ACT 2.1

Shriver Corp. borrows $25,000 from a bank and signs a two-year promissory note. What accounts will be affected by this transaction and what is the effect? (2)

Notes payable increases Cash increases

Equipment and Cash: Analyze the following journal entry. What is the transaction that required this journal entry?

Purchase equipment for cash

Jonathan Company's journal shows a debit to supplies and a credit to accounts payable. This means that Jonathan:

Purchased supplies on account

Which of the following is an external transaction?

Purchasing supplies from a vendor

Which accounts require a credit entry to increase the account? (2)

RE, accounts payable

a payment of cash dividends will decrease which of the following? (3)

SE, assets, RE

Ryan Corporation declares and pays a dividend. Which of the following is correct?

Stockholders' equity decreases.

The term ____ cycle refers to the full set of procedures utilized to measure and communicate business transactions to external decision makers.

accounting

The full set of accounting procedures used to measure and communicate business transactions is referred to as the

accounting cycle

The account deferred revenue is used to record

an obligation to perform services in the future.

A cost is recognized as _____ if the company expects to derive benefits during future periods.

asset

transaction: pay cash dividends does what to accounting equation?

asset decreases, SE decreases

buildings: account type? increase/decrease account balance? debit/credit?

asset; increase; debit

transaction: pay salaries to employees does what to accounting equation?

assets decrease, SE decrease

Notes Payable: Analyze the following t-accounts. The transaction that required the posting for item (2) is

borrow money from the bank

Smith Company's journal shows a debit to cash and a credit to notes payable, both for $15,000. This indicates that Smith Company:

borrowed $15,000 cash and signed a note

asset accounts include

cash, supplies, equipment

Which accounts require a debit entry to increase the account? (2)

cash, utility expense

Recording the repayment of a promissory note will include a credit to

cash.

A journal provides a

chronological record of all transactions affecting a firm.

The type of information included in an account includes (2)

columns for debits and credits. the account title.

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

common stock

stockholder's equity accounts include

common stock and retained earnings

The accounting equation is Assets = Liabilities + Stockholders' Equity. Accounts on the right side of the equal sign in this equation are increased with

credit

Turkey Corp. provides services to customers on account for $3,000. Recording this transaction will include a

credit to revenues.

A proper journal entry includes the ______, the account and amount debited, the account and amount credited, and a brief explanation of the transaction.

date

In a double-entry accounting system, a(n) ____ represents the left side of the account.

debit

The accounting equation is Assets = Liabilities + Stockholders' Equity. Accounts on the left side of the equal sign in this equation are increased with

debit

Sinclair purchased equipment for $100,000 cash. Recording this transaction would include a

debit to equipment $100,000.

credit in SE results in ____ of assets

debit/decrease

A t-account has space at the top for the account title and two sides for recording ______ and ______ to the account.

debit; credit

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

debit; credit

Because dividends reduce retained earnings, a ______ to dividends is essentially a ______ to retained earnings.

debit; debit

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

debits and credits.

Which effect will the payment of salaries to employees for the current period have on stockholder's equity?

decrease

increase in dividends results in a ___ in RE and SE

decrease

increase in expenses results in a ____ in NI, RE, and SE

decrease

LOR of DEALOR acronym ____ debit and ____ credit

decrease; increase

What is the effect of dividends on retained earnings?

decreases

What is the effect of expenses on retained earnings?

decreases

increase in expenses/dividends, _____ stockholder's equity

decreases

When a company receives cash in advance from customers for services to be performed in the future, the transaction affects the ______ account.

deferred revenue

Beloit Company receives $40,000 from customers for services to be performed in the following year. Recording this transaction will include a credit to

deferred revenue.

After the accountant analyzes the impact of a transaction on the accounting equation, the next step in the measurement process is to

determine the accounts to debit and credit.

when Wendy's buys a new cash register for its stores, paying cash, how does it affect the accounting equation?

doesn't change it (asset equipment goes up, asset cash goes down, doesn't change)

The purpose of a trial balance is to (2)

ensure debits equals credits, assist in preparing adjusting entries.

Crane purchases equipment by signing a note payable with the equipment dealer for $10,000. The accounts affected for Crane are

equipment and notes payable.

internal transactions

events that affect the financial position of the company but do not include an exchange with a separate economic entity, measured at the end of the period

A(n) _____ is a cost of doing business during the period, whereas a(n) ____ is a distribution of cash to stockholders. (Enter only one word per blank.)

expense; dividend

advertising expense: account type? increase/decrease account balance? debit/credit?

expense; increase; debit

A(n) _____ transaction involves an exchange between the company and a separate economic entity. (Enter one word per blank)

external

A trial balance may not be free of errors because the trial balance

only determines that debits equals credits.

