Accounting Chapter 2

On December 31, 2020, Cash had a balance of $100,000. During 2021, there were $1,100,000 debits and $950,000 credits posted to Cash. The December 31, 2021 balance must equal

$250000 (110000-950000+10000)

The beginning balance in Ace's Accounts Payable was $3,000. Ace then bought $200 of supplies paying cash. It also paid $500 of the amount that it owed for supplies purchased on account last month. The ending balance in Ace's Accounts Payable is a ______

$3,000 - 500 = $2,500; the supplies purchased with cash does not affect Accounts Payable.

A company's beginning Cash is $10,000. It had a $100,000 of cash receipts and $70,000 of cash payments during the period. The company's ending Cash balance equals a _____ balance.

$40,000 debit

On December 31, 2017, Accounts Payable had a balance of $10,000. During the period 2018, there were $500,000 purchases on account and $490,000 payments of accounts payable. The December 31, 2018 balance must equal

20000

A company's beginning Cash is $10,000. It had a $100,000 of cash receipts and $70,000 of cash payments during the period. The company's ending Cash balance equals a _____ balance.

40,000 debit

Equipment on a balance sheet is the result of a(n) ______ activity.

investing

T-accounts represent a simplified version of the ______.

ledger

______ measures a company's ability to pay liabilities as they come due in the short run.

liquidity

What is the effect on total assets when a company purchases a cash register for a cash payment of $1,200?

no effect

accounts _____ is a liability account and represents amounts owed to suppliers.

payable

Journals are used to ______.

record transactions chronologically

A classified balance sheet ______.

shows subtotals for current assets and current liabilities

Identify which of the following statements are true.

Liabilities are on the right side of the accounting equation and have normal credit balances. Assets are on the left side of the accounting equation and have a normal debit balance. Credits increase stockholders' equity. Credits increase liabilities.

Company X issued $10,000 of common stock to its owners for cash. It recorded the transaction by increasing assets and increasing liabilities. Which of the following statements are correct? (Check all that apply.)

Liabilities will be too high. Stockholders' equity will be too low.

Which of the following are possible effects on the accounting equation when recording a transaction that affects two accounts? (Select all that apply.)

One asset account increases and one asset account decreases One asset account increases and one stockholders' equity account increases

Which of the following are on the credit side of the Accounts Payable T-account? (Select all that apply.)

Purchases on account Beginning balance Ending balance

Select the investing activities from the list below. (Check all that apply.)

Purchasing equipment Purchasing land Purchasing a company logo

A company's beginning Equipment account is $100,000. It purchased $10,000 of new equipment and sold $4,000 of its equipment during the period. The company's ending Equipment balance equals a _____ balance.

Reason: Equipment, an asset, equals a $106,0000 debit balance (=$100,000 debit + 10,000 debit - 4,000 credit).

Company X issued $10,000 of common stock to its owners for cash. It recorded the transaction by increasing assets and increasing liabilities. Which of the following statements are correct? (Check all that apply.)

Stockholders' equity will be too low. Liabilities will be too high.

A transaction may be recorded with an increase in an asset and a decrease in a(n) ______

another asset

Liabilities represent ______ claims to a business's assets.

Creditors

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

Creditors

______assets are to be used up or turned into cash with 12 months or the next operating cycle, whichever is longer, whereas______assets are to used over a longer period. (Enter one word per blank.)

Current, non-current/longterm

The line item, Common Stock, on the balance sheet results from a(n) ______ activity

Financing

How do financing activities differ from investing activities?

Financing activities may involve an exchange of cash for debt; investing activities do not. Financing activities may involve an exchange of cash for a company's own stock; investing activities do not.

Z Best, Inc. issued $1,000,000 of common stock for cash. By accident, Z Best recorded the transaction by increasing cash and decreasing stockholders' equity. As a result of this entry, ______. (Check all that apply.)

common stock is understated the accounting equation is out of balance stockholders' equity is understated

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.

credit

A company purchased supplies and promised to pay $200 for them next month. The increase in Accounts Payable would be recorded with a ______.

credit

he Mortgage Payable account is increased with an entry on the _____ side of the T-account.

