Accounting Chapter 3

Consider the following: 1. Owners invested $8,000 cash to begin the business 2. Provided services for cash, $6,000 3. Provided services on account, $4,000 4. Paid cash for expenses, $7,500 How much net income did the business have?

$2,500.

Consider the following: 1. Owners invested $8,000 cash to begin the business 2. Provided services for cash, $6,000 3. Provided services on account, $4,000 4. Paid cash for expenses, $7,500 How much cash does the business have?

$6,500.

If Joe Donaldson deposited $80,000 in a bank account, purchased a company for $60,000 cash (Building $40,000 and Inventory $20,000), performed services for clients for $10,000 cash, purchased supplies for $5,000 cash, and paid utilities of $2,000 cash, what is the company's net income for the month?

$8,000.

Consider the following transactions: 1. Borrowed cash on a notes payable, $80,000 2. Provided services on account, $10,000 3. Received cash from a customer as payment on account, $8,000 4. Received utility bill, $1,200 Total liabilities would be:

$81,200.

Joe Donaldson deposited $80,000 in a bank account, purchased a company for $60,000 cash (Building $40,000 and Inventory $20,000), performed services for clients for $10,000 cash, purchased supplies for $5,000 cash, and paid utilities of $2,000 cash. The amount of stockholders' equity at teh end of the period is:

$88,000.

Joe Donaldson deposited $80,000 in a bank account, purchased a company for $60,000 cash (Building $40,000 and Inventory $20,000), performed services for clients for $10,000 cash, purchased supplies for $5,000 cash, and paid utilities of $2,000 cash. What is the amount of total assets?

$88,000.

Consider the following transactions: 1. Borrowed cash on a notes payable, $80,000 2. Provided services on account, $10,000 3. Received cash from a customer as payment on account, $8,000 4. Received a utility bill, $1,200 Total Assets would be:

$90,000

Which of the following transactions would increase total assets? 1. Borrowed cash on a notes payable, $80,000 2. Provided services on account, $10,000 3. Received cash from a customer as payment on account, $8,000 4. Received a utility bill, $1,200

(1) Borrowed cash on a notes payable, $80,000 and (2) Provided services on account, $10,000

The Balance Sheet lists:

- Assets - Liabilities - Stockholders' equity

What are considered an assets?

- Cash - Prepaid expenses - Notes receivable

Events (transactions) that would be identifies from standard source documents.

- freight charges for merchandise purchased from suppliers. - freight charges for merchandise purchased from suppliers. - commissions earned by sales employees.

The debt created by a business when it makes a purchase on account is a(n):

Account payable.

When a business makes a sale on account, the asset created is a(n):

Account receivable.

A record of all the changes in a particular asset, liability, or stockholders' equity during a period is called a (a):

Account.

Which type of account is decreased when a company pays its employees with cash?

An asset.

The payment of employee salaries has what effect on the accounting equation?

Assets decrease and stockholders' equity decreases.

The purchase of office equipment on credit has what effect on the accounting equation?

Assets increase and liabilities increase.

XYZ Corp. made cash sales to customers. What effect does this transaction have on the accounting equation?

Assets increase and stockholders' equity increases.

The payment of an account owed to a creditor would:

Both decrease assets and decrease liabilities.

The rules for recording accounting transactions do NOT include:

Both sides of the accounting equation must be affected.

What is not an asset account?

Common Stock

Cash dividends paid to the stockholders will:

Decrease assets and decrease stockholders' equity.

The payment of salaries to employees would:

Decrease net income and decrease assets.

A company paid cash for an amount owed to a creditor. This transaction decreased cash and:

Decreased Liabilities.

A company purchased office supplies for cash. This transaction increased assets and:

Decreased assets..

A company paid cash for employee wages. This transaction:

Decreased cash and increased expenses.

Stock certificates are evidence of being a creditor of the company. T/F?

False

A T account for Cash cannot contain any credits. T/F?

False.

A source document is a record used to accumulate amounts for each individual asset, liability, revenue, expense, and component of stockholders' equity. T/F?

False.

A trial balance can be distributed to stockholders in place of the balance sheet. T/F?

False.

A trial balance that balances provides proof that all transactions were correctly journalized and posted to the ledger. T/F?

False.

All transactions refer to external events. T/F?

False.

Debits are good and credits are bad in financial terms. T/F?

False.

Every accounting transaction affects both the balance sheet and the income statement. T/F?

False.

Every business transaction is recorded by a debit to a balance sheet account and a credit to an income statement account. T/F?

False.

Every transaction affects equal numbers of ledger accounts and is recorded by equal dollar amounts of debits and credits. T/F?

False.

If a company purchases equipment by issuing a note payable, its total assets will not change. T/F?

False.

