Accounting Unit 1

assets, liabilities, and stockholders' equity at a single point in time

A balance sheet shows ______.

decreases

A net loss ______ retained earnings.

expenses are greater than revenues

A net loss is reported when ______.

owed

Adjustments ensure that liabilities are reported as all amounts ______ at the end of the accounting period.

earned

Adjustments help to ensure that all revenues are recorded in the period in which they are ______

total cost incurred to acquire it

An asset is initially recorded at ______.

cash total stockholders' equity common stock

An owner gives $5,000 cash to his company in exchange for stock. This will increase the company's ______. total liabilities retained earnings cash total stockholders' equity common stock net income

$25,000

Axis Company just bought a piece of land for $25,000. What a deal! The land next door was sold last month for $27,000. Axis immediately put the land back on the market for $29,000, but so far hasn't had any offers. This land would appear on Axis Company's balance sheet at a value of ______.

at a specific point in time

Balance sheets report amounts ______.

Interest

Creditors expect to receive ______ from the money they lend.

resources used to earn revenue

Expenses report the ______ during the accounting period.

contributed capital

Financing provided by owners is referred to as ______.

allow users to predict future events of the business allow users to assess past activities of the business

For accounting information to be relevant, the information should ______. provide consistency allow users to predict future events of the business be free from material error allow users to assess past activities of the business

Adjustments are made at the end of the accounting period because making them on a daily basis would be inefficient.

How does the timing of adjusting entries differ from the accounting for daily transactions?

Net income will be too high

If a company incorrectly records a payment as an asset instead of an expense, how will this error affect net income in the current period?

selling the stock at a higher price than its cost

Investors buy stock in a corporation in hopes to increase their wealth by receiving dividends and ______.

internal, external

Managers are _____ decision makers who need information to manage the operating, investing and financing activities of a business. Stockholders and creditors are _____ decision makers.

Dividends

Most investors hope to get ______ from their investments in a company's stock in addition to a higher price for the stock.

October

On October 31, Pizza Company sold pumpkin spice pizzas for Halloween parties on account. The customers have 30 days to pay for the pizzas. In which month should Pizza Company record the revenue under accrual accounting?

amounts not yet collected from customers

On the balance sheet, accounts receivable represents ______.

Total assets Stockholders' equity

Performing services on account will increase ______. (Check all that apply.) Total assets Total liabilities Stockholders' equity

earned by selling goods or services to customers

Revenues are:

earned and retained by the corporation

Shareholders' equity arises primarily from amounts invested by shareholders and amounts ______.

notes

The _____ to the financial statements are an integral part of the financial statements and provide a more complete understanding of the company.

Relevant information

The ability to confirm past events and to predict future activities are components of which primary qualitative characteristic?

assets, stockholders'

The balance sheet of a corporation reports _____ , liabilities, and _____ equity.

only the results of the business' activities

The balance sheet of a corporation reports ______.

The title "Balance Sheet" At December 31 The name of the business

The heading of a calendar year-end balance sheet would include which of the following? The title "Balance Sheet" At December 31 The name of the business

the revenues minus the expenses for the accounting period the profitability of the company for the accounting period how well the company performed during the accounting period

The income statement reports ______. the revenues minus the expenses for the accounting period the profitability of the company for the accounting period the economic resources of the company how well the company performed during the accounting period the increase in cash for the period

capture information about a business so that it can be reported to decision makers

The main goal of an accounting system is to ______.

making decisions

The primary objective of financial reporting is to provide useful information to outside users for ______.

useful information to providers of capital

The primary purpose of financial reporting is to provide ______.

financial position of a business at a particular point in time

The purpose of a balance sheet is to report the ______.

faithful

To be useful for decision making, information should possess the primary qualities of relevance and _______ representation.

general journal

Transactions are recorded chronologically in the ______.

False

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

False

True or false: All expenditures are expenses.

False. Reason: 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.

True or false: Creditors hope to gain in two ways—they hope (1) to receive dividends and (2) to sell their shares at a higher price.

True

True or false: Creditors would like a company that owes them money to have a large positive cash flow from operating activities.

true

True or false: Net income on the income statement will typically differ from the net operating cash flows on the statement of cash flows.

True

True or false: Operating activities are the primary sources of revenue and expenses involved in running a business.

False. Reason: Managers, not stockholders and creditors, are internal decision makers.

True or false: Stockholders and creditors are internal decision makers that use accounting information to manage the operating, investing and financing activities of the firm.

True

True or false: The accounting equation is Assets = Liabilities + Stockholders' Equity.

False Reason: Common stock is increased when the company receives investments by owners. Retained earnings increases when the company has net income.

True or false: The common stock section of stockholders' equity is increased when the company has net income.

True

True or false: The corporation, and not the owners, are viewed as owning the resources and as owing the debts of the business.

False

True or false: The income statement is useful for determining the amount of economic resources held by the company.

Cash is paid in advance of services being provided

Under which of the following circumstances would cash basis accounting report higher expenses than accrual basis accounting in the current accounting period?

Assets that will be used up or converted to cash within 12 months

What are current assets?

Cash

What does a business typically receive when it issues stock to owners?

stock certificates

When a business issues common stock, what does it give to its owners?

accounts receivable will be reported on the seller's balance sheet

When a company sells goods to customers on credit, ______.

Representation

When information is complete, neutral, and free from error, it possess the qualitative characteristic of faithful ______.

Transactions are recorded chronologically showing the accounts debited along with the corresponding accounts credited.

Which of the following accounting cycle steps describes the process of recording journal entries?

period covered

Which of the following are not found in the heading of a balance sheet? name of the owner specific date name of the entity period covered unit of measure

Verifiability Timeliness Understandability Comparability

Which of the following qualitative characteristics does the FASB use when deciding what financial information should be reported? (Check all that apply.) Verifiability Timeliness Understandability Political correctness Efficiency Comparability

Accounts payable Property, plant and equipment Inventories

Which of these line items appear on a balance sheet? Accounts payable Interest expense Property, plant and equipment Sales revenue Inventories

Investing activities such as the purchasing of equipment Operating activities such as the payment of wages Financing activities such as the selling of stock

Which of these would be captured and reported by an accounting system? Investing activities such as the purchasing of equipment Operating activities such as the payment of wages Independent audit report Financing activities such as the selling of stock

To decide if a company is doing well enough to repay the amounts it has borrowed

Why would a banker want a copy of a company's financial statements?

revenues - expenses

net income equals:

measurable internal events such as the use of assets in operations and exchanges between a business and one or more external parties to a business

transactions are ______.