Econ Smart Book II

True or false: A balance sheet is a list of all accounts and their balances showing that debits equals credits.

False

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

False

True or false: The term debit means increase, and the term credit means decrease.

False

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

True

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

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

True or false: The accounting equation must always remain in balance.

True

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

credit to notes payable debit to cash

Roslin Corp. provides services to customers on account for $5,000. Recording this transaction will include a

credit to revenues.

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

credit to revenues.

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

credits.

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

date

For every journal entry, total----- must be equal to total credits. (Enter one word per blank)

debit

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

debit

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

debit to equipment $100,000.

Ming Corporation pays its employees $4,000 in salaries for the current period. Recording the payment of salaries would include a

debit to salary expense.

Yeung Corp. purchases supplies on account. Recording this transaction will include a

debit to supplies.

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

debit; debit

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

debit; debit

Transactions that are typically recognized at the end of the period and do not include an exchange with a separate company are referred to as------------ transactions.

internal

An event that affects the financial position of a company but does not include an exchange with a separate economic entity is a(n)

internal transaction.

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

issued shares to stockholders

A chronological record of all economic events affecting a firm are recorded in a(n)

journal

A(n) entry describes the format for recording a transaction.

journal

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

journal entry.

A debit is on the ______ side of the account.

left

A chart of accounts is a

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

The type of information included in an account includes

the account title. columns for debits and credits.

The balance in retained earnings represents

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

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

three.

Lim Corporation purchases $10,000 of equipment for cash. The effect of this transaction is

total assets will remain the same.

Long issued 5,000 shares of stock for $10,000. Long used $2,000 of the proceeds to purchase supplies, and borrowed $8,000 cash from the bank. Long's total assets are

$18,000.

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.

Clem Corporation issues 1,000 shares of common stock for $25,000. Clem purchased equipment for $10,000 by borrowing from the bank. Clem's total assets are

$35,000.

Zelda purchases $10,000 of supplies on account. The effects of this transaction are to

- increase liabilities - increase assets

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)

-February 15 -February 27

Jeremy issues 5,000 shares of common stock for $10 per share. Which of the following accounts are affected?

1.) Common stock 2.) Cash

Place the 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.

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

A liability increases.

If a transaction decreases cash by $100, the balance sheet will balance if which of the following occurs? (Select all that apply)

A liability is decreased Another asset is increased

Which accounts require a credit entry to increase the account?

Accounts payable Retained earnings

When a company performs services for a customer, and the customer agrees to pay for the services at a later date, the transaction is recorded in which account?

Accounts receivable

Which of the following accounts would normally have a debit balance on the trial balance?

Accounts receivable Equipment Dividends

Select the accounts that increase with a debit.

Advertising expense Accounts receivable Supplies

Where is the Deferred Revenue account reported in the financial statements?

As a liability

A payment of cash dividends will decrease which of the following?

Assets Stockholders' equity Retained earnings

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

Assets increase Stockholders' equity increases

The sum of accounts with---- balances must equal the sum of the accounts with---- balances.

Blank 1: debit Blank 2: credit

Accounts on the left side of the accounting equation (assets) are increased with a(n) ----to the account, whereas accounts on the right side of the accounting equation are increased with a(n) ----.

Blank 1: debit or DR Blank 2: credit or CR

Accounts on the left side of the accounting equation (assets) are increased with a(n)----- to the account, whereas accounts on the right side of the accounting equation are increased with a(n) -----.

Blank 1: debit or DR Blank 2: credit or CR

For every journal entry, total --- must be equal to total--- . (Enter one word per blank)

Blank 1: debits or debit Blank 2: credits or credit

Expenses ---stockholders' equity because they ---retained earnings.

Blank 1: decrease, lower, or reduce Blank 2: decrease, lower, or reduce

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.)

Blank 1: expense Blank 2: dividend

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

Blank 1: journal Blank 2: ledger

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.

Blank 1: left Blank 2: right

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.

Blank 1: left Blank 2: right

An increase in revenues increases ------, which increases retained earnings, which increases stockholders' equity. (Enter one word per blank)

Blank 1: net Blank 2: income

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.)

Blank 1: posting

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.)

Blank 1: posting

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

Blank 1: retained Blank 2: earnings or earning

A list of all accounts and their balances at a particular date showing that debits equal credits is referred to as a(n) .

Blank 1: trial Blank 2: balance

Analysis of Mueller Company's accounts show that as a result of a single transaction, both cash and notes payable increased by $10,000. Which of the following transactions would have caused this increase?

Borrowing cash and signing a promissory note

Analyze the following journal entry. What is the transaction that required this entry?

Borrowing cash from the bank

Slim purchases equipment with cash. The accounts affected are

Cash and equipment.

