Chapter 2 SmartBook
Gomez Company borrowed $10,000 from the State Bank on April 1, Year 1. The one-year note as a %6 rate of interest. The cash outflow from financing activities that Gomez will report on its Year 2 statement of cash flows is ______
$10,000
True or False: Liabilities are expenses
False
The end-of-period process of identifying and correcting discrepancies is called ______ the records
adjusting
The entry required to update an account balance prior to preparing financial statements is called a(n) ______
adjusting
A deferral occurs when an expense is recognized ______ the associated cash is exchanged
after
Incurring a cash expense affects ______
all of the financial statements
Accounts receivable is a(n)
asset
Salaries payable is reported on the ______
balance sheet
Recording accrued salary expense impacts the ______
balance sheet and income statement
Issuing stock in exchange for cash will ______
be reported on the statement of cash flows and increase stockholders equity
When a company pays cash to settle an account payable ______
both cash and accounts payable decrease
Burns Company borrows $4000 from the State Bank on December 1, Year 1. The one-year note carried a 9% rate of interest. When the note is paid off at maturity, Burns company will decrease cash ______
decrease notes payable and decrease interest payable
Paying a cash dividend ______ (increases/decreases) cash flow from ______ activities on the statement of cash flows.
decreases financing
Westchester Company signed a legally binding contract to provide $3000 of services to be performed in the future. Signing the agreement ______
did not affect retained earnings or cash flow
Net income and cash flow from operating activities will ______
differ due to accrual accounting used on the income statement
Which of the following are found on the statement of changes in stockholders' equity?
dividend and beginning retained earnings
Acquiring cash from the issue of common stock ______
does not affect the income statement
An economic sacrifice resulting from operating activities undertaken to generate revenue is a(n) ______
expense
An economic sacrifice resulting from operating activities undertaken to generate revenue is called ______
expense
The statement of cash flows ______
explains the change in cash from the beginning to the end of the accounting period
The primary difference between notes payable and accounts payable is that notes
generally have longer terms and usually require interest chrages
Signing a contract to provide future services ______
has no effect on financial statements
Providing services on account
has no effect on the statement of cash flows
Providing services on account ______
has no effect on the statement of cash flows
Recognizing an expense on account affects the ______
income statement, balance sheet, and statement of changes in stockholders equity
Recognizing revenue on account affects the ______
income statement, balance sheet, and statement of changes in stockholders equity
The total benefits, both cash and other items, received from operating the business are shown on the ______
income statment
The horizontal financial statements model ______
is a teaching tool
A change in stockholders equity is caused by ______
issuing stock, incurring a cash expense, and earnings
Issuing a notes to borrow money increases
liabilities and assets
An obligation to pay cash to employees in the future is normally called salaries ______
payable
A deferral occurs when ______
revenue is recognized after the associate cash has been collected and an expense is recognized after the associated cash has been paid
True or False: Almost all major companies operating in the United States use accrual accounting
True
True or False: Declaring and paying a cash dividend has no effect on the income statement
True
The primary difference between ______ payable and ______ payable is the term length and whether or not interest is charged.
accounts notes
When a company recognizes an expense on account ______
accounts payable and expenses increase
Companies recognize revenue before the cash has been collected when using ______ accounting.
accrual
When a company pays cash to settle an account payable, ______
both cash and accounts payable decrease
When a company incurs a cash expense, the balance in the cash account ______
decreases and the balance in the expense account increases
When a company recognizes accrued interest expense, the balance in the expense account increases and the balance sheet in the ______
interest payable account increases
Accrual accounting is ______ by generally accepted accounting principles (GAAP)
required
Recognizing revenue on account affects the financial statements by increasing ______
revenue, accounts receivable, and retained earnings.
The horizontal financial statements model is ______
a teaching tool used to show how transaction affect the income statement, balance sheet and statement of cash flows
Revenue is recognized when it is earned and expenses when they are incurred, regardless of when cash changes when using ______ accounting.
accrual
The collection of cash in settlement of an account receivable is a(n) ______ transaction
asset exchange
Select all that apply: recognizing revenue on account affect the financial statements by increasing ______
assets, revenue, and net income
Interest on a Notes Payable is recognized
at the end of the account period
Assets, liabilities and stockholders equity at a particular point in time are reported on the ______ ______
balance sheet
A company recognized an accrued salary expense in Year 1 and paid its employees in Year 2. The financial statements affected in Year 2 are ______
balance sheet and statement of cash flows
Collecting an account receivable affects the ______
balance sheet and statement of cash flows
An accrual occurs when an expense is recognized _____ the associated cash is exchanged.
before
An accrued expense is the recognition of an expense _______ (before/after) cash is paid
before
Which of the following are found on the statement of changes in stockholders equity?
beginning retained earning and dividends
Which of the following accounts are reported on the balance sheet?