Gondel Company's journal shows a debit to prepaid rent and a credit to cash. This means that Gondel Company

paid rent in advance.

prepaid rent

paying rent in advance

DiAngelo Company's journal shows a debit to cash and a credit to service revenue. This journal entry indicates that DiAngelo:

performed a service for a customer for cash

The process of transferring information from a journal entry to the specific accounts affected in the general ledger is referred to as _____ (Enter only one word.)

posting

Pilot Company pays for two years of rent in advance. Recording this transaction would include a debit to

prepaid rent

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.

The accumulated net amount of revenue less expenses and dividends is reflected in the balance of __ ___

retained earnings

Consistent with the _____ recognition principle, companies record revenue at the time goods are provided to customers. (Enter only one word.)

revenue

revenue recognition principle

states that companies record revenue at the time they provide goods and services to customers

The purpose of an account is to

summarize all transactions for that item.

An simplified version that is used informally for analysis instead of drawing a formal general ledger account is referred to as a:

t-account

The balance in retained earnings represents

the accumulated net amount of revenue minus expenses and dividends over the company's lifetime.

debit

the left side of an account

credit

the right side of an account

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

True or false: After posting all journal entries to accounts. the sum of accounts with debit balances should equal the sum of accounts with credit balances.

true

True or false: For each journal entry, debits must be equal to credits.

true

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

London Corp. issues 1,000 shares of stock for $20 per share. What is the effect of this transaction on the accounting equation? (2)

Assets increase Stockholders' equity increases

Farmer, Inc. purchases a tractor for $80,000 cash. Recording this transaction will require which of the following? (2)

Credit cash Debit equipment

Pluto Inc. borrows $3,000 from Second National Bank by signing a promissory note. Recording this transaction will include which of the following? (2)

Credit note payable Debit cash

National Company provides services to customers on account for $20,000. Which of the following journal entries is used to record this transaction?

Debit accounts receivable; credit service revenue.

On August 2, Garner Company provides services to a long-time customer for $50,000. Payment for this service is due on September 1. Which of the following journal entries is made to record this transaction on August 2?

Debit accounts receivable; credit service revenue.

Rawlings Corp. borrows $3,000 on a note payable from Third National Bank. Which of the following is used to record this transaction?

Debit cash $3,000; credit note payable $3,000.

Inwood Corporation receives $36,000 in advance from customers for services to be performed over the next three years. Which of the following is used to record this transaction?

Debit cash; credit deferred revenue.

Fuller Company provides services to customers for $25,000 cash. Which of the following is used to record this transaction?

Debit cash; credit revenue

Oasis Company provides services to customers for $10,000 cash. Which of the following is used to record this transaction?

Debit cash; credit revenue.

On June 1, Kale Inc. repays a promissory note for $10,000. Which of the following is used to record this transaction?

Debit notes payable; credit cash.

Pearl Corporation pays employee salaries of $5,000 for the current period. Recording this transaction will include which of the following? (Select all that apply.) (2)

Debit salary expense Credit cash

Resnick purchases supplies on account. Which of the following is used to record this transaction?

Debit supplies; credit accounts payable.

Torrence purchases supplies for cash. Which of the following is used to record this transaction?

Debit supplies; credit cash.

Geo Corporation issues stock to investors for $100,000. Recording this transaction will include which of the following? (2)

Debit to cash Credit common stock

Journal Cash&CS. Analyze the following journal entry. What is the transaction that required this entry?

Issue stock to investors

computerized system

Journal entries are instantly posted to the general ledger

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

Journal entries are instantly posted to the ledger

manual system

Journal entries are posted periodically to the general ledger

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

Ledger

When cash is received in advance for services to be performed at a later date, an asset is increased and

a liability is increased.

chart of accounts

a list of accounts used by a business

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

account; general ledger

external transactions (ex.)

a company's transactions with many different individuals and other companies (ex: selling products to a customer, borrowing money from the bank)

Measuring External Transactions (6 Steps)

1. use source documents to identify accounts, 2. analyze the impact of the transaction on the accounting equation, 3. assess whether results are credit/debit, 4. record in a journal, 5. post transaction, 6. prepare a trial balance

A transaction will always affect at least ______ accounts.

