Finance SM 2
Which accounts require a credit entry to increase the account?
Retained earnings Accounts payable
A payment of cash dividends will decrease which of the following?
Retained earnings Stockholders' equity Assets
Which of the following accounts normally have a credit balance?
Retained earnings, common stock
Which type of account is increased with a credit?
Revenue
Identify accounts that require a credit to increase the account.
Revenue Common stock
Identify the three components of retained earnings.
Revenues Dividends Expenses
What are the three components of retained earnings?
Revenues, expenses, and dividends
For every journal entry, total _________ must be equal to total
debit : Credit
Accounts on the left side of the accounting equation (assets) are increased with a(n) _____________ to the account, whereas accounts on the right side of the accounting equation are increased with a(n) _______________
debit : credit
Cray purchases equipment for cash. Total assets will
remain the same.
When supplies are purchased on account, which of the following occurs?
A liability increases.
If a transaction decreases cash by $100, the balance sheet will balance if which of the following occurs?
A liability is decreased Another asset is increased
Select the accounts that increase with a debit.
Accounts receivable Supplies Advertising expense
Accounts receivable are assets which represent
Amounts owed by customers
Which of the following is used to record the summary of effects on one particular item?
An account
Where is the Deferred Revenue account reported in the financial statements?
As a liability
Analysis of Mueller Company's accounts show that as a result of a single transaction, both cash and notes payable increased by $10,000. Which of the following transactions would have caused this increase?
Borrowing cash and signing a promissory note
Jeremy issues 5,000 shares of common stock for $10 per share. Which of the following accounts are affected?
Cash Common stock
Which accounts require a debit entry to increase the account?
Cash Utility expense
Shriver Corp. borrows $25,000 from a bank and signs a two-year promissory note. What accounts will be affected by this transaction and what is the effect?
Cash increases Notes payable increases
Which of the following are stockholder equity accounts?
Common stock Retained earnings
London Corp. issues 1,000 shares of stock for $20 per share. What are the effects of this transaction?
Common stock is increased. Cash is increased.
Wolfgang Company's assets and stockholders' equity both increased by $50,000 as a result of a single transaction. Which of the following transactions would explain this increase?
Common stock was sold for cash
The last step for analyzing the effect of transactions is:
Confirm that assets are equal to liabilities plus stockholders' equity
Which of the following is on the right side of an account?
Credit
What effect will the payment of salaries to employees for the current period have on stockholders' equity?
Decrease
What is the effect of dividends on retained earnings?
Decrease
What is the effect of expenses on retained earnings?
Decrease
What is the effect of expenses on stockholders' equity?
Decrease
The first step for analyzing the effect of transactions is:
Determine one account in the accounting equation that will increase or decrease
A(n) ____________ is a cost of doing business during the period, whereas a(n) ___________Incorrect Unavailable is a distribution of cash to stockholders.
Expense : Dividend
True or false: The two functions of financial accounting are to measure business activities and prepare tax returns.
False
rue or false: The term debit means increase, and the term credit means decrease.
False
On February 1, Domino Corporation ordered inventory. The inventory was received on February 15. Domino paid for the inventory on February 27. On which of the following dates will Domino record a transaction?
February 27 February 15
When services are provided on account, what is the effect on stockholders' equity?
Increase
What are the effects of providing services on account to customers?
Increase assets Increase retained earnings
LMN Enterprises performs accounting services for a client for $3,000 cash. What is the effect on the accounting equation?
Increase assets and increase retained earnings
Rice borrows $20,000 from the bank. Which of the following is an effect of this transaction?
Increase liabilities
What effect does revenue have on retained earnings?
Increases
How is deferred revenue classified?
Liability
On May 1, Ace Electronics ordered office equipment. The equipment was delivered to Ace on May 15, and Ace agreed to pay for it by the end of the month. Ace paid for the equipment on May 31. When will Ace make the first entry in its accounting system for this purchase?
May 15
Which of the following is an external transaction?
Purchasing supplies from a vendor
The accounting equation is: Assets = Liabilities +
Stockholders' Equity
Ryan Corporation declares and pays a dividend. Which of the following is correct?
Stockholders' equity decreases.
London Corp. issues 1,000 shares of stock for $20 per share. What is the effect of this transaction on the accounting equation?
Stockholders' equity increases Assets increase
A journal entry should contain which of the following information?
The date Accounts and amounts debited Accounts and amounts credited Description of the transaction
Rory purchases supplies for cash. Which of the following occurs?
Total assets remain the same
True or false: For each journal entry, debits must be equal to credits.
True
True or false: The accounting equation must always remain in balance.
True
When should revenue be recorded?
When the services are performed
Indicate which situations would require Zenda Company to record revenue in the current period.
Zenda performs services on account. Zenda performs services for cash.
When cash is received in advance for services to be performed at a later date, an asset is increased and
a liability is increased.
A company records the effects of transactions for a particular item in a(n)
account.
The term __________ cycle refers to the full set of procedures utilized to measure and communicate business transactions to external decision makers.
accounting
The full set of accounting procedures used to measure and communicate business transactions is referred to as the
accounting cycle.
The account deferred revenue is used to record
an obligation to perform services in the future
Marcy receives $10,000 cash in advance from customers for services to be performed in the following year. This transaction would cause
assets to increase and liabilities to increase.
Accounts receivable are
assets.
The acronym DEALOR can be used to remember how debits and credits affect different accounts. The three types of accounts that are increased with debits (represented by the DEA in the acronym) are
assets. expenses. dividends.
Slim purchases equipment with cash. The accounts affected are
cash and equipment.
