ACCTG 201 Vocabulary

Correct order of items found on the balance sheet

1. Assets 2. Liabilities 3. Stockholders' equity

Three steps for analyzing the effect of transactions in the correct order

1. Determine one account in the accounting equation that will increase or decrease 2. Determine a second account in the accounting equation that will increase or decrease 3. Confirm that assets are equal to liabilities plus stockholders' equity

Steps for measuring transactions

1. Use a source document to identify accounts affected 2. Analyze the impact of the transaction on the accounting equation 3. Assess whether the transaction results in a debit or credit to account balances 4. Record the transaction in a journal 5. Post the transaction to the general ledger

Which of the following are characteristics of ALL balance sheet accounts?

Accounts are referred to as permanent Balances are carried forward from period to period

Accounting equation

Assets= liabilities+stockholders' equity

Four financial statement published to provide information to external users include which of the following?

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

The adjusting trial balance provides account balances reported in which financial statements?

Balance sheet Statement of stockholders' equity Income statement Statement of cash flows

Which of the following are a result of closing entries?

Balances in temporary accounts are 0 Retained earnings includes current year income less dividends

The adjusted trial balance should be prepared _____ financial statements are prepared in order to prove the _____ of debits and credits

Before Equality

The retained earnings balance shown in an adjusted trial balance is the account's _____ balance

Beginning

Which of the following are external transactions?

Borrowing money from the bank Purchasing inventory from suppliers Paying salaries to employees

Revenue is recognized when:

Cash basis: cash is collected from customers Accrual basis: services are provided even if cash has not yet been collected

Stockholder equity accounts

Common stock Retained earnings

Which of the following accounts normally has (have) a credit balance

Common stock Retained earnings

Intangible assets

Copyrights Trademarks Patents

Entries needed for the closing process

Credit dividends declared and debit retained earnings Debit each revenue, credit each expense, and record the difference in retained earnings

On a classified balance sheet, total liabilities represent the sum of _____ and long-term _____

Current Liabilities

List the asset categories in the order in which they would appear on a classified balance sheet

Current assets Long term investments Property, plant and equipment Intangible assets

For every journal entry, total _____ must be equal to total _____

Debits, credits

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

Dividends Net income Beginning balance of retained earnings

Which of the following would be included (added or subtracted) in the calculation of retained earnings?

Dividends declared Expenses Beginning balance retained earnings Revenues

Statement of stockholders' equity contains these amounts:

Dividends for the period Net income Ending balance retained earnings

The two sources of stockholders' equity are amounts:

Earned by the corporation Paid in from shareholders

Examples of internal transactions

Earning revenues after cash is received in advance from customers Using supplies purchased and paid for last month

Three components of retained earnings

Expenses Revenues Dividends

Which of the following account balances are shown in the adjusted trial balance AND the income statement

Interest expense Depreciation expense

Manual system

Journal entries are posted periodically to the general ledger

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?

Net income will be too high

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

Operating Investing Financing

Operating activities

Paying advertising expenses Providing services to customers Paying salaries to employees

What activities are part of the operating cycle?

Paying cash to suppliers Collecting cash from customers Buying goods and services

Operating activities involve:

Purchasing goods from suppliers Designing and manufacturing products Selling products to customers

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

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

Which of the following are reported as stockholders' equity on a classified balance sheet?

Retained earnings Common stock

Which of the following are commonly classified as current liabilities?

Salaries payable Deferred revenue Accounts payable

Three most common forms of business organization:

Sole proprietorship Partnership Corporation

The adjusted trial balance typically is used to prepare which financial statements?

Statement of stockholders' equity Balance sheet Income statement

A journal entry should contain which of the following information?

The date Accounts and amounts credited Description of the transaction Accounts and amounts debited

Cash basis accounting:

Violates both the revenue recognition and matching principles Records revenues when collected and expenses when paid Generally NOT accepted in preparing financial statements

Chart of accounts

a list of all account names used to record transactions of a company

Trial balance

a list of all accounts and their balances at a particular date showing that debits equal credits

The basic _____ _____ is referred to as the fundamental model of business valuation

accounting equation

Elements of the accounting equation are represented by _____, which are contained in the general ledger

accounts

Liabilities

amounts owed to creditors

T-account

an account used informally for analysis instead of drawing a formal general ledger account

Internal transaction

an event that affects the financial positions of the company but does not include an exchange with a separate economic entity

External transaction

an exchange between the company and a separate economic entity

Current assets

assets that will be used up or converted to cash within the next year

Accounts receivable

assets which represent the amounts owed by customers

Corporation

business organization that issues shares of stock to its investors

Deferred revenue

cash received from customers for services to be performed in the future ; classified as liability

Liquidity

characteristic of asset that can quickly be turned into cash

Prepaid rent

classified as an asset

Creditors

contribute financial resources to a company

Expense

cost of conducting business during the period

Managerial accounting

deals with the concepts and methods used to provide information to an organization's internal users

Journal entry

describes the format for recording a transaction

Dividend

distribution of net income to stockholders of a corporation

Closing entries

entries that transfer the balances of all temporary accounts to retained earnings

A(n) _____ is a cost of doing business that is necessary to produce _____

expense; revenue

Credits are used to increase revenues, whereas debits are used to increase

expenses and dividends

Selling stock to an investor is a(n)

financing activity

Stockholders' equity

for a corporation, the owners' claims to the resources of a company

Classified balance sheet

groups assets and liabilities into current and long term categories

An advantage of a classified balance sheet is that it is easy to see:

if current assets are large enough to pay current liabilities

In accrual-basis accounting, expenses should be recognized:

in the period when the related revenue is recognized

Ledger

includes all accounts used to record the company's transactions

_____ transactions typically are recognized at the end of the period

internal

Paying cash to buy equipment is a(n)

investing activity

Computerized system

journal entries are instantly posted to the general ledger

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

journal, ledger

A company reports a net loss if its revenues were _____ than its expenses

less

Current liabilities

liabilities due within the next year

Property, plant, and equipment

long term productive assets used in the normal course of business

Accounting

maintains records of a company's operations and communicates information to decision makers

Revenue - expense= _____

net income

The term "accounting cycle" refers to the full set of _____ utilized to measure and communicate business transactions to external decision makers

procedures

Consistent with the revenue recognition principle, companies record revenue at the time goods or services are _____

provided

The closing entry for dividends involves a debit to retained earnings and a credit to dividends declared. The debit to retained earning causes a(n) _____ in the balance of the account

reduction

Cash accounting

reporting revenue only when cash is received and expenses only when cash is paid

Balance sheet

reports assets, liabilities, stockholders' equity

Income statement

reports revenues and expenses

Financial statments

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

Credit

represents the right side of an account

Profits earned by a company that have NOT been paid to stockholders are called ______ earnings

retained

Which of the following financial statement typically is prepared last?

statement of cash flows

The ending balance of retained earnings represents:

the cumulative total of net income less dividends over the life of the company

Posting

the process of transferring information from a journal entry to the specific accounts affected in the general ledger

Revenue

the sale of goods or services to customers; services performed for customers on account

Total assets

the sum of current and long term assets reported on the balance sheet

Retained earnings represent:

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

Purpose of a journal:

to record a chronological listing of every transaction for a company

Purpose of an account

to summarize all transactions for that item

What are the effects on the accounting equation when dividends are declared and paid?

total assets decrease and total stockholders' equity decreases

Total assets=

total liabilities + stockholders equity