Chapter 2: The Accounting Cycle During the Period

It is possible to generate _______ but not _______

Revenue: Income

Which of the following normally has a credit balance

Service revenue

the first step for analyzing the effect of transactions in the correct order?

1. determine one account in the accounting equation that will increase or decrease

the second step for analyzing the effect of transactions in the correct order?

2. determine a second account in the accounting equation that will increase or decrease

Claire purchases equipment for $10,000 by paying $3,000 in cash and borrowing $7,000 from the bank. The number of accounts affected by this transaction is?

3 accounts are affected: equipment, notes payable, and cash.

If a transaction decreases cash by $100, the balance sheet will balance if which of the following occurs?

A liability is decreased Another asset is increased

A trial balance can best be explained as a list of:

All accounts and their balances at a particular date.

Accounts receivable are assets which represent?

Amounts owed by customers

Providing services to customers for cash would be recorded with a

Credit to service revenue

Providing services to customers on account for $100 is recorded as

Debit accounts receivable 100; credit service revenue $100

Purchasing office supplies on account for $100 is recorded as

Debit supplies $100; credit accounts payable $100

A credit to cash will

Decrease assets

After ____ ____ is earned it is moved over to retained earnings

Deferred revenue

_____ decrease retained earnings

Expenses

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

Journal entries are instantly posted to the ledger

Purchasing land with cash would have what effect on the accounting equation?

No effect

Which of the following transactions decreases stockholders equity

Pay salaries for the current period

Which of the following transactions cause an increase in stockholders equity

Provide services to customers on account

Which of the following transactions increases total assets

Provide services to customers on account

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

account; general ledger

A debit is used to decrease which of the following accounts

accounts payable

examples of short term liabilities

accounts payable

examples of assets

accounts receivable, cash, supplies

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

deferred revenue

collected the money, but have not done the service

The type of information included in an account includes?

columns for debits/credits; the account title

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

common stock

The two components of stockholders' equity are

common stock and retained earnings

Which of the following are stockholder equity accounts?

common stock and retained earnings

the third step for analyzing the effect of transactions in the correct order?

confirm that assets are equal to liabilities plus stockholders' equity

Shannon Corporation issues common stock for $25,000. Recording this transaction will include a

credit to common stock

the balance of a liability account increases with a ____ and decreases with a ______?

credit;debit

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

debit cash;credit common stock

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

debit cash;credit notes payable

Roland Corporation borrows $10,000 from the bank by signing a promissory note. Recording this transaction will include:?

debit to cash; credit to notes payable

a ______to expense is essentially a ____ to retained earnings decreasing the account

debit; debit

the balance of an asset increases with a _____ and decreases with a ______?

debit;credit

the balance of an expense account increases with a _______ and decreases with a ________

debit;credit

Because expenses reduce retained earnings, a ______ to expense is essentially a(n) ______ to retained earnings.

debit;debit

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

debits

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

debits;credits

liabilities

decrease debits & increase credits

revenues

decrease debits & increase credits

stockholders' equity

decrease debits & increase credits

Expenses ______ retained earnings; therefore, to increase any expense, one would ______ the expense account.

decrease; debit

_____ decrease retained earnings

dividends

The acronym DEALOR can be used to remember how debits and credits affect different accounts. The three types of accounts that are increased with debits (represented by the DEA in the acronym) are

dividends,expenses and assets

Which type of account is increased with a debit?

expense

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

general ledger

revenues cause retained earnings to?

increase

assets

increase debits & decrease credits

dividends

increase debits & decrease credits

expenses

increase debits & decrease credits

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

increase; credit

Analyze the following journal entry. What is the transaction that required this entry? debit cash 25,000-----> credit common stock 25,000 ;

issue stock to investors

Klick's journal shows a debit to cash and a credit to common stock. This journal entry indicates that Klick:

issued shares to stockholders

accounts payable

known as purchasing on account

The term debit means to place the entry on the ____ hand side of the account, and the term credit means to place the entry on the ______ hand side of the account.

left;right

The acronym DEALOR can be used to remember how debits and credits affect different accounts. The three types of accounts that are increased with credits (represented by the LOR in the acronym) are?

liabilities, owners' equity and revenues

examples of liabilities

notes payable, long term

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

Ursula Company's bookkeeper records revenue relating to a customer transaction. This indicates that the company

provided goods or services to a customer

general ledger

provides in a single collection each account with its individual transactions and resulting account balance

Which of the following is an external transaction?

purchasing supplies from a vendor

What are the three components of retained earnings?

revenues, expenses, and dividends

if total assets decrease then ___________ will _____________

stockholders' equity; decrease

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

t 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: The accounting equation must always remain in balance.

true

examples of long term assets

vehicles, buildings, equipment

______ increase retained earnings

Revenues

trial balance

all accounts and their balances at a particular date showing total debits equal total credits - also assist in preparing entries for internal transactions

sales revenue

already provided services, performed obligations

the balance of a revenue accounts increases with a ______ and decreases with a _____

credit;debit

the balance of stockholders' equity account increases with a ______ and decreases with a _____?

credit;debit

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

credits

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

debits and credits

Credits increase revenues, whereas debits increase

expenses and dividends.

True or false: A ledger provides a chronological record of all transactions affecting the firm.

false

Net income ______ retained earnings.

increases

posting

is process of transferring the debit and credit info from the journal to individual ledgers accounts

a transaction is initially recorded in the general _______ and then subsequently posted to the general ________

journal;ledger

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

ledger

Analyze the following journal entry. What is the transaction that required this journal entry? debit equipment 24,000---->credit cash 24,000;

purchase equipment for cash

The purpose of a journal is to?

record a chronological listing of every transaction for a company