AC 210 Exam 1 LEARNSMARTS

net income

-occurs when revenues are greater than expenses -may be paid out as dividends causing retained earnings to decrease -may be left in the company causing retained earnings to increase

asset

A business just acquired and paid something that provides benefit in future periods. The business will decrease cash and increase an _________

total assets are too low, total liabilities are too low

A company purchased a $100,00 building in exchange for a 20-year note payable. The company recorded a $100,000 increase in the Building account and a $100,000 decrease in Cash. As a result of this error, ________________ & _________________

95,000

Accruix, Inc. uses accrual basis accounting. Its balance sheets reported Accounts Receivable of $5,000 at the end of its first year of business. Its income statement reported Sales Revenue of $100,000 for its first year. What would Accruix's revenues have been if it had used cash basis accounting?

credit to common stock, debit to cash

Acme Enterprises issued $20,000 of stock in exchange for cash. The journal entry to record this transaction will include a _______________, ________________ of $20,000.

total income tax

After the adjustments have been completed, the adjusted balance in Income Tax Expense account represents ______________ _______________ ____________ that has been paid and accrued during the period.

remains

After the adjustments have been recorded, the adjusted balance in the Prepaid Rent account represents the amount of the prepayment that __________ toward future rental periods

cash

Burrows, Inc. borrowed $100,000 from Last Bank by signing a formal agreement to repay the bank in 10 years. Burrow's journal entry to record this transaction will include a debit to __________

debits will not equal credits

If a company recorded an adjusting entry by debiting Interest Expense for $500 and Interest Payable for $50 in error, then the adjusted trial balance's ____________________________________________

true

TRUE OR FALSE: -after the closing entries have been posted, the new balance in the retained earnings account will equal the retained earnings reported on the balance sheet

depreciation expense, accumulated depreciation

_______________ ____________ only reflects the current period depreciation, ______________ ______________ contains depreciation since the asset was purchased

credit

a company paid $2,000 cash to an employee for this month's salary. The entry to record this transaction would include a _________ to Cash.

payable

accounts ____________ is a liability account and represents amounts owed to suppliers

expense, revenue

accrual adjustments include either a debit to an ___________ account and a credit to a liability account OR a debit to an asset account and a credit to a __________ account.

expenses

accrual basis accounting records _________ in the period incurred, even though cash has not yet been paid

revenues

accrual basis accounting records __________ in the period when the services are performed or goods are delivered, even though the cash has not yet been collected

credit

after posting all entries to the ledger, the Accounts Payable T-account will show a beginning balance on the top of the ________ side

credit

after posting all entries to the ledger, the Accounts Payable T-account will show ending balances on the bottom of the ________ side

debit

after posting all entries to the ledger, the Accounts Payable T-account will show payments made on the ________ side

credit

after posting all entries to the ledger, the Accounts Payable T-account will show purchases on account on the __________ side

after, before

an adjusted trial balance is prepared immediately __________ the adjusting entries have been recorded and _________ the financial statements are prepared

payable, liability

an amount owed to a supplier for prior purchases on account is an Account ________________, which is a(n) ________________ account.

20,000

at December 31, Equate Inc.;s assets equal $50,000 and liabilities equal $30,000. Stockholders equity must equal ______________

asset

cash is an __________ account

revenue, expense

deferral adjustments include a debit to a liability account and a credit to a ___________ account OR a debit to an ____________ account and a credit to an asset account

asset

equipment is an ___________ account

it gives cash, it gives a promissory note, it receives equipment

identify what a company gives and receives when it invest in equipment by paying cash and signing a two-year note (3 things happen)

accounts payable

if Advertising Expense is debited then _________ __________ is credited when the advertisement is run prior to the payment

prepaid advertising

if Advertising Expense is debited then ________________ ____________ is credited when the payment occurs in advance of when the advertisement is run

cash

if Advertising Expense was debited then _________ would be credited if the payment occurs in the same period as the advertisement is run

yes

if a company has a current ratio of 2.0 will they be able to pay their current liabilties?

balanced

if you increase equipment by $20,000, decrease cash by $5000 and increase notes payable by $15,000 the accounting equation will be _____________

increase

if you postponed routine maintenance work that was to be done this year you would __________ the net profit margin ratio in the current year

decrease

if you purchased equipment that costs $20,00 by issuing a 6%, $15,000 promissory note and paying the remainder in cash. Cash, an asset would ____________

increase

if you purchased equipment that costs $20,00 by issuing a 6%, $15,000 promissory note and paying the remainder in cash. Equipment, an asset account would _______________

increase

if you purchased equipment that costs $20,00 by issuing a 6%, $15,000 promissory note and paying the remainder in cash. Notes Payable a liability would ______________

January

in January, Pizza Company bought pizza ingredients on account for $100, with payment due to the supplier in March. The pizza ingredients were used for pizzas made in January. In which month should Pizza Company record the cost of the pizza ingredients as an expense?

