accounting exam 1

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Clem Corporation issues 1,000 shares of common stock for $25,000. Clem purchased equipment for $10,000 by borrowing from the bank. Clem's total assets are

$35,000, Cash $25,000 + Equipment $10,000 = $35,000 total assets.

Prime Corp. has an ending balance in the accounts receivable account of $100,000. Prime recorded bad debt expense of $3,000. Prime has an ending balance in the allowance for uncollectible accounts of $7,000. What is the net accounts receivable balance?

$93,000

Tudor Corp. has an ending balance in the accounts receivable account of $20,000. Tudor recorded bad debt expense of $1,000. Tudor has an ending balance in the allowance for uncollectible accounts of $2,000. What is the net accounts receivable balance?

$18,000

Green Company has net credit sales of $100,000, an asset turnover ratio of 4, and a receivables turnover ratio of 9. What is the average collection period?

365/receivables turnover = 40.6 days

Which of the following transactions are examples of prepayments that will require an adjustment at the end of the accounting period on December 31?

A company pays a 6-month insurance premium at the beginning of October. A company pays for 4 months of advertising in the Wall Street Journal on November 1.

Which of these would be found on a company's balance sheet?

Accounts receivable Equipment Notes payable

Which of the following steps are necessary to reconcile the bank balance and the cash account balance

Adjust the company's cash balance for items not in company records Adjust bank's cash balance for items not in bank statement Record items that reconcile the company's cash balance

How do adjusting entries for accrued expenses affect liabilities and expenses?

Adjusting entries for accrued expenses can increase liabilities and increase expenses.

Which of the following statements describes the effect that adjusting entries may have on liabilities?

Adjusting entries increase liabilities for the amount of any accrued and unpaid expenses at the end of the period.

In a bank reconciliation, which of the following will require a journal entry by the company?

Adjustments to the balance per books for items discovered on the bank reconciliation that were not yet recorded on the books

If a transaction decreases cash by $100, the balance sheet will balance if which of the following occurs?

Another asset is increased A liability is decreased

Raven receives a 3-year note receivable from a customer for goods sold. How should Raven report this note receivable in its financial statements?

As a noncurrent asset

Where is inventory reported in the financial statements?

Balance sheet as a current asset

Amend Inc. debited Accounts Receivable and credited Allowance for Uncollectible Accounts to reestablish an account previously written off. Amend Inc. should also debit ______ and credit ______.

Cash; Accounts Receivable

When adjusting the company's cash account balance in a bank reconciliation, which item must be added to the cash account balance?

Collections of funds by the bank

The framework for designing an internal control system is provided by the

Committee of Sponsoring Organizations (COSO) of the Treadway Commission.

Which of the following appear(s) on the balance sheet?

Common stock Accounts receivable Utilities payable

Joyce determines that a customer account of $20,000 should be written off as uncollectible. The write off of the account will include which of the following entries?

Credit to Accounts Receivable Debit to Allowance for Uncollectible Accounts

Which of the following items are included in cash?

Currency and coins Balance in checking accounts Checks from customers

Clover Corporation uses the perpetual inventory system. When Clover purchases inventory on account, the entry will include which of the following?

Debit Inventory

Effective internal control over cash requires segregation of duties. Which of the following duties should be segregated?

Depositing checks into the bank and recording receipts in the accounting records Opening the mail and deposit of checks in the bank

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest cost of goods sold?

FIFO

Which inventory cost flow assumption is commonly used internally by companies that externally report under the LIFO cost flow assumption?

FIFO

The private sector organization that is currently responsible for setting accounting standards in the United States is the

Financial Accounting Standards Board.

Which of the following accounts are typically reported in the balance sheet of a manufacturing company?

Finished goods Raw materials Work in process

The allowance method is required by __

GAAP

If a company uses the periodic inventory system, how many entries are made when a sale occurs?

In a periodic system, the cost of goods sold entry is made at the end of the period.

Where is a note receivable reported in the balance sheet?

In either current or noncurrent assets, as appropriate.

Which of the following are financial statements?

Income statement Balance sheet Statement of stockholders' equity

Which of the following statements is correct regarding the adjusting entry to record interest accrued on a note payable?

Interest on the note payable is classified as an expense since it is a cost of borrowing.

