Accounting Midterm Study Guide
Debit
-Entry on the left side of an account -Normal balance of AWE
What are three types of businesses that operate to earn a profit?
-Merchandising -Manufacturing -Service
Liabilities
Amount owed to creditors
What is the basic accounting equation?
Assets = Liabilities + Owner's Equity
Which of the following best describes the effect of purchasing equipment on credit?
Assets increase and liabilities increase
Complete equation
Assets= Liabilities + Capital - Withdrawals + Revenue - Expenses
Accountant
Broad range of responsibilities
Profit
Business earns more money than it spent
Sole Proprietorship
Business owned by one person
Partnership
Business owned by two or more people
Accounting Clerk
Entry level
When an owner invests personal funds in the business, liabilities and owner's equity are increased.
False
When the owner of a business pays themselves, the account debited is salaries expense.
False
Normal Balance
Increase side of an account
Certified Public Accountant (CPA)
National test
__________ of a T account is always the debit side
The left side
Credit
-Agreement to pay for a purchase at a later time -Right side of an account -Normal balance for LCR
Creditor
A business or person to whom money is owed
Ledger
A group of accounts, aka general ledger
Chart of Accounts
A list of all accounts used by a business
Account
A subdivision under assets, liabilities, or owner's equity
Accounting System
A system designed to collect, document, and report on business transactions
A check was written on April 15. It is being recorded on April 17. The date used when recording the transaction is:
April 15
Loss
Business spends more money than it earns
When recording a business transaction in the journal, this is always entered first.
Date
The normal balance side for an asset account is the:
Debit side
Financial Reports
Documents that present summarized info about the financial status of a business
A business's accounts receivable account represents amounts they owe.
False
A withdrawal increases the assets of a business.
False
Account numbers for all businesses always contain three numbers.
False
All of an owner's personal finances are recorded in the business accounts.
False
All three forms of business organizations can sell stock to obtain money needed to expand their business.
False
An accounting period is always for one month.
False
Asset account titles are the same for all businesses.
False
Expense transactions are recorded as a decrease in the capital account.
False
Generally Accepted Always Rules are the set of rules used by accountants.
False
In a chart of accounts, expense accounts always begin with the number 4
False
In a partnership there are only two owners.
False
Money taken from the business by the owner for personal use is an expense.
False
Our Accounts Payable account represents amounts owed to our business.
False
Partnerships sometimes form for the purpose of selling additional stock to the public.
False
Permanent accounts start each accounting period with a zero balance.
False
Property or other items of value owned by a business are not referred to as assets.
False
Revenue accounts have a normal debit balance.
False
Temporary accounts are used by a business only once.
False
Temporary owner's equity accounts are used by a business only once.
False
The Internal Revenue Service is rarely interested in the profit or loss earned by a business.
False
The Opposite-Entry Accounting System is used to analyze and record a transaction.
False
The chart of accounts for all businesses is always the same.
False
The external users interested in financial accounting reports are only the company's investors.
False
The owner's capital account has a normal debit balance.
False
The owner's capital account is increased by debits.
False
The rules of debit and credit for liability accounts are the same as the rules for asset accounts.
False
There are six steps in the accounting cycle.
False
When a business performs services, they wait to record the performance of those services until they receive payment.
False
When there are two source documents for a transaction, each is recorded on a separate line.
False
Revenue Recognition
GAAP principle that revenue is recorded on the date it is earned, even if cash has not been received.
The amount of each asset account in an opening entry is recorded in a journal in the:
General Debit Column
Revenue
Income earned
What is the complete definition of revenue?
Income earned
This is an example of a business document that indicates a transaction has occured
Journal
This is sometimes called a "book" of original entry because it is where transactions are first entered in the accounting system
Journal
A business that buys and sells raw materials and uses labor and machinery to transform them into finished products and sells them to other businesses or individuals is an example of:
Manufacturing Business
Investment
Money or other property provided for the purpose of making a profit
After closing revenue and expense accounts to the income summary, the balance in the account represents what?
Net income or net loss
List three assets that a business may have
Office Equipment, Office Furniture, Accounts Receivable
Businesses that spend more money than they earn are said to be:
Operating at a loss
Expense
Operating costs
List three classifications of permanent accounts
Owner's Equity, Assets, Liabilities
List three classifications of temporary accounts
Owner's Equity, Revenue, Expenses
Owner's Equity
Owner's claims to the total assets of the business
Assets
Property or other items of value owned by a business
This is the source document used when a customer makes a payment on his/her account.
Receipt
Audit
Review of a company's accounting systems and financial statements to confirm that they follow GAAP
What type of business does things for its customers and charges them a fee?
Service Business
In our economic system, entrepreneurs:
Transform ideas into actual businesses
A chart of accounts is a list of all accounts used by a business.
True
A general ledger is where all accounts for a business are grouped in.
True
A legal right to an item is a financial claim.
True
All businesses have accounts that are both permanent and temporary.
True
An account's normal balance is always on the side used to record increases to the account.
True
An advantage to a sole proprietorship is that it is easy to set up.
True
An investment is money or other property paid out in order to produce profit.
True
It is not possible for the first entry in the accounts payable account to be a debit.
True
It is not possible to record a decrease to an account before you have recorded an increase.
True
Liabilities and the owner's capital account appear on the right side of the accounting equation.
True
The basic accounting procedures followed by a business are the same no matter how the business is formed or what type of business it is.
True
The debit and credit parts of a transaction must be equal for the accounting equation to remain in balance.
True
The rules of debit and credit for expenses are the same as those of withdrawals.
True
The sole proprietorship is the oldest and most common form of business organization.
True
There are 3 steps that must be completed for a journal page setup.
True
There are six steps when journalizing a transaction.
True
When a business uses credit to buy items, it is buying on account.
True
When recording transactions, we do not repeat the month for each transaction on the same page.
True
When we record transactions, increases do not always equal or match decreases.
True
A list of all accounts used by a business is called what?
chart of accounts