ACCOUNTING EXAM 1

The statement of shareholders' equity reports the

changes that occurred in shareholders' equity during the accounting period

A(n) ______ is a cost of doing business that is necessary to earn ______

expense; revenue

Enterprise-wide resource planning systems (ERP)

includes both financial and non-financial information for all areas of the business

In April, Pasta Disasta hired a new employee at a rate of $1,000 per month to start work at the beginning of May. In April, Pasta Disasta should record

nothing, because an exchange of promises is not a transaction

Collecting cash from customers is a

operating activity

The cost of a long-term asset, such as Equipment, is expensed

over its useful life

Purchased a barber's chair and sink for $35,000

Investing

Shareholders' Equity

Owners' claims to economic resources

Which one of the following financial statements reports the creditors' claims to the company's resources?

Balance Sheet

Liabilities

Creditors' claims to economic resources

Assets

Economic resources that will provide future benefit

True or false: An exchange of a promise to deliver an asset in the future for a promise to pay in the future is a transaction.

False

Received $40,000 from its owners in exchange for common stock

Financing

Which financial statement reports how much was sold during the period?

Income Statement

If a company borrows money by issuing a note payable at the beginning of the accounting period, as a result, it will report

Interest Expense on the income statement

Paid $100 for advertising in the local paper

Operating

Income Statement

Reports a summary of all revenues minus all expenses during a period

Statement of Cash Flows

Reports a summary of cash collected and cash paid during a period

Notes (or footnotes)

Reports additional information needed to better understand the financial statements

Balance Sheet

Reports the assets, liabilities and shareholders' equity of a company at a specific point in time

Statement of Shareholders' Equity

Reports the changes that took place in the amount of the owners' investment during a period

The governmental agency that monitors the stock market and the financial reporting of firms that trade in the market is the

Securities and Exchange Commission (SEC)

Characteristic of a sole proprietorship

The owner is personally responsible for the debts of the business, even if the debts are more than the owner has invested in the business

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.

A transaction may be recorded with an increase in an asset and a decrease in

another asset

The expensing of a long-term asset, such as Equipment, over its useful life is called

depreciation

A chart of accounts is a

list of account titles used by companies so that transaction items are consistently named

Morris Lest, Inc., purchased machinery for $10,000 cash. The effect of this transaction is to cause

total assets to remain the same