Accounting Exam #1

3 rules of adjusting entries

1. Cash is never a part of adjusting entries 2. Adj. entries involve one B/S account and one I/S account 3. Adj entries are prepared at the end of the accounting period

When a customer buys services on account, it should be recorded by the company as

A debit to A/R and a credit to revenue

The buddy burger corporation owes 1.5M to the Texas Wholesale Meat Company from whom Buddy Burger buys its meat. Which account would Buddy burger use to record the amount owed?

Accounts payable

Adjusting entries

Affect both income statement and balance sheet accounts

When existing assets are used up in the ordinary course of business

An expense is recorded

Balance Sheet permanent accts

Assets Liabilities Equity

Your company pays back $2 million on a loan it had received earlier from a bank

Assets & Liabilities decrease by 2M, stockholder equity remains unchanged

Normal Sides

Assets = Dr. Expenses = Dr. Dividends = Dr. Liability = Cr. Equity = Cr. Revenues = Cr

Extended Accounting Equation

Assets = Liabilities + Owner capital + revenue - expenses - Owners draws

Accounting Equation

Assets = Liabilities + Stockholders' equity

Which of the following are the three basic elements of the balance sheet?

Assets, liabilities, and stockholders equity

When are adjusting entries made?

At the beginning of the accounting period

Statement of Retained Earnings

Beg R/E + N/I - Div = End R/E

Which of the following would be listed as a long-term asset?

Buildings and equipment

In the US, Generally Accepted Accounting Principles (GAAP) are established:

By the Financial Accounting Standards Board (FASB)

A company issues $20 million in new stock. It later uses the cash received to pay off promissory notes, How many different accounts and which account names are affected by these two transactions?

Common Stock, Cash, Notes Payable (3 accounts)

Which of the following statements regarding the debit/credit processing of revenues and expenses is true?

Credits increase revenues

Cansing Company collected $5,000 from a customer on account. What journal entry will cansing record?

Debit cash, credit A/R

Deferral Accounts

Expenses paid before revenue is recognized -Prepaid expense -Unearned revenue

Which of the following statements regarding revenues and expenses is true?

Expenses reduce the amount of stockholders equity

Adjusting entries often involve cash

False

Net income on the income statement is equal to the amount of cash generated by the business

False

The amount charged for a good or service provided to a customer on account is recorded only after the payment is received

False

The common characteristic processed by all assets is

Future economic benefit

A company billed a client for services rendered in January. The payment was received partially in January and the balance in February. When should the entry be made to record the service revenue?

January

Financial statements are most commonly prepared

Monthly, quarterly, and annually

Expenses are shown

On the income statement in the time period in which they are incurred

Accrual Accounts

Paid/ Received after expenses recognized -Accrued expense -Accrued revenue

Creditors are

People or organizations to whom a business owes money

Which of the following would not be considered and operating activity

Purchase equipment for cash

Revenue recognition principle

Recognize revenue when it has been earned

Assets

Resources owned by the company

Which of the following is not an example of an asset?

Retained earnings

Income Statement Accts

Revenue Expenses

Income statement temp. accts

Revenue Expenses

Net income is

The amount by which revenues exceed expenses

Which of the following statements regarding debits and credits is always true?

The total value of all debits recorded in the ledger must equal the total value of all credits recorded in the ledger

A post-closing trial balance should include only permanent accounts

True

GAAP does not allow cash basis accounting to be used in external financial reports

True

If total assets increase, then either liabilities or stockholders' equity must also increase

True

Prepaid expenses would be reported on the Balance sheet

True

The normal balance of an account is the same side that increases the account

True

The stockholders' equity of a company is the difference between assets and liabilities

True

What is the minimum number of accounts that must be involved in any transaction?

Two

Which of the following statements regarding the accrual and cash basis account is true?

Using the accrual basis of account, if payment is received after delivery of a good or service, an asset is recorded at the time the good or service was delivered

If an expense has been incurred but will be paid later then,

a liability account is increased and expense is recorded

If certain assets are partially used up during the accounting period then:

an asset account is decreased and an expense is recorded

Public corporations are

businesses whose stock is bought and sold on stock exchange

Which of the following is true a. credits increase both revenues and expenses b. credits increase expenses and decrease revenues c. credits increase revenues and decrease expenses d. credits decrease both revenues and expenses

c. credits increase revenues and decrease expenses

Deferred expenses (prepaid expenses) are initially recorded as assets, but over time are expected to become

expenses

The three main types of business activities measured by financial statements are

operating activities, investing activities, and financing activities