Financial Accounting Chapter 3

Credits will Increase on which of these accounts? -Sales Revenue -Deferred Revenue -Accounts Payable -Advertising Expense

-Accounts Payable -Deferred Revenue -Sales Revenue

Indicate how each of the following transactions on June 30 affect the company's financial statements. -On June 30, The Corner Café paid cash for insurance for the six-month period that covers the last two quarters of the year. -On June 30, Corner Café paid in wages to employees who worked during the last week of June. On June 30, Corner Café received a bill for electricity used during June. The company will not pay the bill until shortly before its due date in July.

-An asset (other than cash) on the balance sheet is increased -An expense on the income statement is increased -A liability on the balance sheet and an expense on the income statement are both increased

Under accrual basis accounting, if a company delivers a product on account to the customer, which of the following is reported by the company?

-An asset on the balance sheet -A revenue on the income statement

Which of the following should be classified as stockholders' Equity? -Deferred Revenue -Accounts Receivable -Common Stock -Retained Earnings

-Common Stock -Retained Earnings

Bank 'n' roll pays its employees once a month, paid its employees $10,000 for work performed in may one may 31. the entry to record the payment includes a __________.

-Credit to Cash -Debit to Wages Expense

The entry to record the sale of services for cash includes a __________.

-Credit to Service Revenue -Debit to cash

A journal entry a law firm records when it provides legal service for a client who will pay a later period includes a ______

-Credit to Service Revenues -Debit to Accounts Receivable

Pizza Company prepaid 3 months' store rent. The journal entry to record this transaction includes a

-Debit to Prepaid Rent -Credit to Cash

Which of the following statements about revenues are true? -Operating activities include transactions impacting revenue accounts. -Revenues are the amounts a business charges its customers for services it provides or goods it sells to them. -Revenue is reported when the company is paid by the customer. -Revenue is reported when the company fulfills its promise to transfer control of a good or service to a customer.

-Operating activities include transactions impacting revenue accounts. -Revenues are the amounts a business charges its customers for services it provides or goods it sells to them. -Revenue is reported when the company fulfills its promise to transfer control of a good or service to a customer.

Which of the Following are found on the income statement? -Inventory -Wages Expense -Revenues -Accounts Receivable

-Revenues -Wages Expense

Which of the following accounts will be found on the income statement? -Sales Revenue -Deferred Revenue -Accounts Receivable -Advertising Expenses -Accounts Payable -Prepaid Advertising

-Sales Revenue -Advertising Revenue

Revenue is recognized when

-cash is collected from customers, if using cash basis accounting -services are provided even if cash has not yet been collected, if using accrual basis accounting

Accrual basis accounting differs from cash basis accounting in that accrual basis accounting records _____________

-expenses in the period incurred, even though cash has not yet been paid -revenues in the period when the services are performed or goods are delivered, even if the ash has not yet been collected ****Regardless when cash has been received, it is when the goods and services provided

What are 3 common misconceptions users of an income statement may have

1) People think net income equals the amount of cash generated by the business during the period. 2) A second misconception is that a company's net income represents the change in the company's value during the period 3) A third common misconception is that the measurement of income involves only counting.

Total Revenues equals $80,000 and Net Income equals $20,000, then total expenses equals $ ______

60,000

Deferred Revenues

A liability account used to record the obligation to provide future services or return cash that has been received before services have been provided.

Under accrual basis accounting, if cash is received from the customer before the product is delivered to that customer, in addition to the cash that is received, which of the following is reported by the company?

A liability on the balance sheet

Under accrual basis accounting, if cash is received from the customer when the product is delivered to that customer, in addition to the cash that is received, which of the following is reported by the company?

A revenue on the income statement

Prepaid Expenses

A type of asset account used to record the benefits obtained, when cash is paid before expenses are incurred.

A seller records an increase to the asset account called __________ __________ when it sells to a customer on credit.

Accounts Receivable

Revenue on the income statement for the year ended Dec 31, 2020 equals the

Amount recognized by selling goods or services to customers during 2020

Which of the following is (are) increased with a debit?

Asset Accounts

If revenue is credited, then the possible debits are

Cash Deferred Revenue Accounts Receivable

Expense

Costs that result when a company sacrifices resources to generate revenues in the current period.

Berry Dive Shop receives a total of $500 today from its customer for scuba diving lessons. The lessons begin in the next fiscal year. Which of the following describes how the company will account for this transaction?

Credit Deferred Revenue for $500

Neeta Landscaping Company provides lawn care services to a customer and immediately receives $45. Which of the following describes how the company will account for this transaction?

Credit Service Revenue for $45

Brown Company prepared a tax return for a client and sent that client a bill for $750. Which of the following describes how Brown Company will account for the fee relating to this work?

Credit Service Revenue for $750

Revenues are increased with

Credits because they increase stockholders' equity

During May, Aldine Company advertised its products and received a bill, dated May 31, for $2,000 to be paid during the following month. Which of the following describes how Aldine will account for the receipt of the bill for advertising services?

Debit Advertising Expense for $2,000

Matisse Co. pays $12,000 for rent of office space that will cover the next six months. Which of the following describes how Matisse will account for the payment for rent?

Debit Prepaid Rent for $12,000

On June 30, Manning Company wrote checks to employees, totaling $1,500 for wages related to hours worked in June to provide services to its customers. Which of the following describes how Matisse will account for the payment to employees?