London Corp. issues 1,000 shares of stock for $20 per share. What are the effects of this transaction

Cash is increased. Common stock is increased

Which of the following accounts would normally have a credit balance on the trial balance?

Common stock Notes payable Deferred revenue

Identify accounts that require a credit to increase the account.

Common stock Revenue

Wolfgang Company's assets and stockholders' equity both increased by $50,000 as a result of a single transaction. Which of the following transactions would explain this increase?

Common stock was sold for cash

Match the type of the accounting system with the method for posting journal entries.

Computerized system Journal entries are instantly posted to the general ledger Journal entries are instantly posted to the general ledger Manual system Journal entries are posted periodically to the general ledger Journal entries are posted periodically to the general ledger

Borrowing cash and signing a promissory note

Confirm that assets are equal to liabilities plus stockholders' equity

Which of the following is on the right side of an account?

Credit

Zinc Corp. pays a dividend of $10,000 to its stockholders. Which of the following entries are required to record this transaction?

Credit cash Debit dividends

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

Credit cash Debit equipment

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

Credit common stock Debit to cash

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

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.

Carnival Company issues common stock to investors for $50,000. Which of the following is used to record this transaction?

Debit cash; credit common stock.

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.

Gilman Company pays a dividend of $4,000 to stockholders. Which of the following is used to record this transaction?

Debit dividends; credit cash.

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.

Porter Company pays for three years of rent in advance. Which of the following is used to record this transaction?

Debit prepaid rent; credit cash.

Pearl Corporation pays employee salaries of $5,000 for the current period. Recording this transaction will include which of the following?

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.

Alvord Company pays employees $10,000 for work performed in the current period. Which of the following is used to record this transaction?

Debit to salary expense.

What effect will the payment of salaries to employees for the current period have on stockholders' equity?

Decrease

What is the effect of dividends on retained earnings?

Decrease

What is the effect of expenses on retained earnings?

Decrease

What is the effect of expenses on stockholders' equity?

Decrease

A journal entry should contain which of the following information?

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

Identify the three components of retained earnings.

Dividends Expenses Revenues

Match each item with its definition.

Expense Cost of conducting business during the period Cost of conducting business during the period Dividend Distribution of cash to stockholders Distribution of cash to stockholders

Which of the following accounts are located in the income statement?

Expenses Revenues

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

General ledger

When services are provided on account, what is the effect on stockholders' equity?

Increase

LMN Enterprises performs accounting services for a client for $3,000 cash. What is the effect on the accounting equation?

Increase assets and increase retained earnings

Lexington Company borrows $10,000 from a bank by signing a promissory note. What are the effects of this transaction on the accounting equation?

Increase liabilities Increase assets

assets to increase and liabilities to increase.

Increase retained earnings

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

Increase retained earnings Increase assets

What effect does revenue have on retained earnings?

Increases

What is the effect of net income on retained earnings?

Increases retained earnings

The----------transaction is an event that affects the financial position of the company but does not include an exchange with a separate economic entity.

Internal

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

Internal transactions

Analyze the following journal entry. What is the transaction that required this entry?

Issue stock to investors

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

Journal entries are instantly posted to the ledger

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

Ledger

The accounting equation is: Assets =---- + Stockholders' Equity.

Liabilities

How is deferred revenue classified?

Liability

On May 1, Ace Electronics ordered office equipment. The equipment was delivered to Ace on May 15, and Ace agreed to pay for it by the end of the month. Ace paid for the equipment on May 31. When will Ace make the first entry in its accounting system for this purchase?

May 15

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?

Notes payable increases Cash increases

Analyze the following t-accounts. What is the transaction that required the posting of item (4)?

Pay rent in advance

Analyze the following t-accounts and postings. What is the transaction that would require the posting of item (10)?

Payment of dividends to investors

Analyze the following journal entry. What is the transaction that required this journal entry?

Payment of rent in advance

Analyze the following journal entry. What is the transaction that required this journal entry?

Payment of salaries to employees

Analyze the following t-accounts and postings. What is the transaction that required the posting of item (9)?

Payment of salaries to employees

Neumann Company's journal shows a debit to salaries expense and a credit to cash. What is the transaction that required this journal entry?

Payment of salaries to employees

Analyze the following journal entry. What is the transaction that required this journal entry?

Perform services for customer for cash

Analyze the following t-accounts. What is the transaction that required the posting of item (7)?

Perform services for customers on account

Analyze the following journal entry. What is the transaction that required this journal entry?

Purchase equipment for cash

Analyze the following journal entry. What is the transaction that required this entry?

Purchase supplies on account

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 are external transactions?

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

Which of the following is an external transaction?

Purchasing supplies from a vendor

Which of the following accounts normally have a credit balance?

