing it is not a revenue

purchasing and selling short term assets

operating activity

statement in changes of stockholder's equity captures info related to the company's ___________

owners

users of accounting information are called _______________.

stakeholders

which financial statement reports effects on common stock and retained earnings?

statement of changes in stockholders equity

creditors are motivated to provide resources to businesses in return for what?

the receipt of interest payments

Gomez Company borrowed $10,000 from the State Bank on April 1, Year 1. The one-year note has a 6% rate of interest. On the Year 1 statement of cash flows, the amount of cash flow from operating activities reported by Gomez is ______.

zero Reason: The total amount of cash is paid at the maturity date March 31, Year 2. Accordingly, zero would be paid in Year 1.

what happens when you collect an accounts receivable?

- accounts receivable decreases - revenue not affected - cash increases

investors are motivated to provide resources to businesses because they receive ...

- an ownership interest in the business - a share of the companies earnings

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 ______.

- balance sheet - statement of cash flows because cash decreased on balance sheet which means statement of cash flows decreased

the amount of cash dividends a company can pay are limited to the company's _________ & _____________

- cash - retained earnings

Providing services on account will ______.

- cause a increase in the amount of retained earnings shown on the statement of changes in stockholders equity - cause an increase in the amount of net income shown on the income statement

stockholder's equity may be divided into

- common stock - retained earnings

the market for business resources involves ____________ ______________ & ________________.

- consumers - conversion agents - resource owners

asset source transactions include

- earning through profitable operations - issuing common stock for cash - borrowing money

A change in stockholders' equity is caused by ______.

- earnings - incurring a cash expense - issuing stock

profit is also called

- earnings - income

Acquiring cash by issuing common stock ______.

- increases common stock - increases cash

Grey Company earned $5,000 of revenue on account during Year 1, but collected the cash associated with the receivables in Year 2. Based on this information alone, under accrual accounting, the company will report ______.

- net income of zero and cash inflow from operations of $5,000 in Year 2. - net income of $5,000 and cash inflow from operations of zero in Year 1.

the difference between the cost of a product/service and the selling price of that product/service is what?

- profit - earnings - income

the market for business resources involves who?

- resource owners - consumers - conversion agents

common stock and retained earnings are

- sources of assets - commitment to investor

liabilities may be viewed as

- sources of assets - obligations of the business

other terms for investors =

- stockholders - owners

who relies on accounting information to evaluate which businesses are worthy of receiving resources?

- workers - investors

Recognizing an expense on account affects the ________.

-Balance sheet -Income statement -Statement of changes in stockholders equity

Providing services on account affects the ______

-Balance sheet -Statement of changes in stockholders equity -Income statement

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

True or false: A company recognized an accrued salary expense in Year 1 and paid its employees in Year 2. In Year 2 neither Salaries expense nor Salaries payable will change as a result of this transaction.

False Reason: Salaries expense will not change, but Cash and Salaries payable will.

Issuing a note to borrow money affects the ______.

Statement of cash flows Balance sheet

- assets = liabilities + stockholders equity - assets = claims - assets = liabilities + common stock + retained earnings

accounting equation

relationship between a business's assets and claims on its assets is expressed in what equation

accounting equation

economic occurrence that changes assets, liabilities, or stockholder's equity is called

accounting event

accounting equation is maintained in records called

accounts

When a company recognizes an expense on account ______.

accounts payable and expenses increase

to recognize the revenue before you get cash

accrual accounting

accounting information is used by

all businesses and organizations

what is a business asset?

an obligation to repay debt

What is this describing? - auditors report - MD&A - financial statements - notes to financial statements

annual report

yearly document is called

annual report

used to describe interrelationships among the financial statements

articulation

accounts receivable is an

asset

The collection of cash in settlement of an account receivable is a(n) ______ transaction. Multiple choice question. asset use

asset exchange

one asset account decreases, one increases =

asset exchange transaction

event that increases total assets and total claims is an __________ __________ transaction

asset source

A cash payoff of an account payable is a(n) ______ transaction.

asset use

event that causes assets and liabilities to decrease is what type of transation?

asset use transaction

Issuing a note to borrow money increases ______.

assets liabilities

Interest on a Notes Payable is recognized ______.

at the end of the accounting period

The financial statements affected when a company pays cash to settle an accounts payable are the ______,

balance sheet statement of cash flows

expenses are recognized __________ cash is paid is called accrued expenses

before

When a company pays cash to settle an account payable, ______

both cash and accounts payable decrease

When a company pays cash to settle an account payable, ______.

both cash and accounts payable decrease

liability, common stock, and retained earnings do not contain

cash

recognizes cash only when you get the cash

cash basis accounting

date on income statement is the same as what other statement

cash flows

dates for what statement? - for the year ended Dec 31, Year 3 - for the quarter ended June 30, Year 2 - for the month ended April 30, Year 1

cash flows and income statement

CPA =

certified public accountant

Recognizing an accrued expense is a(n) ______ transaction.

claims exchange

when a business grants an investor an ownership interest in a business, the specific commitments made to the investor are described in certificates called

common stock

stockholder's equity =

common stock + retained earnings

an accounting event is a(n) ______________

economic transaction that changes enterprise

the accounting equation is composed of _________ called assets, liabilities, and stockholders equity

elements

asset use transactions ______________ the total amount of assets + total amount of claims

decrease

recognizing cash expense will cause the amount of cash to _________ and revenue to _______________

decrease, decrease

Declaring and paying a cash dividend ______.

decreases cash and retained earnings

Recognizing an expense on account ______.

decreases net income increases expenses

when an accrued expense is recognized, total claims do what?

remain unchanged

assets - common stock - liabilities =

retained earnings

which account is affected by recognition of expenses?

retained earnings

economic benefit that a company derives from providing goods and services to its customers called _________

revenue