ACCT Exam 1

If assets are $300,000 and liabilities are $192,000, then equity equals:

$108,000

If equity is $300,000 and liabilities are $192,000, then assets equal:

$492,000.

Accounting is

-Eliminates the need for interpreting financial data

External users of accounting information include all of the following except:

-Purchasing managers

limited partnership

A partnership with one or more general partners and one or more limited partners.

A company's ledger is:

A record containing all accounts and their balances used by the company.

The length of time covered by a set of periodic financial statements, primarily a year for most companies, is referred to as the:

Accounting period

The approach to preparing financial statements based on recognizing revenues when theyare earned and matching expenses to those revenues is:

Accrual basis accounting.

adjusting entries

Affect both income statement and balance sheet accounts.

If a company purchases equipment costing $4,500 on credit, the effect on the accounting equation would be.

Assets increases $4,500 and Liabilities increase $4,500

The system of preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called:

Cash basis accounting

Golddigger Services, Inc. provides services to clients. On May 1, a client prepaid Golddigger Services $60,000 for 6-months services in advance. Golddigger Services' general journal entry to record this transaction will include a:

Credit to Unearned Management Fees for $60,000.

Richard Redden, the sole stockholder, contributed $70,000 in cash and land worth $130,000 in exchange for common stock to open a new business, RR Consulting. Which of the following general journal entries will RR Consulting make to record this transaction?

Debit Cash $70,000; debit Land $130,000; credit Common Stock, $200,000

ABC Catering received $800 cash from a customer for catering services to be provided next month. Given the choices below, determine the general journal entry that ABC Catering will make to record this transaction.

Debit Cash 800, Credit Unearned Catering Revenue 800

The periodic expense created by allocating the cost of plant and equipment to the periods in which they are used, representing the expense of using the assets, is called:

Depreciation

Decreases in equity that represent costs of providing products or services to customers, used to earn revenues are called:

Expenses.

The rule that requires financial statements to reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue, is the:

Going-concern assumption.

The total amount of depreciation recorded against an asset over the entire time the asset has been owned:

Is referred to as accumulated depreciation

A record in which the effects of transactions are first recorded and from which transaction amounts are posted to the ledger is a(n):

Journal.

Which of the following fixed assets is not depreciated?

Land

Net Income Equation

Net Income = Revenues - Expenses

An adjusting entry could be made for each of the following except:

Owner withdrawals. Owner capital. Cash. Account payable. Revenue. Cost of goods sold.

Prepaid Accounts (Prepaid Expenses)

Prepaid accounts (also called prepaid expenses) are assets that represent prepayments of future expenses (expenses expected to be incurred in one or more future accounting periods). When the expenses are later incurred, the amounts in prepaid accounts are transferred to expense accounts.

On December 15 of the current year, Conrad Accounting Services signed a $40,000 contract with a client to provide bookkeeping services to the client in the following year. Which accounting principle would require Conrad Accounting Services to record the bookkeeping revenue in the following year and not the year the cash was received?

Revenue recognition principle

A broad principle that requires identifying the activities of a business with specific time periods such as months, quarters, or years is the:

Time period assumption.

A report that lists a business's accounts and their balances, in which the total debit balances should equal the total credit balances, is called a(n):

Trial Balance

partnership

a business organization owned by two or more persons who agree on a specific division of responsibilities and profits

a debit

an amount recorded on the left side of a T account

a credit

an amount recorded on the right side of a T account

The purpose of adjusting entries is to

assign appropriate portion of revenue and expenses to the appropriate accounting period.

A corporation is:

business owned by many investors

The rule that (1) requires revenue to be recognized at the time it is earned, (2) allows the inflow of assets associated with revenue to be in a form other than cash, and (3) measures the amount of revenue as the cash plus the cash equivalent value of any noncash assets received from customers in exchange for goods or services, is called the:

c. Revenue recognition principle.

Examples of Assets

cash, accounts receivable, supplies, inventory (liabilities+equity) Current assets:-cash-short-term investments-accounts receivable, net- merchandise inventory- prepaid expenses-total current assetsLong-term investments-notes receivable-investments in stocks and bonds-land held for future expansion-total long-term investmentsPlant assets-equipment and buildings-less accumulated depreciation-equipment and buildings, net-land-total plant assetsIntangible assets-total assets

Palmer Company is at the end of its annual accounting period. The accountant has journalized and posted all external transactions and all adjusting entries, has prepared an adjusted trial balance, and completed the financial statements. The next step in the accounting cycle is:

close temporary accounts

An account linked with another account that has an opposite normal balance and is subtracted from the balance of the related account is a(n):

contra-account

the current ratio

current assets divided by current liabilities

All of the following are true regarding ethics except:

ethics do not affect the operations or outcome of a company

Operating Activities

involve the cash effects of transactions that enter into the determination of net income

a general journal entry

master journal that all company transactions or journal entries are recorded in

if a company uses $1,300 of its cash to purchase supplies, the effect on the accounting equation would be assets increase $12,000 and equity increases $12,000 if a company receives $12,000 from the owner to establish a proprietorship, the effect on the accounting equation would be

one asset increases $1,300 and another asset decreases $1,300, causing no effect

The process of transferring general journal entry information to the ledger is called:

posting

The accounting principle that requires revenue to be recorded when earned is the:

revenue recognition principle

Net Income

the difference between total revenue and total expenses when total revenue is greater