Accounting Chapter 1 Smartbook

A net loss will ______.

decrease retained earnings

The following are the assets, liabilities and stockholders' equity balances in millions at December 31 in alphabetical order: Accounts payable: $500 Common stock: 600 Equipment: 900 Retained earnings: ? Retained Earnings equals $_________. Total Assets equals $________. Total Liabilities plus Common Stock equals $__________. Round answers to the nearest millions.

1. 500 2. 1600 3. 1100

The three types of activities reported on the statement of cash flows are the _______activities, ________activities, and _____activities.

1. operating 2. investing 3. financing

Prepare a statement of retained earnings for the month of September from top to bottom. - retained earnings, September 1 - retained earnings, September 30 - dividends - net income

1. retained earnings, September 1 2. net income 3. dividends 4. retained earnings, September 30

Place the single-step income statement items in the proper order from top to bottom. Instructions - expenses - revenues - net income

1. revenues 2. expenses 3. net income

A company's fiscal year end is:

12-month period ending on a day other than December 31

Companies typically prepare ______ financial statements each accounting period.

4 (Reason: The four financial statements are the balance sheet, income statement, statement of retained earnings, and the statement of cash flows.)

Pizza Aroma delivered $500 of pizzas to the local high school, but hasn't received payment yet. Pizza Aroma will report ______.

Accounts Receivable of $500

Which of the following is the basic accounting equation?

Assets = Liabilities + Stockholders' Equity

True or false: Financial statements must have a year end of December 31.

False (Reason: Financial statements may be prepared for any 12-month period.)

True or false: The order of the heading of an income statement indicates the name of the statement first, the period of time covered, and the name of the company third.

False (The name of the company is first, followed by the statement name, and then the period of time covered by the income statement.)

True or false: stockholders equity is included on the income statement.

False (the income statement is revenues-expenses, and stockholders equity is not included on this sheet)

Which group is responsible for creating the US GAAP?

Financial Accounting Standards Board (FASB)

Which financial statement reports revenues and expenses?

Income statement

What statement are dividends reported on?

Statement of retained earnings

Liberty, Inc., a US company, sold merchandise to Belle, a French company, for 10,000 euros. In Liberty's US financial statements, this sale should be reported in ______.

US dollars (The unit of measure assumption assumes the transactions of Liberty, a US company, were in US dollars. Thus, sales in euros are translated into US dollars for reporting purposes.)

When a company is owed for sales made to customers on credit, the asset called:

accounts receivable will be reported on the balance sheet (accounts receivable is reported as a liability on the balance sheet)

The balance sheet balances when ______.

assets equal liabilities plus stockholders' equity

Creditors want to see that a company that owes them money has ______.

assets that are greater than its liability

Which financial statement reports the operating, investing, and financing activities affect on cash?

statement of cash flows

Information that always makes a difference in a decision is ______.

relevant

Ace Electronics bought equipment for $4,000. Normally the equipment would have cost $4,500, but the supplier gave Ace a special discount. Ace's balance sheet should report equipment of ______.

$4,000

Which of the following are reported on the balance sheet? - cash - expenses - assets - stockholders' equity - retained earnings - revenues - liabilities

- cash - assets - stockholders' equity - retained earnings - liabilities

Which of the following are found on a balance sheet? - financing activities - equipment - common stock - expenses - supplies - operating activities - notes payable

- equipment - common stock - supplies - notes payable

The primary goal of most companies is to ______.

make a profit

The statement of retained earnings reports the _____.

profits that have accumulated in the company over time

Match the purpose with the appropriate financial statement. Instructions: - income statement - statement of returned earnings - balance sheet -

-

______ are used to accumulate and report the effects of each different business activity separately rather than combining the various types of activities together.