cash and ending retained earning
Companies recognize revenue only when the cash has been collected when using ______ account
cash basis
Collecting an account receivable affects financial statements by increasing ______
cash flow
Collecting an accounts receivable affects financial statements by increasing ______
cash flow
When a company collects an account receivable, ______
cash increases and revenue is not affected
When a company collects an account receivable, the amount of ______
cash increases, account receivable decreases, and revenue is not affected
When a company recognizes an accrued salary expense, ______
cash is not affected, expenses increase, and salaries payable increase
Providing services on accounts will ______
cause an increase in the amount of net income shown on the income statement and cause an increase in the amount of retained earnings shown on the statement of changes in stockholders equity
Recognizing a cash expense for advertising will ______
cause the amount of assets shown on the balance sheet to decrease and cause a decrease in the net cash flow from operations shown on the statement of cash flows
Recognizing an accrued expense is a(n) ______ transaction
claims exchange
Select all that apply: Issuing stock for cash increases ______ - cash flow from investing activities - common stock - retained earning - net income - cash flow from operating activities - cash flow from financing activities - stockholders equity - assets
common stock cash flow from financing activities stockholders equity assets
Which of the following are found on the statement of changes in stockholders' equity?
common stock and net income
Declaring and paying a cash dividend ______
decreases cash and retained earnings
On the statement of cash flows, issuing stock for cash increases cash flow from ______ activities
financing
To help you understand how business events affect financial statement, the text uses a(n) ______ ______ statements model.
horizontal financial
When a company collects cash from an account receivable, cash ______
increases and accounts reveivable decreases
When a company borrows money by issuing a note, the balance in the cash account ______
increases and the balance in the notes payable account increases
Acquiring cash by issuing common stock ______
increases cash and common stock
Accounts payable is a(n) ______
liability
Accounts payable is a(n) ______ account
liability
Which of the following are found on the statement of changes in stockholders' equity?
net income and common stock
Which of the following are reported on the income statement?
net income and salary expense
When a company collects an account receivable, revenue is ______
not affected
An accrual occurs when ______
revenue is recognized before the associated cash is collected and when an expense is recognized before the associated cash is paid
Recognizing revenue on account affects financial statements by increasing ______
revenue, accounts receivable, and net income
Liabilities are ______ related to the recognition of expenses
sometimes
The change in cash is explained by the ______
statement of cash flows
The financial statement affected when a company pays cash to settle an accounts payable are the ______
statement of cash flows and balance sheet
The financial statements affected when a company pays cash to settle an account payable are the ______
statement of cash flows and balance sheet
If a company has assets of $65,000 and liabilities of $30,000 then ______ must equal $35,000
stockholders equity
Earning service revenue on account means cash ______
will be collected in the future, even though the related service has been preformed
Accrued salary expense occurs when an employee _____
works in year 1, but is paid in year 2
When a company recognizes an accrued expense, the amount of ______
cash is not affected and expense increases
Recognizing revenue on account affects the financial statements by increasing ______
revenue, assets, and net income
Which of the following account are reported on the income statement?
salaries expense and service revenue
Which of the following accounts are reported on the income statement?
salaries expense and service revenue
A company recognized an accrued salary expense in year 1 and paid its employees in year 2. In year 2 ______
salaries expense will not be affected, salaries payable will decrease, and cash will decrease
Addison Company borrowed $6,000 from the State Bank on June 1, Year 1. The one-year note has an 8% rate of interest. On the Year 2 income statement, the amount of interest expense reported by Addison is ______
$200
Addison Company borrowed $6,000 from the State Bank on June 1, Year 1. The one-year note has an 8% rate of interest. On the Year 1 income statement, the amount of interest expense reported by Addison is ______
$280
During year 1, SIlver Sink, Inc. earned $33,000 of revenue on account. Cash collection of receivables were $28,000. The remainder of the receivables were collected in Year 2. As a result of these transaction, Silver Sink will report Year 1 net income of
$33,00 and cash inflow from operating activities of $28,000 in Year 1 and $5,000 in Year 2
Gomez Company has a December 31 year-end. The company borrows $4,000 from the State Bank on December 1, Year 1. The one-year note has a 9% rate of interest. On the Year 2 income statement, the amount of interest expense reported by Gomes is ______
$330
Gomez Company borrowed $10,000 from the State Bank on April 1, Year 1. The one-year note has a 6% rate of interest. On the Year 1 income statement, the amount of interest expense reported by Gomez is ______
$450
Addison Company borrowed $6000 from the State Bank on June 1, Year 1. The one-year note has an 8% rate of interest. The cash outflow from operating activities that Addison will report on its Year 2 statement of cash flows is ______
$480
Select all that apple: Cash basis accounting ____________ - recognizes revenue only when earned - recognizes revenue only when cash is collected - records expenses only when cash is paid - records expenses when incurred
- recognizes revenue only when cash is collected - records expenses only when cash is paid
True or False: Collecting an account receivable does not affect the balance sheet
False
True or False: Recognizing an accrued expense increase a company's total claims
False
Which of the following is NOT shown on a horizontal financial statements model? - Balance Sheet - Income Statement _ Statement of Changes in Stockholders Equity - Statement of Cash Flows - both Statement of Changes in Stockholders Equity and Statement of Cash Flows
Statement of Changes in Stockholders Equity
Addison Company borrowed $6,000 from the State Bank on June 1, Year 1. The on-year note has an 8% rate of interest. On the Year 1 statement of cash flow from operating activities reported by Addison is ______. Addison Company borrowed $6000 from the State Bank on June 1, Year 1. The one-year note carried an 8% rate of interest. The amount of cash outflow from operating activities that Addison would report on its Year 1 statement of cash flows would be
zero
Green Company incurred $5000 of accrued expenses during year 1, but paid the cash associated with the payable in year 2. based on this information alone, under accrual accounting, the company would report a net loss of ______
zero and cash outflow from operation of $5000 in year two $5000 and cash outflow from operation of zero in year 1