Because prices change over time, costs reported for these accounts tend to differ among inventory cost methods.

Inventory Cost of Goods Sold

The definition of inventory includes which of the following items?

Items held for resale Items currently in production for future sale Materials used currently in the production of goods to be sold

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest pretax income?

LIFO

The cumulative difference between reporting inventory at LIFO rather than FIFO is commonly referred to as the

LIFO reserve

Who has final responsibility for internal controls?

Management

How do temporary accounts differ from permanent accounts?

Only temporary accounts are cleared out at the end of the accounting period.

Which of the following are detective controls?

Performance reviews Audits Reconciliations

On November 1, 2022, Movers, Inc., paid $24,000 for 2 years' rent beginning on November 1 (assume rent is the same amount each month). Movers' year-end financial statements as of December 31, 2022 will show:

Rent expense of $2,000 Prepaid rent of $22,000

Which of the following transactions would normally be recorded as an asset when cash is paid?

Rent paid in advance

Which of the following are stockholder equity accounts?

Retained earnings Common stock

Which of the following is a discount in the amount to be paid if the customer pays within a specified time period?

Sales discount

The Public Company Accounting Reform and Investor Protection Act of 2002 is known as the

Sarbanes-Oxley Act.

When adjusting the company's cash account balance in a bank reconciliation, which items reduce the company's cash account balance?

Service charges Charges for NSF checks

On April 1, Katie Inc. collected $2,400 from a customer for a 12-month membership starting on that date. On December 31, Katie Inc. should credit:

Service revenue for $1,800

Which of the following methods are not used for inventory costing?

Simple-average NIFO

Smith's operating cash flows in millions were $100, $150, $80 during the past three years; while Jones' operating cash flows in millions were $105, $115, $110 during the same period. From the perspective of operating cash flows, which company would likely be perceived as riskier?

Smith

The four primary financial statements published to provide information to external users include which of the following?

Statement of Cash Flows Statement of Stockholders' Equity Balance Sheet Income Statement

Which financial statement would report all of the following information: beginning balances for common stock and retained earnings; current period net income or loss; current period dividends; common stock issued during the year; ending balances of common stock and retained earnings?

Statement of stockholders' equity

The ending balance in cash is reported in which financial statement(s)?

The balance sheet and statement of cash flows

Who is responsible for providing an opinion on management's assessment of internal control?

The company's auditors

Which of the following statements regarding the statement of cash flows are correct?

The final financial statement that is typically prepared Reports cash disbursements Reports cash receipts

In a perpetual inventory system, when a company sells inventory on account, how many entries are required?

Two entries are required: One entry is required for the sales transaction; a second entry is required to record the cost of goods sold and decrease inventory.

Which of the following methods are available for costing inventory?

Weighted-average FIFO Specific identification LIFO

Which of the following accounts would be found in the balance sheet of a manufacturing company?

Work in process

The account "Allowance for Uncollectible Accounts" is classified as

a contra asset to accounts receivable

In an adjusting entry for expenses incurred but not yet paid ______.

a liability is increasing since cash will be paid in the future due to the expense incurred

A trade discount is

a reduction from list price.

Mueller Inc. utilizes a periodic inventory system. When Mueller incurs shipping costs for purchased goods, the account debited should be

a separate freight-in account.

A(n) __ is the legal right to receive cash from a credit sale and represents an asset of the company.

account receivable

The allowance for uncollectible accounts is a contra account to

accounts receivable.

The amount of cash owed to a company by its customers from the sale of goods or services is referred to as

accounts receivable.

In a perpetual inventory system, freight costs on purchases are

added to the inventory account.

A partial adjustment to the amount owed by the customer for goods that were not returned, but did not fully meet the customer's expectations is referred to as a sales ___

allowance

To record an estimate for future bad debts at the end of the period, an adjustment would be made with a credit to

allowance for uncollectible accounts.

A company that expects that some of its customers will not pay the agreed upon sales price must utilize the

allowance method

Revenue in the income statement for the year ended December 31, 2021 equals the:

amount earned by selling goods or services to customers during 2021.

In recording an accrual adjusting entry to account for revenues earned but not yet collected, ___

an asset is increased since cash will be collected at a later date

In a periodic inventory system, purchase returns

are recorded in a separate contra purchases account.

