test 1 account
Users of Accounting Information
internal users and external users
Purpose of Accounting
to identify, measure, and communicate information about a company that is useful in making economic decisions
Stockholders' Equity
The owners' claim to assets.
Accounting Equation
Assets = Liabilities + Owner's Equity
Expenses
are the cost of assets consumed or services used in the process of earning revenue.
dividend
are the distribution of cash or other assets to stockholders.
Financial Accounting Standards Board ►
(FASB)
►International Accounting Standards Board
(IASB)
Securities and Exchange Commission
(SEC)
Measurement Principles
1.HISTORICAL COST PRINCIPLE..record assets 2.FAIR VALUE PRINCIPLE states that assets and liabilities should be reported at fair value (the price received to sell an asset or settle a liability)
What three financial statements have we created?
1.an income statement 2.Retained earnings 3.balance sheet
ASSUMPTION
1/MONETARY UNIT ASSUMPTION requires that companies include in the accounting records only transaction data that can be expressed in terms of money. 2/ECONOMICENTITYASSUMPTIONrequires that activities of the entity be kept separate and distinct from the activities of its owner and all other economic e
10.Which of the following events cannot be quantified into dollars and cents and recorded as an accounting transaction? a. The appointment of a new CPA firm to perform an audit. b. The purchase of a new computer. c. The sale of store equipment. d. Payment of income taxes.
A
11.Prepaid expenses are recorded as: A) assets .B) liabilities. C) debits and credits. D) retained earnings
A
12. Sources of increases to stockholder's equity area. a.additional investments by owners .b. purchases of merchandise. c. dividends. d. expenses.
A
12.Which of the following accounts decreases with a credit? A) Cash B) Common stock C) Accounts payable D) Retained earnings
A
13.Which of the following accounts decreases with a debit? A) Notes payable B) Prepaid insurance C) Cash D) Land
A
6. A business settles a liability by making a payment with cash. How does paying this liability affect the accounting equation? A) Assets decrease; liabilities decrease .B) Liabilities decrease; stockholders' equity increases .C) Assets increase; liabilities increase. D) Assets increase; liabilities decrease.
A
Liabilities
Amounts owed to creditors
monetary unit concept, Economic Entity Concept ; Cost Principle
Assumptions
14.For Accounts receivable, the category of account and its normal balance are: A) Stockholders' equity and a credit balance. B) Assets and a debit balance .C) Liabilities and a credit balance. D) Assets and a credit balance.
B
15.The accounting process of copying a transaction from the journal to the ledger (or T-Account) is called: A) journalizing. B) posting. C) proofing. D) footing.
B
16.A business makes a cash payment of $12,000 to a creditor. Which account is debited? A) Cash B) Accounts payable C) Service revenue D) Accounts receivable
B
17.A business renders services to a customer for $16,000 on account. Which account is debited? A) Cash B) Accounts receivable C) Service revenue D) Accounts payable
B
19.A business makes a cash payment to a supplier "on account" (for supplies which were purchased earlier.) Which account is debited? A) Cash B) Accounts payable C) Supplies D) Service revenue
B
20.A business collects cash from a customer in payment of accounts receivable. Which account is credited? A) Cash B) Accounts receivable C) Service revenue D) Supplies
B
21.A business purchases equipment by paying cash of $8,000 and issuing a note payable of $12,000. Which of the following occurs? A) Cash is credited for $8,000; Equipment is credited for $20,000; and Notes payable is debited for $12,000. B) Cash is credited for $8,000; Equipment is debited for $20,000; and Notes payable is credited for $12,000. C) Cash is debited for $8,000; Equipment is debited for $12,000; and Notes payable is credited for $20,000 .D) Cash is credited for $8,000; Equipment is credited for $12,000; and Notes payable is debited for $4,000.
