Chap 2 Financial accounting
Measuring external transactions is a six-step process:
1Use source documents to identify accounts affected by an external transaction. 2Analyze the impact of the transaction on the accounting equation. 3Assess whether the transaction results in a debit or credit to account balances. 4Record the transaction in a journal using debits and credits. 5Post the transaction to the general ledger. 6Prepare a trial balance.
Which events will not pose an immediate impact on the accounting equation of a retail company? Sale of merchandise A change in marketing strategy Payment of employee salaries Purchase of supplies
A change in marketing strategy
Which of the following events will not pose an immediate impact on the accounting equation of a retail company?
A change in marketing strategy
Recording transactions in a Jornal
A journal provides a chronological record of all transactions affecting a firm.
Which of the following is not an asset account? Accounts Payable Cash Equipment Supplies
Accounts Payable
Beta Company paid utilities expense of $2,000 for the current month. Which of the following statements correctly shows the effect of this transaction on the accounting equation?
Assets will decrease by $2,000, liabilities will remain unchanged, and stockholders' equity will decrease by $2,000
Sampson Corporation pays dividends of $9,000 to shareholders. Which of the following statements correctly shows the effect of this transaction on the accounting equation?
Assets will decrease by $9,000, liabilities will remain unchanged, and stockholders' equity will decrease by $9,000
Microlith received $20,000 cash in advance from customers. Which of the following statements correctly shows the effect of this transaction on the accounting equation?
Assets will increase by $20,000, liabilities will increase by $20,000, and stockholders' equity will remain unchanged
Palmer Corporation borrows $40,000 cash by signing a note with the bank. Which of the following statements correctly shows the effect of this transaction on the accounting equation?
Assets will increase by $40,000, liabilities will increase by $40,000, and stockholders' equity will remain unchanged
Bell Company purchased supplies for $700 cash. Which of the following statements correctly shows the effect of this transaction on the accounting equation?
Assets will remain unchanged, liabilities will remain unchanged, and stockholders' equity will remain unchanged
A company pays cash for utilities. The company records this transaction with a:
Credit to Cash
A company bills customers for services provided. The company records this transaction with a:
Credit to Service Revenue
Callahan Corporation provides services to customers on account, $900. How would this transaction be recorded?
Debit Accounts Receivable $900, credit Service Revenue $900
Kelly Corporation borrows $120,000 from First Community Bank. How would this transaction be recorded?
Debit Cash $120,000, credit Notes Payable $120,000
Timmons Corporation purchases office supplies for $350 cash. How would this transaction be recorded?
Debit Supplies $350, credit Cash $350
Livingston Company pays utilities of $2,500 in cash. How would this transaction be recorded?
Debit Utilities Expense $2,500, credit Cash $2,500
A company borrows cash from a local bank. The company records this transaction with a:
Debit to Cash
A company purchases supplies for cash. The company records this transaction with a:
Debit to Supplies
A transaction involving a debit to an asset account should be posted on the right side of the T-account. True or False?
False
All business events have an immediate and quantifiable effect on the accounting equation. True or False
False
In a journal entry, the account to be credited is listed on the first line. True or False?
False
In preparing journal entries, it is acceptable for the amount of total debits to be higher than the amount of total credits. TRue or False?
False
An account is defined as a record of the business activities related to a particular item. True or false?
True
An increase in revenues increases net income, and net income increases stockholders' equity.
True
In a journal entry, there are two amount columns: the left-hand column is for debits, and the right-hand column is for credits. True or False?
True
In posting transactions to a T-account, debits are posted on the left side and credits are posted on the right side. True or False?
True
What is external transactions?
they are transactions conducted between the company and a separate economic entity. Ex: selling product to a costumer, purchasing supplies from a vendor, paying salaries
Terminology of debit and credit
we refer to increase in assets (left-hand side account) as DEBITS, and we refer to decreases in assets as credits