decreased

in a deferral adjustment for revenues collected in advance for which the company has now satisfied the performance obligation, the liability recorded when cash was received is _______________ by the adjustment for the amount of the obligation that has been fulfilled.

revenue

in accrual accounting, according to the ___________ recognition principle, revenues should be recognized when the seller performs the work promised, not necessarily when cash is received.

revenue, expense

net income (or loss) is recorded in the retained earnings account when _____________, and _____________ accounts are closed and transferred into retained earnings

liability

notes payable is a ___________ account

250,000

on December 31, 2020, Cash had a balance of $100,000, during 2021, there was $1,100,000 debits and $950,000 credits posted to Cash. The December 31, 2021 balance must equal $________________

supplies expense is debited, supplies is credited

on June 30, Cyclepath Inc. pays $600 for supplies that will be used in July. In JULY what is debited and credited for the journal entry? (2 accounts)

supplies is debited, cash is credited

on June 30, Cyclepath Inc. pays $600 for supplies that will be used in July. In JUNE what is debited and credited for the journal entry? (2 accounts)

3000

on May 1, Cut Above, Inc., collected $3,000 in advance from customers to mow their lawns in June. Under cash basis accounting, revenues in May will equal $___________

retained earnings

revenues and expenses are subcategories of _____________

assets to increase

the accrual adjustment recorded to adjust for revenues not yet collected will cause _______________

credit, debit

the adjusting entry for supplies used during the period requires a __________ to Supplies, and a ____________ to Supplies expense. (pick either debit or credit for both blanks)

total liabilities

the creditors claim to a company's resources is represented by ________ ____________

ledger

the effect of journal entries on each account is summarized in the _______________

debit, credit

the entry to close Service Revenue into Retained Earnings includes a ________ to service revenue, and a _________ to retained earnings

credit cash, debit salaries and wages payable

the entry to record the payment of wages incurred in the prior accounting period is recorded with _____________________, and ______________________ (2 accounts affected in journal entry)

trial balance

the internal report that lists all of the accounts and their balances and is used to determine that the total debits equals total credits is called the ____________ ____________

cash, common stock

the issuance of common stock is recorded with a debit to ________ and a credit to ________

debit supplies, credit accounts payable

the journal entry to record the purchase supplies on account is _____________________, _______________ (2 accounts affected)

expenses

the net profit margin ratio indicated how well ____________ are controlled

not change

the original cost in the Equipment account will __________________ during the adjustment process

operating

the period from buying goods and services through to collecting cash is known as the ___________ cycle

make a profit

the primary goal of most companies is to ____________________

assets, liabilities, and stockholders equity at a specific point in time

the purpose of the balance sheet is to report the amount of _________

generally accepted accounting

the underlying rules of accounting in the US are called __________ ___________ ___________ principles.

t accounts

to see the detail of increases and decreases in a company's cash account, you should look at ___________

stockholders, creditors

two sources of financing for a new business are __________, __________

financing and investing activities

typical steps needed before a business can start selling goods/services to customers include _____________________________

are liabilities, and are amounts owed to creditors

what are 2 similarities between Notes Payable and Accounts Payable

analyze, record, summarize

what are the steps of the adjustment process in order?

revenues, expenses, dividends

what are the temporary accounts you close into retained earnings?

accounts

what are used to accumulate and report the effects of each different business activity

revenue minus expenses

what does net income equal?

retained earnings

what is : -increased by net income -decreased by dividends

total assets will increase

what is the effect on total assets when a company buys a building in exchange for a 20-year note payable?

revenue - expenses = net income

what is the equation for the income statement?

operating, investing, financing

what is the order of the activities that appear on the statement of cash flows

revenues, expenses, net income

what is the order of the single-step income statement items from top to bottom?

retained earnings, earned capital

what represents the owner's claims on profits the company earned for them through its business operations?

notes payable

what represents the written promise to repay a bank

operating

what type of activity would these fall under? -cash paid to employees -cash received from customers -cash paid to suppliers

accrual

what type of adjustment does this represent: -increase to income tax payable and increase to income tax expense

accrual

what type of adjustment does this represent: -increase to interest payable and increase to interest expense

increase

what would happen to total assets and liabilities if you: -purchased $4000 of equipment on account -purchased $5,000 of equipment by paying $1000 cash and promising to pay $4000 next month

assets, liabilities

when a company has a high current ratio current ___________ are larger than its current ____________

credit cash, debit accounts payable

when a company pays for amounts purchased on account, the entry includes ____________, and a __________________

cash, deferred revenue

when a company receives cash from a customer in advance of performing the service, the company will debit ________ and credit ______________ ____________

increase, expense

when making deferral adjustments to record the amount used during the period for items such as Prepaid Insurance or Supplies the debit will ___________ an ____________ account.