Debit Salaries and Wages Expense for $1,500.

The correct journal entry to record a transaction that involves paying cash for an expense incurred in the same period is ______

Debit an expense and credit cash

Pizza Company sold pizzas on account. The journal entry to record the sales will include a

Debit to Accounts Receivable Credit to sales revenue

____________ Revenue arises when a business receives cash in one period, but recognized the revue in a later period

Deferred

The trial balance is an internal report used to determine whether total debits __________ total credits.

Equals

__________ are the costs of operating a business that are incurred to generate revenues in the period covered by the income statement

Expenses

Which of the following are found on an income statement? -Dividends -Expenses -Net Income -Revenue

Expenses Revenue Net Income

Under accrual basis accounting, which of the following is required by the expense recognition principle?

Expenses are recognized in the same period as the revenues in which they relate

True or False: Financing activities are the primary source of revenues and expenses?

False; its operating expenses

The balance sheet reports the company's assets, liabilities, and stockholders' equity at a specific point in time. the __________ statement describes the revenue and expense items that affected net income over an interval of time.

Income

The financial statement that reports revenues and expenses is the

Income Statement

If you want to compute a company's net profit margin, which of the following financial statements do you need?

Income Statement only

Which ratio change provides good news about a company?

Increase in the net profit margin ratio

Which of the following statements is true about an unadjusted trial balance? -An unadjusted trial balance is prepared to ensure no recording errors have been made. -Balance sheet accounts are listed after income statement accounts on an unadjusted trial balance. -It is an internal report prepared after end-of-period adjustments. -It lists the balance of each account to check the equality of total debits and credit.

It lists the balance of each account to check the equality of total debits and credit

If the purchase of supplies on account is not recorded then ________.

Liabilities will be understated

Morris Lest, Inc. received and paid a $500 electric bill in June for electricity used in May. In which onth should Morris Lest record the expense in accordance with Generally Accepted Accounting Principles?

May

Which of the following appear at the end of the income statement?

Net Income

Matisse Co. reported total revenues of $100,000 and total expenses of $90,000. The net profit margin is:

Net Income= Total Revenue-Total Expenses Net Profit=Net Income/Total Revenue 100,000-90,000=10,000 Net Income 10,000/100,000= 10% Net Profit

Which of the following would increase the net profit margin ratio in the current year?

Postpone routine maintenance work that was to be done this year

Which of the following is not an example of an operating activity? Collecting cash from customer Paying cash to suppliers Purchasing a long-term asset

Purchasing a long-term asset

Expense Recognition Principle

Record expenses when incurred in earning revenue

Revenue Recognition Principle

Record revenue when or as a work is done, not necessarily when cash is received

Accrual Basis Accounting

Record revenues when or as work is done and expenses when incurred

Cash Basis Accounting

Record revenues when received and expenses when paid.

In accrual accounting, according to the __________ recognition principle, revenues should be recognized when they are earned, not necessarily when cash is received.

Revenue

Which of the following is increased with a credit?

Sales Revenue

Revenues

The amount charged to customers for providing goods or services.

Which of the following statements about financial statements are true? -The balance sheet takes stock of what exists at a point in time. -Balance sheet accounts are considered permanent. -Income statement accounts are considered temporary. -Items on the income statement will continue to have a financial impact beyond the end of the current period

The balance sheet takes stock of what exists at a point in time. Balance sheet accounts are considered permanent. Income statement accounts are considered temporary.

Dividing the long life of a company into shorter periods such as months, quarters, or years for reporting purposes is called the:

Time Period Assumption

Wage Works, Inc. reported $10,000 of Wages Expense and $2,000 of Wages Payable on its annual financial statements. Which statements about wages is true?

Wages Expense, on the income statement, reports the amounts of services received during the yearWages Payable, on the balance sheet, reports the amount owed at the end of the year for the services received.

When are revenues recorded under the accrual basis method of accounting?

When they are generate

Reporting revenue when the goods or services are provided and expenses when they are incurred is called ______basis accounting

accrual

Prepaid insurance is a(n) ______________

asset and reports the amount of insurance paid in advance that has not been used.

Reporting revenues when they are earned and expenses when they are incurred is called __________ basis accounting.

cash

The journal entry that records the collection of cash from a customer for payment on account for sale that was recorded previously includes a debit to ___________

cash and credit to accounts receivable

Cash basis accounting does not measure financial performance very well when transactions are conducted using _______

credit rather than cash

What account is credited when a customer pays in advance for goods to be delivered later?

deferred revenue

A business just acquired and paid something that provides benefit in future periods. The business will decrease Cash and ___________.

increase an asset such as supplies

The period from buying goods and services through to collecting cash is known as the ___________cycle

operating

The primary source of revenues and expenses come from _______ activities

operating

investing activities are concerned with acquiring long-term assets; financing activities provide the money needed to operate the business and to provide the capital for investing activities; and __________ activities are involved with providing goods and services to the customers

operating

net loss results when

revenues are less than expenses

The key factor in determining whether revenue should be recognized is whether the

seller has provided the goods or services to the customer

The journal entry to record the purchase of supplies on account is debit ________

supplies and credit accounts payable

In accordance with the expense recognition principle, Supplies Expense should be recorded in the accounting period the supplies are

used