Accounting Exam #1
3 rules of adjusting entries
1. Cash is never a part of adjusting entries 2. Adj. entries involve one B/S account and one I/S account 3. Adj entries are prepared at the end of the accounting period
When a customer buys services on account, it should be recorded by the company as
A debit to A/R and a credit to revenue
The buddy burger corporation owes 1.5M to the Texas Wholesale Meat Company from whom Buddy Burger buys its meat. Which account would Buddy burger use to record the amount owed?
Accounts payable
Adjusting entries
Affect both income statement and balance sheet accounts
When existing assets are used up in the ordinary course of business
An expense is recorded
Balance Sheet permanent accts
Assets Liabilities Equity
Your company pays back $2 million on a loan it had received earlier from a bank
Assets & Liabilities decrease by 2M, stockholder equity remains unchanged
Normal Sides
Assets = Dr. Expenses = Dr. Dividends = Dr. Liability = Cr. Equity = Cr. Revenues = Cr
Extended Accounting Equation
Assets = Liabilities + Owner capital + revenue - expenses - Owners draws
Accounting Equation
Assets = Liabilities + Stockholders' equity
Which of the following are the three basic elements of the balance sheet?
Assets, liabilities, and stockholders equity
When are adjusting entries made?
At the beginning of the accounting period
Statement of Retained Earnings
Beg R/E + N/I - Div = End R/E
Which of the following would be listed as a long-term asset?
Buildings and equipment
In the US, Generally Accepted Accounting Principles (GAAP) are established:
By the Financial Accounting Standards Board (FASB)
A company issues $20 million in new stock. It later uses the cash received to pay off promissory notes, How many different accounts and which account names are affected by these two transactions?
Common Stock, Cash, Notes Payable (3 accounts)
Which of the following statements regarding the debit/credit processing of revenues and expenses is true?
Credits increase revenues
Cansing Company collected $5,000 from a customer on account. What journal entry will cansing record?
Debit cash, credit A/R
Deferral Accounts
Expenses paid before revenue is recognized -Prepaid expense -Unearned revenue
Which of the following statements regarding revenues and expenses is true?
Expenses reduce the amount of stockholders equity
Adjusting entries often involve cash
False
Net income on the income statement is equal to the amount of cash generated by the business
False
The amount charged for a good or service provided to a customer on account is recorded only after the payment is received
False
The common characteristic processed by all assets is
Future economic benefit
A company billed a client for services rendered in January. The payment was received partially in January and the balance in February. When should the entry be made to record the service revenue?
January
Financial statements are most commonly prepared
Monthly, quarterly, and annually
Expenses are shown
On the income statement in the time period in which they are incurred
Accrual Accounts
Paid/ Received after expenses recognized -Accrued expense -Accrued revenue
Creditors are
People or organizations to whom a business owes money
Which of the following would not be considered and operating activity
Purchase equipment for cash
Revenue recognition principle
Recognize revenue when it has been earned
Assets
Resources owned by the company
Which of the following is not an example of an asset?
Retained earnings
Income Statement Accts
Revenue Expenses
Income statement temp. accts
Revenue Expenses
Net income is
The amount by which revenues exceed expenses
Which of the following statements regarding debits and credits is always true?
The total value of all debits recorded in the ledger must equal the total value of all credits recorded in the ledger
A post-closing trial balance should include only permanent accounts
True
GAAP does not allow cash basis accounting to be used in external financial reports
True
If total assets increase, then either liabilities or stockholders' equity must also increase
True
Prepaid expenses would be reported on the Balance sheet
True
The normal balance of an account is the same side that increases the account
True
The stockholders' equity of a company is the difference between assets and liabilities
True
What is the minimum number of accounts that must be involved in any transaction?
Two
Which of the following statements regarding the accrual and cash basis account is true?
Using the accrual basis of account, if payment is received after delivery of a good or service, an asset is recorded at the time the good or service was delivered
If an expense has been incurred but will be paid later then,
a liability account is increased and expense is recorded
If certain assets are partially used up during the accounting period then:
an asset account is decreased and an expense is recorded
Public corporations are
businesses whose stock is bought and sold on stock exchange
Which of the following is true a. credits increase both revenues and expenses b. credits increase expenses and decrease revenues c. credits increase revenues and decrease expenses d. credits decrease both revenues and expenses
c. credits increase revenues and decrease expenses
Deferred expenses (prepaid expenses) are initially recorded as assets, but over time are expected to become
expenses
The three main types of business activities measured by financial statements are
operating activities, investing activities, and financing activities