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.

credit (decrease cash)

Acme Enterprises borrowed $20,000 from Last Bank on a 5-year note payable. Acme's journal entry to record this transaction will include a ______ of $20,000. (Select all that apply.)

credit to Notes Payable debit to Cash

Assets have a normal ______ balance.

debit

A company made a $1,000 payment on its $100,000, 20-year mortgage. The decrease in liabilities would be recorded with a ______ to Notes Payable.

debit as credits actually increase notes payable

The beginning balance in Acme's Cash account was $100,000. During the month, Acme issued $25,000 of common stock for cash. The balance in Acme's Cash account is now a ______.

debit of $125,000

The effect on the accounting equation of paying suppliers for amounts owed includes a(n) ______.

decrease in liabilities

All transactions ______.

ect assets, liabilities, and/or stockholders' equity have at least two effects on the accounting equation

A transaction that involves an exchange of assets, liabilities and/or stockholders' equity between the company and someone else is called a(n) ______ exchange.

external

All accounting systems ______.

follow the accounting cycle combine beginning balances with the activity during the accounting cycle to yield the ending balances for each account. record and summarize financial effects of transactions

Company X receives $10,000 from issuing common stock to its owners. The effect on the accounting equation is a(n) _____. (Check all that apply.)

increase in assets increase in stockholders' equity

Increases and decreases in individual accounts, as well as an ending balance, are shown in a(n) ______.

ledger T-account

A ledger is used to _____.

show increases and decreases in individual accounts, as well as an ending balance

Which groups have claims to a business's assets?

stockholders creditors

Z Best, Inc. issued $1,000,000 of common stock for cash. By accident, Z Best recorded the transaction by increasing cash and decreasing stockholders' equity. As a result of this entry, ______. (Check all that apply.)

the accounting equation is out of balance stockholders' equity is understated common stock is understated

Which of the following statements is TRUE?

Accounts Payable is a liability.

______ to a corporation's stockholders' equity accounts cause its total stockholders' equity to ______.

Debits; decrease

Show the effect of recording the borrowing of $10,000 from a bank on the accounting equation. _____ by $10,000. (Select all that apply.)

Liabilities increase Assets increase

The current ratio =

current assets/current liabilities

A company purchased a $100,000 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, ______.(Check all that apply.)

total assets are too low total liabilities are too low

The creditors' claim to a company's resources is represented by ______.

total liabilities

A company typically receives _____, an asset, when it issues stock to its owners.

Cash/money

Which of the following are possible effects on the accounting equation when recording a transaction that increases a liability by $100? (Select all that apply.)

A stockholders' equity account decreases by $100 An asset increases by $100

A company's beginning Accounts Payable is $1,000. It had a $10,000 of purchases on account and paid $7,000 of the amounts owed. The Accounts Payable ending balance equals a _____ balance

Accounts Payable, a liability, equals a $4,000 credit balance (=$1,000 credit + 10,000 credit - 7,000 debit).

The accounting cycle consists of 3 steps, place the following steps in their correct order with the first step listed first.

Analyze the transaction record the transaction summarize the transaction

What are current assets?

Assets that will be used up or converted to cash within 12 months

Which of the following are on the credit side of the Accounts Payable T-account? (Select all that apply.)

Beginning balance Purchases on account Ending balance

Which transactions are recorded in the accounting system?

Both external exchanges and internal events

What does a business typically receive when it issues stock to owners?

Cash

Which accounts are affected by borrowing from a bank? (Select all that apply.)

Cash Notes Payable

Which of the following accounting cycle steps describes the summarizing in ledger accounts?

Dollars amounts from journal entries are copied (posted) to the appropriate accounts in the ledger, so that account balances can be totaled.

The first step in starting a business is to obtain cash from owners and/or creditors. Is this activity an investing activity or a financing activity?

Financing

what is a journal?

The journal is used to record the transactions chronologically. The debits and credits of each transaction is posted to the appropriate accounts in the ledger (represented by T-accounts).

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

Total assets will increase.

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

Total liabilities will increase.

Which of the following accounting cycle steps describes the process of recording journal entries?

Transactions are recorded chronologically showing the accounts debited along with the corresponding accounts credited.

list the steps from top to bottom in the order they occur in the accounting system.

Transactions are recorded in the journal Transactions are posted to the ledger account balances are computed

The beginning balance in Lucre's Cash account was $1,200. During the month, Lucre borrowed $5,000 cash from Last National Bank and paid a supplier $500. The balance in Lucre's Cash account is now a ______.

a debit of 5700

The current ratio measures a company's ______

ability to pay in the upcoming year short-term liquidity

MMM Pizza bought $1,500 of equipment on account (i.e., on credit). What is the effect of recording this transaction on the company's total liabilities?

total liabilities will increase

True or false: A transaction can cause one asset to increase and different asset to decrease and still have the accounting equation balance.

true-Transactions do not have to straddle the equal sign of A=L+SE. One asset may be exchanged for another and still balance. Total assets remain the same as do total liabilities plus stockholders' equity.