A prepayment such as "Prepaid Insurance" is originally recorded as a(n) ___ when an insurance policy is purchased and will later be expensed in the period used.

asset

Accounts receivable should be classified as a(n)

asset.

Using the perpetual inventory system, what is the effect of a sale of inventory on assets?

assets decrease by the cost of the inventory assets increase by the sales price of the inventory

With the allowance method, bad debt expense is recorded

at the end of the period when bad debts are estimated.

The lower of cost and net realizable value method was developed to

avoid reporting inventory at an amount that exceeds the benefits it provides.

Prepaid rent appears in the ______.

balance sheet because it is an asset

Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to

be more accurate.

A check that is NSF (nonsufficient funds) is a check that

cannot be paid because the account does not contain enough funds.

Cash disbursements that have been recorded in the company's accounting records but are not yet recorded by the bank are called

checks outstanding.

A journal provides a

chronological record of all transactions affecting a firm.

The entries that transfer the balances of all temporary accounts to retained earnings are referred to as

closing entries

The Sarbanes-Oxley Act applies to

companies that are required to file with the SEC.

Andy records an adjusting entry for deferred revenue. Andy should:

credit a revenue account debit a liability account

When a business provides services to a customer, and the customer promises to pay later, this is referred to as

credit sales

Sales to customers in which the customers pay within 30 to 60 days are referred to as

credit sales. sales on account.

When a company records an adjusting entry for services previously recorded as Deferred Revenue, it records which two of the following?

credit to Revenue debit to Deferred Revenue

The journal entry to record bad debt expense includes

credit to allowance for uncollectible accounts debit to bad debt expense

The bank will show a customer's deposit on bank statements as a Blank______.

credit, because a deposit is a liability from the bank's point of view

Because cash is assumed to be available for spending, it is typically reported on the balance sheet as a(n) ___

current asset

On July 1, Book Palace prepaid 12 months' fire insurance with coverage starting the following month. The adjusting entry on December 31 includes:

debit to Insurance Expense credit to Prepaid Insurance

Lindell sells $100 of goods to a customer. The customer pays with a personal check. Recording this transaction will include a

debit to cash

Ophelia Inc. just learned that Patton Inc., one of its customers with an outstanding accounts receivable balance, filed for bankruptcy. Assuming that the company utilizes the allowance method, Ophelia should record a(n):

decrease in Accounts Receivable

Prepaid expenses should be ______ by the cost of the asset used during the accounting period.

decreased

Supplies should be ______ and Supplies Expense should be ______ for the cost of supplies used up during the period.

decreased; increased

A sales allowance _____ the amount owed by the customer for merchandise that is _____ by the customer.

decreases; retained

___ revenue arises when a business receives cash in one period, but does not provide all of the related goods or services until a later period.

deferred

Cash receipts that have been recorded in the company's accounting records but are not yet recorded by the bank are

deposits outstanding.

The process of allocating the cost of an asset to expense over the useful life of the asset is called

depreciation

The Committee of Sponsoring Organizations (COSO) of the Treadway Commission provided a framework for

designing an internal control system.

In a perpetual inventory system, purchase discounts and purchase returns

directly reduce the Inventory account balance.

The amount of cash in the balance sheet reflects the

ending cash on the balance sheet date.

Gwendolyn uses the allowance method to account for uncollectible receivables. Gwendolyn should record ______ bad debt expense ______.

estimated; at the end of the year

If an adjusting entry's credit is to a liability account, then the debit must be to ______.

expense

The formula for calculating interest on a note is

face value x annual rate x fraction of the annual period.

The use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employer's resources is called occupational __

fraud

A trade discount is a reduction from the list price, which is used to:

give quantity discounts to customers disguise real prices from competitors change prices without publishing a new catalog

A classified balance sheet ______.

groups asset and liabilities into current and long-term categories

An adjusting entry is necessary to record interest expense at year-end because the interest:

has already been incurred

When the allowance method is used, the write-off of an uncollectible account

has no effect on net income

Which of the following are common controls over cash receipts?

having two different employees take custody of the checks and make the deposit opening mail daily and making a detailed list of checks received

Gerald Corporation purchases inventory FOB shipping point. The shipping costs are $300. The shipping costs are

included in Gerald's inventory.

A multiple-step income statement reports multiple levels of

income

The direct write-off method is required for

income tax purposes.