A list of all account names used to record transactions of a company is referred to as the
chart of accounts
The two components of stockholders' equity are
common stock and retained earnings
In a double entry accounting system, the right side of the account is referred to as a ___________
credit
In a double entry accounting system, the right side of the account is represented by a(n) ____________.
credit
Stockholders' equity accounts normally have a _________ balance.
credit
Stockholders' equity accounts normally have a________ balance.
credit
The accounting equation is Assets = Liabilities + Stockholders' Equity. Accounts on the right side of this equation are increased with
credits.
A proper journal entry includes the ______, the account and amount debited, the account and amount credited, and a brief explanation of the transaction.
date
In a double-entry accounting system, the ____________ represents the left side of the account.
debit
Because dividends reduce retained earnings, a ______ to dividends is essentially a ______ to retained earnings.
debit; debit
Because expenses reduce retained earnings, a ______ to expense is essentially a(n) ______ to retained earnings.
debit; debit
For every journal entry, total _______ must be equal to total credits.
debits
The accounting equation is Assets = Liabilities + Stockholders' Equity. Accounts on the left side of this equation are increased with
debits.
When a company pays salary expense, the effects are to
decrease assets. decrease stockholders' equity.
Carlson Corporation pays a dividend to its investors. The effect of the dividend is to
decrease retained earnings.
What is the effect of dividends paid on the expanded accounting equation?
decrease retained earnings. decrease assets
Dividends paid to stockholders will cause retained earnings to
decrease.
Expenses will cause retained earnings to
decrease.
Dividends ______ retained earnings; therefore, to increase dividends, one would ______ the dividends account.
decrease; debit
Expenses ______ retained earnings; therefore, to increase any expense, one would ______ the expense account.
decrease; debit
When a company receives cash in advance from customers for services to be performed in the future, the transaction affects the ______ account.
deferred revenue
After the accountant analyzes the impact of a transaction on the accounting equation, the next step in the measurement process is to
determine the accounts to debit and credit.
Crane purchases equipment by signing a note payable with the equipment dealer for $10,000. The accounts affected for Crane are
equipment and notes payable.
Credits increase revenues, whereas debits increase
expenses and dividends.
True or false: The term debit means increase, and the term credit means decrease.
false
On January 1, Kim pays for two years of rent in advance. The effect of this transaction
has no effect on total assets.
Revenues cause retained earnings to
increase
Ramirez purchases $50,000 of equipment by signing a note payable. The effects are
increase in assets. increase in liabilities
Zelda purchases $10,000 of supplies on account. The effects of this transaction are to
increase liabilities. increase assets.
On January 1, Lorna pays $36,000 of rent in advance. The effects of this transaction are to
increase prepaid rent. decrease cash
Revenues ______ retained earnings; therefore, to increase any revenue, one would ______ the revenue account.
increase; credit
Net income ______ retained earnings.
increases
Transactions that are typically recognized at the end of the period and do not include an exchange with a separate company are referred to as _____________ transactions.
internal
A chronological record of all economic events affecting a firm are recorded in a(n)
journal
A(n)______________ entry describes the format for recording a transaction.
journal
The commonly used format for recording a transaction is referred to as a(n)
journal entry.
A debit is on the ______ side of the account.
left
The term debit means to place the entry on the _______ hand side of the account, and the term credit means to place the entry on the ___________m hand side of the account.
left : right
The term debit means to place the entry on the ________ hand side of the account, and the term credit means to place the entry on the ___________ hand side of the account.
left : right
The term debit means to place the entry on the hand side of the account, and the term credit means to place the entry on the hand side of the account.
left : right
The accounting equation is: Assets = ____________ + Stockholders' Equity.
liabilities
The acronym DEALOR can be used to remember how debits and credits affect different accounts. The three types of accounts that are increased with credits (represented by the LOR in the acronym) are
liabilities. revenues. owners' equity.
A chart of accounts is a
list of all account names and numbers used by a company.
The two roles of financial accounting are to:
measure business activities of the company., communicate information to external parties for decision making purposes
An increase in revenues increases ____________, __________which increases retained earnings, which increases stockholders' equity.
net : income
Stockholders' equity is increased by revenues because revenues increase
net income.
Rent paid in advance and classified as an asset is referred to as
prepaid rent.
Ursula Company's bookkeeper records revenue relating to a customer transaction. This indicates that the company
provided goods or services to a customer.
The purpose of a journal is to
record a chronological listing of every transaction for a company
Prepaid rent is
rent paid in advance.
An increase in revenues increases net income, which results in an increase to:
retained earnings
Consistent with the ____________ recognition principle, companies record revenue at the time goods are provided to customers.
revenue
Consistent with the ________________ recognition principle, companies record revenue at the time goods are provided to customers.
revenue
The two basic components for calculating net income are _________ and ______________. .
revenue and expense
Which of the following are components of calculating net income?
revenues, expenses
Claire purchases equipment for $10,000 by paying $3,000 in cash and borrowing $7,000 from the bank. The number of accounts affected by this transaction is
three.
Lim Corporation purchases $10,000 of equipment for cash. The effect of this transaction is
total assets will remain the same.
Which of the following are external transactions?
Borrowing money from the bank Purchasing inventory from suppliers Paying salaries to employees
Lexington Company borrows $10,000 from a bank by signing a promissory note. What are the effects of this transaction on the accounting equation?
Increase liabilities Increase assets
Price Company provides cleaning services to customers for $10,000 cash. What are the effects of this transaction on the accounting equation?
Increase retained earnings. Increase assets
What type(s) of transactions are typically measured only at the end of the accounting period?
Internal transactions
The types of accounts which affect retained earnings are
revenues. expenses. dividends.
The purpose of an account is to
summarize all transactions for that item.
True or false: Revenue is recorded when services are performed, whereas deferred revenue is recorded when cash is received from customers in advance before services are performed.
true
A transaction will always affect at least ______ accounts.
two