- accounts

Which of the following accounts are liabilities? - common stock - cash - accounts payable - accounts receivable - wages payable - notes payable

- accounts payable - wages payable - notes payable - taxes payable

Match the account title with the proper definition - accounts receivable - accounts payable - notes payable - common stock - retained earnings - amount owed to supplies for purchases on account - accumulated profits kept in the business - amount stockholders contributed to the company - amount of loan owed to the bank - the right to collect for sales/services provided on account

- accounts receivable & the right to collect for sales/services provided on account - accounts payable & amount owed to suppliers for purchases made on account - notes payable & amount of loan owed to the bank - common stock & amount stockholders contributed to the company - retained earnings & accumulated profits kept in the business

Match the financial statement that reports each of the following: - assets - net income - investing activities - income statement - balance sheet - statement of cash flows

- assets - balance sheet - net income - income statement - investing activities - statement of cash flows

The heading of a balance sheet should include which of the following? (Check all that apply.) - at December 31, 2020 - For the year ended June 30, 2020 - The name of the business - the title "balance sheet" - for the year ended December 31, 2020

- at December 31, 2020 - the name of the business - the title "Balance Sheet"

Place these items in the order in which they appear on the statement of cash flows. - cash flows provided by (used in) investing activities - cash flows provided by (used in) operating activities - cash flows provided by (used in) financing activities

- cash flows provided by (used in) operating activities - cash flows provided by (used in) investing activities - cash flows provided by (used in) financing activities

Which of the following characteristics are needed in order for financial information to be useful? - competitiveness - internally reported - faithful representation - relevance

- faithful representation - relevance

Retained earnings are ______. (Select all that apply.) - increased by net income - cash available to be paid to stockholders - decreased by dividends - increased by dividends - equal to the company's cash balance

- increased by net income - decreased by dividends

The heading of an income statement ______. (Select all that apply.) - indicates if the reported numbers are rounded to the nearest thousand or million - includes the time period covered - includes the name of the company - states that it was prepared in accordance with generally accepted accounting principles - states that it is for external users only

- indicates if the reported numbers are rounded to the - - nearest thousand or million - includes the time period covered - includes the name of the company

Which of the following are true about the income statement? (Select all that apply.) - net income has a double underline - each line item has a dollar sign in front of it, such as $100 - each major caption has an underlined subtotal, such as total expenses - revenues are listed before expenses - revenues are listed after expenses - each line item has a dollar sign after it, such as 100$ - a dollar sign appears only at the top and bottom of the column numbers

- net income has a double underline - each major caption has an underlined subtotal, such as Total Expenses - revenues are listed before expenses - a dollar sign appears only at the top and bottom of the column of numbers

An income statement includes which of the following item(s). (Select all that apply.) - revenues - payments made on liabilities - amounts contributed by stockholders - net income - cash - expenses

- revenues - expenses - net income

Three common forms of business organizations include ______. (Select all that apply.) - taxable company - sole proprietorship - partnership - unlimited liability company - corporation

- sole proprietorship - partnership - corporation

What information appears on the statement of retained earnings? (Select all that apply.) - dividends - net income - cash paid during the accounting period - beginning balance of retained earnings - cash received during the accounting period - ending balance of retained earnings

-dividends -net income -beginning balance of retained earnings -ending balance of retained earnings

The balance sheet reports:

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

A balance sheet shows ______.

assets, liabilities, and stockholders' equity at a single point in time

The purpose of the balance sheet is to report the amount of ______.

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

The order in which liabilities are reported on the balance sheet is based on when the liability is:

expected to be paid or settled

The order in which assets are reported on the balance sheet is based on when the asset is ______.

expected to be used or turned into cash

True or false: Net income equals the net amount of cash collected during the accounting period.

false (Net income does not equal cash collected because some revenues are collected and some expenses are paid in a later accounting period. Cash can increase from other activities, such as borrowing or owner contributions)

The underlying rules of accounting in the US are called ________ _______ ______principles.

generally accepted accounting

The underlying rules of accounting in the US are called ______.

generally accepted accounting principles (GAAP)

An asset is an amount ______, while a liability is an amount ______.

owned; owed

Accounts _____ is an asset on the balance sheet that reports the amounts owed by customers for sales or services provided on credit.

receivable

The unit-of-measure assumption states that ______.

results of business activities should be reported in an appropriate monetary unit

Which financial statement reports the accumulation of profits kept by the business during the current accounting period with that of prior periods?

statement of retained earnings

Match the financial statement that reports each of the following: - supplies - supplies expense - cash paid for supplies - balance sheet - income statement - statement of cash flows

supplies & balance sheet supplies expense & income statement cash paid for supplies & statement of cash flows

US GAAP are ______.

the accounting rules developed by the FASB for use in the United States

True or false: Creditors would like a company that owes them money to have a large positive cash flow from operating activities.

true (Cash flow from operating activities can be used to repay loans)