Norma Inc. uses the perpetual inventory system. When the company records a sale, it should make entries to:

increase an asset and increase revenue decrease an asset and increase an expense

The adjusting entry for prepaid rent requires a(n) ____ to rent expense and a ___ to prepaid rent

increase, decrease debit, credit

Purchasing inventory on account:

increases assets increases liabilities

The expense that relates to a formal note payable and accumulates or accrues throughout the accounting period is referred to as ___ expense

interest

___ is defined as the "cost of borrowing money."

interest

Items held for sale in the normal course of business are referred to as

inventory

Companies are free to choose FIFO, LIFO, or weighted-average cost to report inventory and cost of goods sold. The reported amounts for ending inventory and cost of goods sold will not be the same across inventory reporting methods because:

inventory costs generally change over time.

Major differences between service companies and retail or manufacturing companies is that retailers and manufacturers must account for

inventory. cost of goods sold.

Deferred revenue is a(n) Blank______.

liability

The adjusting entry for a deferred revenue includes a debit to a(n) ___ account and a credit to a(n) ___ account

liability, revenue

Companies that produce the inventory they sell are referred to as

manufacturers

The type of income statement that reports a series of subtotals such as gross profit, operating income, and income before taxes is a ______ income statement.

multiple-step

The statement of stockholders' equity includes these amounts:

net income ending balance retained earnings dividends for the period

Receivables not expected to be collected should

not be counted in assets of the company.

A formal credit arrangement between a creditor and debtor is called a(n)

note receivable.

When a sale occurs under the periodic inventory system, we record:

only the sale, but not the related cost of goods sold

The information reported in the statement of cash flows is organized by these activities:

operating investing financing

The statement of cash flows classifies items as

operating, investing, and financing.

Adjusting entries for accrued expenses ensure that liabilities are reported for all amounts ______ at the end of the accounting period.

owed

Ronald Corporation purchases inventory with terms FOB destination. The shipping costs are $300. The shipping costs are:

paid by the supplier.

Freight-in costs are debited to Inventory in this inventory system:

perpetual only

If an adjusting entry's debit is to an expense account, then the credit must be to which of the following?

prepaid expense liability

Separation of duties and E-commerce controls are examples of ______ controls.

preventive

Two types of control activities are

preventive and detective controls.

Two important ratios that help in understanding a company's effectiveness in managing receivables are the:

receivables turnover ratio average collection period

In a periodic inventory system, freight-in costs are

recognized in a temporary freight-in account.

Two entries are required when a previously written off account is collected. These two entries include:

record the collection on the account receivable reinstate the account receivable

At year-end, companies that utilize accrual-based accounting systems complete the measurement process through

recording of adjusting entries

The purposes of the period-end adjustment in the periodic inventory system include:

reflect the proper ending balance in the inventory account recognize cost of goods sold relating to sales during the period close the temporary accounts relating to inventory purchases, discounts, and returns and allowances

Internal control consists of plans to

safeguard company assets. provide accurate and reliable accounting information.

A cash discount representing a reduction in the amount to be paid by a credit customer if the customer pays within a specified period of time is also referred to as a(n) ___ discount.

sales

When a customer returns a product for a refund, in which account is the entry recorded?

sales return

When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n) __

sales returns

Margot, a prospective investor, wants to know how much cash Ziegler Inc. has on December 31. Margot can find the information in Ziegler's:

statement of cash flows balance sheet

Closing entries move the balances from the _____ accounts into the Retained Earnings account.

temporary

The type of information included in an account includes

the account title. columns for debits and credits.

The post-closing trial balance helps to verify that:

the accounts are ready for next period's transactions we prepared and posted closing entries correctly

After the adjusting entries have been completed, the adjusted balance in the Deferred Revenue account represents:

the amount of the sales or services still owed to the customer.

Accounts receivable are typically classified as current assets because

they will be converted to cash within 1 year.

A bank reconciliation compares the company's cash records with the bank statement and discovers differences in those amounts due to

timing differences and errors.

A non-sufficient funds check requiring an adjustment to the cash balance was written:

to the company preparing the bank reconciliation

What is the effect of recording a sale of inventory under the perpetual inventory system on the financial statements?

total assets increase stockholders' equity increases net income increases

A list of all accounts and their balances at a particular date showing that debits equal credits is referred to as a(n) __ ___

trial balance

The direct write-off method is used when

uncollectible accounts are not anticipated or are immaterial.