2

If debits do not equal credits on a trial balance, a possible error could be

a debit was posted to the credit column for a journal entry.

True or false: A trial balance is used for internal purpose to check that debits equal credits.

True

When should revenue be recorded?

When the services are performed

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

ledger

to see effect of each transaction, ask yourself 3 questions...

1. what is one account in equation affected by?, 2. what is second account affected by?, 3. do assets equal liabilities plus SE?

Deferred Revenue

A liability created when a business collects cash from customers in advance of completing a service or delivering a product.

When supplies are purchased on account, which of the following occurs?

A liability increases.

account

A record that summarizes all the transactions pertaining to a single item in the accounting equation

A journal entry should contain which of the following information? (4)

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

Select the accounts that increase with a debit. (3)

Advertising expense Supplies Accounts receivable

Accounts receivable are assets which represent

Amounts owed by customers

Accounts Receivable

Amounts to be received in the future due to the sale of goods or services

Jeremy issues 5,000 shares of common stock for $10 per share. Which of the following accounts are affected? (Select all that apply.) (2)

Cash Common stock

acronym DEALOR means

D-dividends, E-expenses, A-assets, L-liabilities, O-owner's equity, R-revenue

Which type of account is increased with a debit?

Expense

On February 1, Domino Corporation ordered inventory. The inventory was received on February 15. Domino paid for the inventory on February 27. On which of the following dates will Domino record a transaction? (Select all that apply) (2)

Feb 15, Feb 27

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

General ledger

What are the effects of providing services on account to customers? (2)

Increase assets, Increase retained earnings

Rice borrows $20,000 from the bank. Which of the following is an effect of this transaction?

Increase liabilities

Price Company provides cleaning services to customers for $10,000 cash. What are the effects of this transaction on the accounting equation? (Select all that apply.) (2)

Increase retained earnings Increase assets

accounting cycle

The full set of procedures used to accomplish this two-step measurement/communication process

True or false: Revenue is recorded when services are performed, whereas deferred revenue is recorded when cash is received from customers in advance before services are performed.

True

liability accounts include

accounts payable, salaries payable, utilities payable, and taxes payable

transaction: provide services for cash does what to accounting equation?

assets increase, SE increase

transaction: provide services on account does what to accounting equation?

assets increase, SE increases

when Walmart borrows money from the bank how does it affect the accounting equation?

assets increase, and liabilities increase

transaction: borrow cash from the bank does what to accounting equation?

assets increase, liabilities increase

transaction: purchase supplies on account does what to accounting equation?

assets increase, liabilities increase

transaction: receive cash in advance from customers does what to accounting equation?

assets increase, liability increase

Cray purchases equipment for cash. Total assets will

be the same

increase in salaries expense results in a _____ in retained earnings

decrease

On January 1, Lorna pays $36,000 of rent in advance. The effects of this transaction are to (2)

decrease cash. increase prepaid rent.

When a company pays salary expense, the effects are to (2)

decrease stockholders' equity. decrease assets.

transaction: purchase equipment does what to accounting equation?

doesn't change (asset equipment increase, asset cash decreases)

On January 1, Kim pays for two years of rent in advance. The effect of this transaction

has no effect on total assets.

transaction: issue common stock does what to accounting equation?

increase assets, increase common stock

Ramirez purchases $50,000 of equipment by signing a note payable. The effects are (2)

increase in assets. increase in liabilities.

Revenues ______ retained earnings; therefore, to increase any revenue, one would ______ the revenue account.

increase; credit

DEA of DEALOR acronym ____ debit and ____ credit

increase; decrease

debit always means ____ and credit always means ____

increase; decrease

What effect does revenue have on retained earnings?

increases

increase in revenue, ______ stockholder's equity

increases

What type(s) of transactions are typically measured only at the end of the accounting period?

internal transactions

The commonly used format for recording a transaction is referred to as a(n)

journal entry

debit is what side of accounting equation?

left (asset)

How is deferred revenue classified?

liability

notes payable: account type? increase/decrease account balance? debit/credit?

liability; increase; credit

A chart of accounts is a

list of all account names and numbers used by a company.

transaction: pay rent in advance does what to accounting equation?

no change (increase prepaid rent asset, decrease cash asset)

RE three components

revenues, expenses, dividends

credit is what side of accounting equation?

right (liabilities and SE)