Chapter 2 Accounting 201

The proper journal entry includes

-date -the account and amount debited -the amount and account credited -brief explanation of transaction

analyzing the effect of transaction

1. Determine one account in the accounting equation that will increase or decrease 2.Determine a second account int he accounting equation that will increase or decrease 3.Confirm that assets are equal to liabilities plus stockholders' equity

steps for measuring transactions

1. Use a source document to identify accounts affected 2. Analyze the impact of the transaction on the accounting equation 3. Assess whether the transaction results in a debit or credit to account balances 4.Record the transaction in a journal 5.Post the transaction to the general ledger 6.Prepare a trial balance

Correct order found on balance sheet

1.Asset 2. Liability 3. Stock holder's equity account

Transactions are recorded using debits and credits in a(n):

journal

Debit

left

Chart of accounts

list of all account names used to record transaxtion of a company

trial balance

list of all accounts and their balances at a particular date, showing that total debits equal total credit

Which of the following transactions decreases total assets? Multiple Choice Pay dividends to stockholders. Receive cash from customers for sales in the current period. Receive a utility bill but do not pay it. Purchase supplies on account.

pay dividends to stockholders

Account balances in the general ledger are updated for transactions through the process of: Multiple Choice Analyzing. Balancing. Journalizing. Posting.

posting

The process of transferring debit and credit information from the general journal to the general ledger is known as: Multiple Choice Charting. Posting. Processing. Journalizing.

posting

analyzing a transaction

primary purpose of a source document is to assist in

Posting

process of transferring information from the journal to the ledger

Which of the following transactions causes an increase in stockholders' equity? Multiple Choice Obtain cash by borrowing from a local bank. Purchase advertising on a local radio station. Pay dividends to stockholders. Provide services to customers on account.

provide services to customers on account

Prepaid Rent

record as an asset representing the right to occupy the space in the future -rent that is paid in advance

credit

right

A credit is used to increase which of the following accounts? Multiple Choice Cash. Service Revenue. Insurance Expense. Dividends.

service revenue

Which of the following accounts normally has a credit balance? Multiple Choice Dividends. Cash. Accounts Receivable. Service Revenue.

service revenue

revenue

services performed for customers on account

T-account

simplified form of a general ledger account with space at the top for the account title and with two sides for recording debits and credits and increases and decreases

Account

summarizes transactions related to a particular item over a period of time

accounting cycle

the full set of procedures used to accomplish this two step measurement/ communication process

Measurement process

1. gather infomation about a transaction

-Stockholder equity -Liability

A credit increases

A debit is used to decrease which of the following accounts? Multiple Choice Salaries Expense. Dividends. Supplies. Accounts Payable.

Accounts Payable.

A trial balance can best be explained as a list of Multiple Choice The income statement accounts used to calculate net income. Revenue, expense, and dividend accounts used to show the balances of the components of retained earnings. All accounts and their balances at a particular date. The balance sheet accounts used to show the equality of the accounting equation.

All accounts and their balances at a particular date.

Bell Company purchased supplies for $700 cash. Which of the following statements correctly shows the effect of this transaction on the accounting equation?

Assets remain unchanged because the cash is used to purchase the supplies, resulting in no change. Also the Right side of the equation remains unchanged

The issuance of stock to owners would be recorded with a: Multiple Choice Credit to Investment Revenue. Credit to Common Stock. Debit to Dividends. Credit to Cash.

Credit to Common Stock

The purchase of equipment with cash would be recorded as Multiple Choice Debit Cash; Credit Equipment. Debit Equipment; Credit Cash. Debit Equipment Expense; Credit Cash. Debit Cash; Credit Equipment Expense.

Debit Equipment; Credit Cash.

The payment for utilities of the current month would be recorded as Multiple Choice Debit Cash; Credit Utilities Payable. Debit Utilities Expense; Credit Cash. Debit Utilities Expense; Credit Utilities Payable. Debit Utilities Payable; Credit Cash.

Debit Utilities Expense; Credit Cash.

A debit to Salaries Expense will: Multiple Choice Increase assets. Increase stockholders' equity. Decrease liabilities. Decrease stockholders' equity.

Decrease stockholders' equity.

debt

Dividends are increased with a

All business events have an immediate and quantifiable effect on the accounting equation.

False

If a company has an increase in total revenues of $10,000, which of the following is possible? Total assets increase by $10,000. Total liabilities increase by $10,000. Total stockholders' equity decreases by $10,000. Multiple Choice II only II or III III only I only

I only

-a liability is decreased -another asset is increased

If a transaction decreases cash by $100, the balance sheet will balance if which of the following occur?

Debit Cash 100,000 Credit common Stock 100,000

Joyce Inc. issues 5,000 shares of common stock to investors for $100,000, which of the following is used to record this transaction

Purchasing land with cash would have what effect on the accounting equation? Multiple Choice Total assets increase. Total liabilities increase. No effect. Total assets decrease.

No effect

Which of the following transactions causes a decrease in stockholders' equity? Multiple Choice Repaying amount borrowed from the bank. Providing services to customers on account. Providing services to customers for cash. Paying advertising expense for the current month.

Paying advertising expense for the current month.

Which of the following transactions increases total assets? Multiple Choice Provide services to customers on account. Pay dividends to current stockholders. Purchase supplies for cash. Collect cash from customer for services provided on account last month.

Provide services to customers on account.

Dividends

Reduce retained earnings but dividends are not expenses -distribution of part of the company's net income to the owners, reducing the amount of earnings that have been retained

A debit is used to increase which of the following accounts? Multiple Choice Utilities Expense. Accounts Payable. Common Stock. Service Revenue.

Utilities Expense.

Decrease

What is the effect of expenses on stockholders' equity

journal

a chronological record of all economic events affecting a firm are recorded

An account is defined as

a record of the business activities related to a particular item.

Liability accounts

account payables, salaries payable, utility payable and taxes payable

-Liabilities -owners (stockholders) -revenues

accounts require a credit entry to increase the account

-dividends -expenses -assets

accounts require a debit entry

cash account

all transaction affecting cash are summarized

internal transaction

an event that affects the financial position of a company but does not include an exchange with a separate economic entity

Account Equation

assets= liability+stockholder equity

Deferred revenue

cash received from customers for services to be performed in the future

asset accounts

cash, supplies and equipment

Stockholder equity account

common stock and retained earnings

After transactions are recorded in the journal, they are posted to the:

general ledger

Internal transaction

do not include an exchange with a separate economic entity -using supplies on hand -earning revenues after receiving cash in hand from customer

Internal Transaction

events that affect the financial position of the company but do not include an exchange with a separate economic entity - using supplies on hand and earning revenue after having received cash in advance from a customer

Debit

for every journal entry, what must equal credit

Provide in a single location the list of transactions affecting each account and the account's balance

the purpose of the general ledger

External Transaction

transactions between the company and separate economic entities -Paying salaries to employees -Borrowing money from the bank -Purchasing inventory from suppliers

External Transaction

transactions the firm conducts with a separate economic entity ex: selling products to a customer, purchasing supplies from a vendor