After the adjusting entries have been completed, the adjusted balance in the Supplies Expense account represents the cost of supplies:

used during the accounting period

FOB shipping point means title to the goods passes:

when they are shipped.

FOB destination means title to the goods passes

when they arrive at the destination.

Long issued 5,000 shares of stock for $10,000. Long used $2,000 of the proceeds to purchase supplies, and borrowed $8,000 cash from the bank. Long's total assets are

$18,000, The issuance of stock will cause assets to increase by $10,000. The purchase of supplies for cash will have no affect on total assets (cash decreases and supplies increases). Borrowing from bank will increase cash (an asset) by $8,000. Therefore, total assets equals $18,000.

When a company performs services for a customer, and the customer agrees to pay for the services at a later date, the transaction is recorded in which account?

Accounts receivable

The accounting equation is:

Assets = Liabilities + Stockholders' Equity

Which of the following appear on the statement of stockholders' equity?

Dividends Net income Beginning balance of retained earnings

Identify the three components of retained earnings.

Expenses Dividends Revenues

Which items are found on an income statement?

Expenses Revenues

Which of the following would be referred to as "accruals?"

Expenses incurred, not yet paid Goods and services provided, not yet collected

In financial accounting which of the following are the three types of business activities of a company?

Financing activities Investing activities Operating activities

Which of the following are attributes of FASB?

Full-time board members Private sector organization Independence

LMN Enterprises performs accounting services for a client for $3,000 cash. What is the effect on the accounting equation?

Increase assets and increase retained earnings

Which of the following represents a common advantage of a computerized accounting system?

Journal entries are instantly posted to the ledger

Which of the following pre-payments requires an adjusting entry at the end of the year?

On November 1, the company pays rent for the next six months.

Which of the following are components of calculating net income?

Revenues Expenses

What are the three components of retained earnings?

Revenues, expenses, and dividends

Which of the following items are found on a balance sheet?

Stockholders' equity Assets Liabilities

Which of the following knowledge and skills should an accounting professional possess?

Technical accounting knowledge Ability to work in teams Leadership skills Presentation skills

The heading of an income statement should include which of the following?

The title of the financial statement The accounting period covered by the statement The name of the business

If revenues are less than expenses, a company has

a net loss

Which of the following aspects relate to the information provided in an income statement?

ability to earn a profit

A(n) ______ is maintained for each financial statement item, whereas a(n) _____ contains all of the accounts of the company.

account; general ledger

The system that maintains records of a company's operations and then communicates that information to decision makers is referred to as

accounting

The two main functions of ___ are to (1) measure business activities and (2) to communicate those measurements to investors and creditors.

accounting

____ occur when the cash flow occurs after either the expense is incurred or the revenue is earned.

accurals

Management discussion and analysis and note disclosures to the financial statements are included in the ___

annual report

Adjusting entries ensure that ______ balances are reported at amounts representing the economic benefits that remain at the end of the period.

asset

Prepaid insurance is a(n) ______.

asset in the balance sheet

The financial statement that displays a firm's financial position on a particular date is the __ __

balance sheet

Which of the following financial statements shows a company's financial position on a particular date?

balance sheet

Reporting revenues only when cash is received and expenses only when cash is paid is called the ___ basis of accounting

cash

The purpose of a statement of cash flows is to provide information about the

cash receipts and cash disbursements during a period.

Tabor Company issues $20,000 of common stock to investors. Recording this transaction will include a credit to

common stock

Expenses will cause retained earnings to

decrease

A net loss ______ retained earnings.

decreases

Stockholders' equity arises primarily from amounts invested by shareholders and amounts

earned by the corporation

The two sources of stockholders' equity are amounts

earned by the corporation paid in from shareholders

Adjusting entries are made at the ___ of the accounting period, while daily transactions are made throughout the accounting period.

end

Which type of account is increased with a debit?

expense

Salaries already paid to employees for the month is a(n) ______ account that appears on the ______.

expense; income statement

Adjusting entries help to ensure that all ______ are recorded in the period in which they are incurred.

expenses

Initially a prepayment for items such as rent or insurance are recorded as assets and later are recorded as a(n)____ in the period the benefit expires

expenses

Credits increase revenues, whereas debits increase

expenses and dividends.