Retained earnings Common stock

Which of the following are stockholder equity accounts?

Retained earnings Common stock

Which of the following accounts would normally have a credit balance on the trial balance?

Retained earnings Deferred revenue

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

Revenue

Which type of account is increased with a credit?

Revenue

Match the account used for each type of transaction.

Revenue-Services performed for customers for cash or on account Deferred revenue-Cash received from customers for services to be performed in the future

What are the three components of retained earnings?

Revenues, expenses, and dividends

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

Stockholders' equity decreases.

Which of the following accounts would normally have a debit balance on the trial balance?

Supplies Utility Expense Cash

Rory purchases supplies for cash. Which of the following occurs?

Total assets remain the same

Arrange the steps for measuring transactions in the correct order.

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

Which accounts require a debit entry to increase the account?

Utility expense Cash

When should revenue be recorded?

When the services are performed

Indicate which situations would require Zenda Company to record revenue in the current period. (Select all that apply.)

Zenda performs services for cash. Zenda performs services on account.

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.

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

a liability is increased.

A company records the effects of transactions for a particular item in a(n)

account.

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

account; general ledger

The term ------cycle refers to the full set of procedures utilized to measure and communicate business transactions to external decision makers. (Enter only one word.)

accounting

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

accounting cycle.

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

an asset

The account deferred revenue is used to record

an obligation to perform services in the future.

Accounts receivable are

assets

The cost of equipment that will benefit future periods is typically recorded as a(n) .

assets

Marcy receives $10,000 cash in advance from customers for services to be performed in the following year. This transaction would cause

assets to increase and liabilities to increase.

The accounts included on the balance sheet are

assets. stockholders' equity. liabilities.

The purpose of a trial balance is to

assist in preparing adjusting entries. ensure debits equals credits.

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

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

borrowing cash from the bank.

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

cash

A list of all account names used to record transactions of a company is referred to as the

chart of accounts

The two components of stockholders' equity are

common stock and retained earnings.

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

common stock.

In a double entry accounting system, the right side of the account is referred to as a -----(Enter one word per blank)

credit

Stockholders' equity accounts normally have a---- balance.

credit

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

debits and credits.

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

Dividends paid to stockholders will cause retained earnings to

decrease

Stockholders' equity decreases.

decrease assets. decrease stockholders' equity.

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

decrease cash. increase prepaid rent.

What is the effect of dividends paid on the expanded accounting equation?

decrease retained earnings. decrease assets

When a company pays salary expense, the effects are to

decrease stockholders' equity. decrease assets.

Expenses will cause retained earnings to

decrease.

Dividends ______ retained earnings; therefore, to increase dividends, one would ______ the dividends account.

decrease; debit

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

Net income ______ retained earnings.

increases

Budget Company pays a dividend to its shareholders for $5,000. Recording this transaction will include a debit tor $10,000. Which of the following is used to record this transaction?

dividends.

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

Credits increase revenues, whereas debits increase

expenses and 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 (Select all the apply):

expenses. dividends. assets.

The types of accounts which affect retained earnings are

expenses. dividends. revenues.

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

external

True or false: The two functions of financial accounting are to measure business activities and prepare tax returns.

fales

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

has no effect on total assets.

Revenue and expense accounts are shown in the

income statement.

Price Company provides cleaning services to customers for $10,000 cash. What are the effects of this transaction on the accounting equation?

increase assets Increase retained earnings

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

increase in assets. increase in liabilities.

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

increase liabilities

Revenues cause retained earnings to

increase.

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

increase; credit

The two roles of financial accounting are to:

measure business activities of the company. communicate information to external parties for decision making purposes.

Stockholders' equity is increased by revenues because revenues increase

net income.

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

only determines that debits equals credits.

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

owners' equity. revenues. liabilities.

Crimson Company's journal shows a debit to the dividend account and a credit to cash. Crimson Company must have:

paid a dividend to its stockholders

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

paid 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 the journal to the ledger is referred to as

posting.

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

prepaid rent

Rent paid in advance and classified as an asset is referred to as

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.

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

provided goods or services to a customer.

Indigo Company's journal reveals that equipment was debited and notes payable was credited, both for $10,000. Indigo Company must have

purchased equipment and signed a note for the purchase price

The purpose of a journal is to

record a chronological listing of every transaction for a company.

Cray purchases equipment for cash. Total assets will

remain the same.

Prepaid rent is

rent paid in advance.

An increase in revenues increases net income, which results in an increase to:

retained earnings

The purpose of an account is to

summarize all transactions for that item.

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

t-account

True or false: An external transaction is a transaction the firm conducts with a separate economic entity.

ture

A transaction will always affect at least ______ accounts.

two