B
22. A business pays out cash dividends to shareholders. Which account is debited? A) Cash B) Dividends C) Accounts payable D) Service revenue
B
5. A $5,000 account payable is paid by the company. How is the accounting equation affected? A) Assets decrease $5,000; stockholders' equity increases $5,000. B) Assets decrease $5,000; liabilities decrease $5,000 .C) Assets increase $5,000; stockholders' equity decreases $5,000. D) Assets increase $5,000; liabilities increase $5,000.
B
1. By definition, which of the following represent the owners of a corporation? A) Customers B) Creditors C) Stockholders D) Employees
C
10.Accountants first record transactions in the :A) chart of accounts. B) trial balance .C) journal. D) ledger
C
11. The accounting process is correctly sequenced as a. identification, communication, recording. b. recording, communication, identification. c. identification, recording, communication. d. communication, recording, identification.
C
18.A business renders services to a customer for $16,000 on account. Which account is credited? A) Cash B) Accounts receivable C) Service revenue D) Accounts payable
C
2. Items such as buildings and land are: A) liabilities. B) equity. C) assets. D) revenues.
C
24.Scott's Camera Shop, Inc. started the year with total assets of $80,000 and total liabilities of $40,000. During the year, the business earned revenues of $120,000 and incurred expenses of $70,000. Scott paid dividends of $60,000.What is the amount of Scott's stockholders' equity at the end of the year? A) $40,000 B) $50,000 C) $30,000 D) $10,000
C
7. The business receives cash from a customer that is owed to company "on account," based on services rendered to the customer previously. How does the collection of the cash affect the accounting equation?A) Assets increase; stockholders' equity increases. B) Assets increase; liabilities increase. C) One asset increases; one asset decreases .D) Assets decrease; stockholders' equity decreases
C
23. Land is purchased by the company for $100,000. The company pays for land with a $20,000 cash payment and the execution of an $80,000 promissory note payable to the seller. How does this purchase affect the company's accounting equation? A) Assets increase $80,000; liabilities decrease $20,000. B) Assets increase $20,000; liabilities decrease $80,000. C) Assets increase $80,000; stockholders' equity increases $80,000. D) Assets increase $80,000; liabilities increase $80,000
D
3. Accountants often refer to GAAP. What do the letters GAAP represent in accounting? A) Globally accepted and accurate policies B) Global accommodation accounting principles C) Generally accredited accounting policies D) Generally accepted accounting principles
D
4. Stockholders' equity is $150,000 and total liabilities are $90,000. Total assets would be: A) $300,000.B) $180,000.C) $60,000.D) $240,000.
D
8. Which of the following accounts is NOT an example of an asset? A) Accounts receivable B) Cash C) Building D) Notes payable
D
9. Which of the following accounts is NOT an example of a liability? A) Wages payable B) Notes payable C) Accounts payable D) Accounts receivable
D
Proprietorship Partnership Corporation
Forms of Business Ownership
GAAP
Generally Accepted Accounting Principles
Difference between paid-in capital and retained earnings
Paid-in Capital represents investments in the company. The company sell stock (common stock), which represents ownership share is the business. 2..Retained Earnings: Retained Earnings result from operating the business. If I have a service business, when I provide the service, Retained Earnings will be affected
What it costs us to operate our business (expenses) will decrease
Retained Earnings
oth Revenues and Expenses will affect
Retained Earnings.
hen we operate our business (do our job) we earn
Revenue.
a. Paid-in Capital: Paid-in Capital represents investments in the company.
common stock
f dividends are paid to shareholders, it will come from Retained Earnings. So dividends will
decrease Retained Earnings
What we earn (revenues) will
increase Retained Earnings
Purpose of Accounting
is to accumulate and report on financial information about the performance
generally relates to trade-offs between
relevance and faithful representation
Assets
resources owned by a business
Revenues
result from business activities entered into for the purpose of earning income
Balance sheet and income statement are needed to prepare
statement of cash flows
the ending balance in retained earnings is needed in preparing
the balance sheet
net income is needed to determine
the ending balance in retained earnings