Under cash-basis accounting,

expenses are recorded when cash is paid. revenues are recorded when cash is received.

True or false: The fundamental activities of a business are selling activities and marketing activities.

false

True or false: The two functions of financial accounting are to measure business activities and prepare tax returns.

false

Companies communicate information about their business activities primarily through

financial statements

Statements represent a company's primary means of communicating information to external users

financing, finance

Which of the following contains a list of transactions affecting each account and the account's balance?

general ledger

Where is the time period covered by the income statement found?

in the heading

Under the accrual basis of accounting, costs used to generate revenue are recorded as expenses:

in the same period as related revenue.

Information that best explains companies' stock price performance is reported in the

income statement

The financial statement that is most useful in explaining a company's stock price performance is the

income statement

The purpose of a(n)____ ____ is to report the profit-generating activities of a company over an interval of time

income statement

Which financial statement reports revenues and expenses?

income statement

The financial statement that reports the company's revenues and expenses over an interval of time is the

income statement.

When a company earns net income, its retained earnings:

increase

Net income Blank______ retained earnings.

increases

The two roles of financial accounting are to:

measure business activities of the company. communicate information to external parties for decision making purposes.

In our society, the two main functions of accounting are to

measure business activities. communicate information to investors and creditors.

Pizza Aroma generated $11,000 in revenues and had expenses of $6,000. Pizza Aroma's net income or loss is:

net income of $5,000

In addition to the financial statements, which of the following must be included in the annual reports?

notes disclosures. management discussion and analysis.

The process of transferring information from the journal to the ledger is referred to as

posting

Costs of assets acquired in one period that will be recorded as expense in a future period are referred to as ______ and are initially recorded as ______.

prepaid expenses; assets

The purpose of a general ledger is to

provide in a single location the list of transactions affecting each account and the account's balance.

Ursula Company's bookkeeper records revenue relating to a customer transaction. This indicates that the company

provided goods or services to a customer.

The purpose of a journal is to

record a chronological listing of every transaction for a company.

The accumulated net income earned since the inception of the corporation and not yet paid to shareholders is referred to as __ __

retained earnings

Consistent with the ___ recognition principle, companies record revenue at the time goods are provided to customers.

revenue

Sampson Corporation issues common stock for $25,000 cash and uses some of the proceeds to purchase equipment for $10,000 cash. Sampson also purchases $4,000 of supplies on account. After recording these transactions total assets are

$29,000, Issuing common stock increases assets by $25,000 (cash) and increases equity (common stock). Purchasing equipment for cash decreases one asset and increases another asset, so there is no change in assets. Purchasing supplies on account increases assets and increases accounts payable. $25,000 + $0 + $4,000 = $29,000 total assets.

The primary functions of accounting are to:

communicate information to decision makers. measure a company's activities.

In a double-entry accounting system ___ represents the left side of the account

debit

An general ledger account should have an account title, account number, a place for the date of the transaction, and two columns for

debits and credits

Dividends paid to stockholders will cause retained earnings to

decrease

The types of accounts which affect retained earnings are

expenses. dividends. revenues.

True or false: A balance sheet is a list of all accounts and their balances showing that debits equals credits.

false

True or false: A ledger provides a chronological record of all transactions affecting the firm.

false

True or false: Adjusting entries ensure that assets in the balance sheet are reported at amounts that have been used up or expired during the period.

false

What effect does revenue have on retained earnings?

increases

A transaction is initially recorded in the journal, and then subsequently posted to the general

ledger

Which of the following includes the list of transactions affecting each individual account and the account's balance?

ledger

A balance sheet lists the assets, ___, and stockholders' equity as of a specific date.

liabilities

The financial statement that provides information about cash receipts and cash disbursements for the period is the

statement of cash flows

The purpose of an income statement is to:

summarize the profit-generating activities that occurred during a particular reporting period

Accounts receivable are assets which represent

the amounts owed by customers.

Retained earnings represents

the total net income earned over the life of the company that has not been distributed as dividends.

True or false: An external transaction is a transaction the firm conducts with a separate economic entity.

true

There is a cause-and-effect relationship between revenues and expenses that dictates:

when costs are recognized as expenses in the income statement.


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