Bus 120 - Ch 1-3

Faithful representation

Numbers and descriptions match what really existed or happened—they are factual.

Which of the following statements is false

Revenues are increased by debits.

Stockholders' equity is decreased by all of the following except.

Sales of stock

Common Stock

Term used to describe the total amount paid in by stockholders for the shares they purchase.

Net loss

The amount by which expenses exceed revenues.

Net Income

The amount by which revenues exceed expenses.

Expenses

The cost of assets consumed or services used in the process of earning revenue.

Transactions

The economic events of a business that are recorded by accountants.

Financial accounting

The field of accounting that provides economic and financial information for investors, creditors, and other external users.

Managerial accounting

The field of accounting that provides internal reports to help users make decisions about their companies.

Revenues

The gross increase in stockholders' equity resulting from business activities entered into for the purpose of earning income.

Accounting

The information system that identifies, records, and communicates the economic events of an organization to interested users.

Stockholder's equity

The ownership claim on a corporation's total assets.

Convergence

The process of reducing the differences between U.S. GAAP and IFRS.

Ethics

The standards of conduct by which one's actions are judged as right or wrong, honest or dishonest, fair or not fair.

(T or F) The basic accounting equation states that Assets = Liabilities.

True

(T or F) The primary purpose of the statement of cash flows is to provide information about the cash receipts and cash payments of a company during a period.

True

A trial balance does not prove that all transactions have been recorded or that the ledger is correct.

True

On January 14, Edamame Industries purchased supplies of $700 on account. The entry to record the purchase will include

a debit to Supplies and a credit to Accounts Payable.

A debit to an asset account indicates

an increase in the asset

The difference between the cost of a depreciable asset and its related accumulated depreciation is referred to as the

book value of the asset

Deerhoof Company purchases equipment for $2,700 and supplies for $400 from Milkman Co. for $3,100 cash. The entry for this transaction will include a

debit to Equipment $2,700 and a debit to Supplies $400 for Deerhoof

Adjusting entries are required

every time financial statements are prepared

The revenue recognition principle dictates that revenue be recognized in the accounting period

in which the performance obligation is satisfied.

Monthly and quarterly time periods are called

interim periods

The right side of an account

is the Credit Side

Retained earnings at the end of the period is equal to

retained earnings at the beginning of the period plus net income minus dividends

Camper Van Company purchased equipment for $2,600 cash. As a result of this event,

stockholders' equity decreased and total assets increased by $2,600.

The time period assumption states that

the economic life of a business can be divided into artificial time periods.

If total liabilities decreased by $30,000 and stockholders' equity increased by $20,000 during a period of time, then total assets must change by what amount and direction during that same period?

$10,000 decrease

Yo La Corporation issued a one-year, 6%, $100,000 note on August 31, 2015. Interest expense for the year ended December 31, 2015 was

$2,000

Financial Accounting Standards Board (FASB)

A private organization that establishes generally accepted accounting principles in the United States (GAAP).

Indicate whether each of the following items is an asset, liability, or part of stockholders' equity.

Accounts receivable -- Assets Salaries & Wages payable -- Liability Equipment -- Assets Supplies -- Assets Owner's investment -- Stockholder's Equity Notes Payable -- Liability

Indicate whether the following items would appear on the balance sheet, income statement, or retained earnings statement.

Advertising expense -- Income Statement Accounts Receivable -- Balance Sheet Dividends -- Retained earnings statement Rent Revenue -- Income Statement Salaries & Wages payable -- Balance Sheet Supplies -- Balance Sheet

An adjusting entry

Affects a balance sheet account and an income statement account

Fair Value principle

An accounting principle stating that assets and liabilities should be reported at fair value (the price received to sell an asset or settle a liability).

Historical cost principle

An accounting principle that states that companies should record assets at their cost.

International Accounting Standards Board (IASB)

An accounting standard-setting body that issues standards adopted by many countries outside of the United States.

Which of the statements below is not true?

An adjusted trial balance is prepared before all transactions have been journalized

Monetary unit assumption

An assumption stating that companies include in the accounting records only transaction data that can be expressed in terms of money.

Economic Entity assumption

An assumption that requires that the activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities.

The usual sequence of steps in the transaction recording process is:

Analyze > Journal > Ledger

Basic Accounting equation

Assets = Liabilities + Stockholder's Equity

Expanded Accounting equation

Assets= Liabilities + Common Stock + Revenues - Expenses - Dividends

REM Real Estate received a check for $27,000 on July 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent Revenue was credited for the full $27,000. Financial statements will be prepared on July 31. REM Real Estate should make the following adjusting entry on July 31:

Debit Unearned Rent Revenue, $4,500; Credit Rent Revenue, $4,500

Credits

Decrease Assets and increase liabilities

A debit to an account indicates an increase in that account

False

Relevance

Financial information that is capable of making a difference in a decision.

The common characteristic possessed by all assets is

Future economic benefit

International Financial Reporting Standards (IFRS)

International accounting standards set by the International Accounting Standards Board (IASB).

Live Wire Hot Rod Shop follows the revenue recognition principle. Live Wire services a car on July 31. The customer picks up the vehicle on August 1 and mails the payment to Live Wire on August 5. Live Wire receives the check in the mail on August 6. When should Live Wire show that the revenue was recognized?

July 31

Sarbanes-Oxley Act (SOX)

Law passed by Congress intended to reduce unethical corporate behavior.

Corporation

A business organized as a separate legal entity under state corporation law, having ownership divided into transferable shares of stock.

Propietorship

A business owned by one person.

Partnership

A business owned by two or more persons associated as partners.

Dividend

A distribution by a corporation to its stockholders.

Income Statement

A financial statement that presents the revenues and expenses and resulting net income or net loss of a company for a specific period of time.

Assets

A financial statement that reports the assets, liabilities, and stockholders' equity at a specific date.

Balance Sheet

A financial statement that reports the assets, liabilities, and stockholders' equity at a specific date.

Statement of cash flows

A financial statement that summarizes information about the cash inflows (receipts) and cash outflows (payments) for a specific period of time.

Retained earnings statement

A financial statement that summarizes the changes in retained earnings for a specific period of time.

Securities and Exchange Commission (SEC)

A governmental agency that oversees U.S. financial markets and accounting standard-setting bodies.

Bookkeeping

A part of accounting that involves only the recording of economic events.

Generally accepted accounting principle(GAAP)

Common standards that indicate how to report economic events.

Liabilities

Creditor claims against total assets.