balance sheet

where are permanent accounts reported during the closing process

supplies, interest payable, prepaid rent

which accounts found on an unadjusted balance typically require adjusting entries? (3 accounts)

financing

which activity would these fall under? -cash borrowed from the bank -cash paid to reduce the principle borrowed from banks -cash dividends paid to stockholders

relevance, faithful representation

which characteristics are needed in order for information to be useful?

statement of retained earnings

which financial statements purpose is to report the accumulation of profits kept by the business during the current accounting period with that of prior periods

income statement

which financial statements purpose is to report the financial performance of the business during the current accounting period

balance sheet

which financial statements purpose is to report the financial position of the business at a point in time

statement of cash flows

which financial statements purpose is to report the operating, investing, and financing activities effect on cash

creditors and stockholders

which groups have claims to a business's assets? (2 groups)

prepaid rent

which of the following financial statement line items is NOT an expense? -rent expense -prepaid rent -advertising expense -salaries and wages expense

adjusted trial balance

which report is constructed immediately prior to preparing the financial statements with the purpose of demonstrating that the accounts balance?

creditors

who has first claim to a business's assets should the company go out of business?

increased

Interest Payable and Supplies expense are typically __________ as a result of adjusting entries

an exchange of promises, not a transaction

Noodlecake signs a contract with an independent developer for program code for a game app which will not be received until two months from the signing of the contract. This event _____________

supplies expense

On May 25, Dew Drop Inn purchased $500 of supplies on account, in June, $300 of supplies were used and $400 was paid to the supplier. In June, _____________ ___________ of $300 is recorded

supplies

On May 25, Dew Drop Inn purchased $500 of supplies on account, in June, $300 of supplies were used and $400 was paid to the supplier. In may, the asset ______________ increased by $500

credit to accounts payable, debit to advertising expense

On May 29, Lox, Stock & Bagel, Inc. received a $100 invoice for advertising run in May. The bill will be paid in June. The entry to record in May includes a $100 _____________________, __________________ (2 accounts affected)

22,000

On November 1, Movers, Inc. paid $24,000 for 2 years rent beginning on November 1. The prepaid rent BALANCE at December 31, 2 months later, equals $_____________

debit to accounts receivable, credit to sales revenue

Pizza Company sold pizzas on account. The journal entry to record the sales will include a _____________________, ________________ (2 accounts)

70

Shirts Inc. sold 10 shirts that cost $7 each to its customers for $10 each. Shirts should record a total of $______ as an EXPENSE for the cost of the goods sold

software is received, a promise to pay is given, and cash is given

Shoe Fly Inc. purchased software. It paid $100 and promised to pay the remainder next month. What did Shoe Fly receive and give in this transaction

400

Sterling Company paid $1200 for 3 months of rent on April 1 of the current year. On April 30, Sterling Company made an adjusting entry to account for the rent that expired during the month of April. The adjusting entry contained a credit to Prepaid Rent in the amount of $_____

400

Sterling Company paid $1200 for 3 months of rent on April 1 of the current year. On April 30, Sterling Company made an adjusting entry to account for the rent that expired during the month of April. The adjusting entry contained a debit to Rent Expense in the amount of $_____

800

Sterling Company paid $1200 for 3 months of rent on April 1 of the current year. On April 30, Sterling Company made an adjusting entry to account for the rent that expired during the month of April. What is the remaining balance in the Prepaid Rent account after the adjustment?

false

TRUE OR FALSE: -An exchange of promises is a transaction that affects the accounting equation

3000, 9000

The annual depreciation taken on a vehicle totals $3000. The vehicle has been in service for 3 full years and the adjusting entries have been completed for the year. At the end of the 3rd year, the annual financial statements will report Depreciation Expense equal to $__________ and Accumulated Depreciation equal to $____________

increases

The net profit margin ratio means improved performance if it ________________

retained earnings

What account do these represent?: -net income generated by the company through profitable operations that has not been distributed to its stockholders -amounts earned (revenues - expenses) that have been kept by the company

net profit margin ratio

What ratio does this represent: -means improved performance if it increases -indicates how well expenses are controlled

deferred revenue

When Service Revenue is credited _________ __________ is debited when the collections occur in advance of the performance of the service

Accounts Receivable

When Service Revenue is credited _________ __________ is debited when the service is performed prior to the collections

cash

When Service Revenue is credited _________ is debited when the collections occur in the same period as the services

current, noncurrent

_________ liabilities are obligations that will be paid or met within 12 months of the balance sheet date, whereas ___________ liabilities are not due within 12 months of the balance sheet date.

temporary

___________ accounts, which include revenues, expenses, and dividends, are closed into Retained Earnings during the closing process

accrual

____________ adjustments involve adjusting entries where goods/services have been provided to customers or the expense has been incurred, and the cash will be collected or paid in the future

revenues

____________ are earned by selling goods or services to customers and is the first line item reported on the income statement

permanent

_____________ accounts are not closed and are reported on the balance sheet in the closing process

accounting

_____________ is referred to as the language of business because it is such a key part of business, and its terms are typically used in discussing business