The equality of debits and credits in a trial balance means that all entries were correctly posted to the accounts. T/F?

False.

The issuance of stock decreases a company's assets and increases its stockholders' equity. T/F?

False.

The ledgers are an example of an accounting book of original entry. T/F?

False.

The normal balance of the Dividends account is a credit. T/F?

False.

The origins of single-entry accounting were documented in a book written by Pacioli over 500 years ago. It includes the concepts of bookkeeping that are still applied today. T/F?

False.

The payment of wages to employees is an internal event. T/F?

False.

The use of equipment in a company is an external event. T/F?

False.

There is a universal chart of accounts that is applicable to all businesses. T/F?

False.

The general journal is often used to record repetitive transactions. T/F?

False. A book of original entries, in which accountants and bookkeepers record raw business transactions, in order according to the date events occur.

The general ledger is sometimes called the book of original entry because it is the accounting record where transactions are first recorded. T/F?

False. A book or file that bookkeepers use to record all relevant accounts. The general ledger tracks five prominent accounting items: assets, liabilities, owner's capital, revenues, and expenses.

A trial balance is a financial statement. T/F?

False. A financial report showing the closing balances of all accounts in the general ledger at a point in time.

Dividends are a determinant of net income. T/F?

False. Are a form of income that shareholders of corporations receive for each share of stock that they hold.

The initial step in the recording process is posting. T/F?

False. Identify transactions

When making a general journal entry, there can only be one debit and one credit. T/F?

False. Minimum.

A debit is a negative entry. T/F?

False. Positive.

Borrowing money from the bank by signing a note payable would:

Have no effect on stockholders' equity.

Receiving a payment from a customer would:

Have no effect on total assets.

The purchase of land for cash would:

Have no effect on total assets.

The collection of cash from a cash sale would:

Increase assets and stockholders' equity.

Paying a utility bill as soon as it was received would:

Increase expenses.

Performing services on account would:

Increase net income and Stockholders' equity.

If a person starting a business had an investment of a building, valued at $300,000 with an $180,000 outstanding mortgage and issued stock for the balance, the effect would be on:

Increase stockholders' equity by $120,000.

Purchasing supplies on account would:

Increase total assets and increase total liabilities.

A company received cash in exchange for issuing stock.This transaction increased assets and:

Increased equity.

A company performed services for a customer on account. This transaction increased assets and:

Increased revenues.

The owner of a business paid cash from his personal checking account to purchase an automobile for his personal use. This transaction:

Is not a transaction recognized by the business.

Notes payable, accounts payable, taxes payable and salaries payable are all examples of:

Liabilities.

Which type of account is increased when a company records an increase in debt?

Liability.

To compute ending retained earnings on the Statement of Retained Earnings:

Net income is added to the beginning retained earnings and dividends are subtracted from the beginning retained earnings.

When a company performs a service and immediately collects the cash from the customer, what would occur?

Net income would increase.

What is an event (transactions) that is an internal event for a business entity?

Periodically, part of the cost of the computer equipment used by an accountant is assigned to depreciation expenses.

Transactions affecting stockholders' equity include:

Sale of common stock and payment of expenses

What is NOT a business transaction?

The company hires a new president.

During November, ABC, Inc. purchased office supplies for cash. The supplies will be used in November. What effect does this purchase transaction have on the accounting equation?

There is no effect on the accounting equation as one asset account increases while another asset account decreases.

Any event that has a financial impact on the business and can be measured reliably is a(n):

Transaction.

A company's chart of accounts will reflect the nature of its business. T/F?

True.

A debit entry increases assets, decreases liabilities, or decreases stockholders' equity. T/F?

True.

A trial balance can be as informal as an adding machine tape with the account titles penciled in next to the debit and credit amounts. T/F?

True.

A trial balance is the listing of each account and its balance at a specific point in time. T/F?

True.

External events (transactions) involve interactions between an entity and a party outside the entity. T/F?

True.

Not all recognizable events are supported by a standard source document. T/F?

True.

Only events that can be measured will be reflected in the journal entries. T/F?

True.

Payment of a dividend decreases both cash and stockholders' equity of the distributing business. T/F?

True.

The accounting equation must balance after each transaction. T/F?

True.

The credit side of an account is the right side while the debit side is the left side. T/F?

True.

Under the cost principle, assets are always carried at their original cost or historical cost. T/F?

True.

Under the double-entry system of accounting, every transaction is entered in at least two accounts on opposite sides of T accounts. T/F?

True.

With few exceptions, the balance of all accounts should be on the side of the T account that causes the increase. T/F?

True.

An external event involves interaction between an entity and its environment. T/F?

True. Its when a company engages in a transaction with an outside party or there is a change in the company's finances due to an external cause.