Lesson 2 Practice
Review each of the following statements to determine which is correct regarding the importance of assessing a company's risk of paying debt.
- a company that finances their assets by borrowing will need to make enough money to pay off the debt - if a company has a lot of debt, they may not be able to afford to take on new debt - a company's required debt payments may be greater than its ability to generate money to make those payments
Given the descriptions below, which are true regarding notes receivable?
- another name for a note receivable is a promissory note - it is the promise of another entity to pay a specific sum of money on a specified future date - notes receivable is classified as a liability
An annual insurance policy is paid in advance by a company. How will the company treat this initial payment and the subsequent expiration of a portion of the policy over time?
- as a portion of the policy expires, the expired portion will be removed and transferred to an expense account - the initial payment will be recorded as an increase to a Prepaid Insurance account - over time, the expired portion of the policy must be removed from the asset account as it has been used up and is no longer considered an asset.
Which of the following statements is accurate regarding equipment purchased within a business?
- equipment is reported on the left side of the accounting equation - equipment purchases are reported on the balance sheet - equipment is an asset - equipment cost is initially recorded as an asset and the cost is allocated over time to expense.
Which of the following statements is accurate about the Land account?
- the land account is used to record the costs of land purchased by the business - the land account is an asset - the land account is increased on the left side of its T-account
The general ledger can be used to determine which of the following:
- which accounts are being used by a company and their balances at any given time. - increases and decreases in all accounts in a business - common and unique accounts used by a business
Which of the following statements are accurate regarding supplies?
-supplies are assets until they are used - unused supplies can be recorded as store supplies, office supplies or supplies - when supplies are purchased they are added to the supplies account - unused supplies are treated as assets
Which of the following are accurate statements regarding how to report or treat prepaid accounts?
-the expired portion of prepaid accounts is reported on the income statement as an expense - the unexpired portion of prepaid accounts are treated as assets - over time, the expired portion of prepaid accounts is removed from the account and reported as an expense
Given the following information for Jackson's Boots, calculate its debt ratio for the current year. Total assets - 250 Total liabilities - 100 Total equity - 150
.40
When preparing a trail balance, there are certain steps that need to be followed. Place the following steps in the correct order.
1. List each account title and its amount from the general ledger. 2. Compute the total of debit balances and the total of credit balances 3. verify that total debit balances equal total credit balances
Which of the following statements is accurate regarding the Building account?
A Building asset account is used to record the costs of purchasing a store, office, warehouse, or factory
Equipment is a _____ account. It is reported on the _____ side of the accounting equation and is _____ when equipment is purchased.
Asset, Left, Increased
Identify which of the following lists include only examples of assets.
Building, Cash, Accounts Receivable
J. Jackson invested $1,000 in his business in exchange for common stock. Show how to use T-accounts to record this transaction by selecting the correct answer below.
Debit Cash; Credit Common Stock
The cost of land owned by a business is recorded in the Land account and this account is classified as an expense.
False
Reporting Time Period of Financial Statement
Income Statement - Period of time Balance Sheet - Point in time Statement of Retained Earnings - Period of Time Statement of Cash Flow - Period of time
Which of the following items would be considered "cash" and reflected in a company's Cash account?
Money orders, Coins, Checks
select the statement below that best defines prepaid accounts
Prepaid accounts are assets that represent prepayments of future expenses
Select the statement below that best defines prepaid accounts.
Prepaid accounts are assets that represent prepayments of future expenses.
Identify which of the following formulas correctly defines how to calculate the debt ratio.
Total liabilities/total assets
Which of the following is a true statement about debits and credits?
a credit is on the right side of an account
Which statement best describes a T-account?
a t-account represents a ledger account and is a tool used to understand the effects of one or more transactions
Liability Accounts
accounts payable, notes payable, unearned revenue accounts, accrued liabilities
Choose the accounts below that would have a normal credit balance
accounts payable, revenues, unearned revenues, common stock
Which statement is correct regarding entering transactions into the accounting equations?
after recording a transaction, the total of the right side of the accounting equation must equal the total of the left side of the accounting equation
Notes receivable is considered a _______
asset
The building account is a ______ account and it reported on the ______ side of the accounting equation.
asset, left
Supplies are ______ until they are used. When they are used up, their costs are reported as ______.
assets, expenses
When financial statements are prepared, unexpired prepaid accounts are recorded as _____ and the expired portion of the prepaid account is reported as a _____
assets, expenses
Asset Accounts
cash, accounts receivable, notes receivable, prepaid accounts, supplies, equipment, buildings, land
Which set of accounts below would have a normal debit balance?
expenses; dividends; cash
After entering a transaction into the accounting equation, an increase in total assets can be accompanied by a ______ in total liabilities or equity.
increase
a journal
it is a book of original entry that includes a chronological record of all transactions that have occurred within a business during a period occurred
a general ledger
it is a collection of all accounts with their activity and balances that exist in a business
a chart of accounts
it is a list of all ledger accounts which exist in a business and includes an identification number assigned to each account
a trial balance
it is a list of each account and its balance at any given time and is used to verify the debits = credits
A trail balance is a ____ of accounts and their balances at a point in time and is used to confirm that the sum of debit account balances equals the sum of _____ account balances.
list, credit
Equity Accounts
owner investments, owner distribution, revenue accounts, expense accounts
Transferring entries from the journal to the ledger is called ____
posting
which of the following is correct regarding posting a transaction?
posting means to transfer journal information to a ledger
Which of the following financial statements reports the financial position of a business over a period of time?
statement of cash flows income statement statement of retained earnings
Which of the following describes a general ledger?
the general ledger is a record containing all accounts used by a company
In defining a reporting period, which of the following statements is correct?
- a reporting period can be one month, one quarter or one year. - a one-year reporting period is known as the fiscal year. - a reporting period is determined by the business
Which of the following statements is correct regarding a T-account?
- a t-account will show the debit and credit effects of transactions - a t-account represents a ledger account - a t-account may be used as a tool to visualize the effects of a transaction
