Financial Accounting - Chapter 2

Which accounts require a credit to increase the account? Inventory Equipment Common stock revenue

common stock revenue

The type of information included in an account includes columns for increase and decrease account title account number the sum of daily transaction(each transaction is posted to the account separately)

Columns for increases and decreases the account title The account number

Which of the following make up shareholders' equity? Assets purchased by the corporation liabilities owed by the corporation amounts invested by shareholders amounts earned by the corporation assets owned by shareholders

Amounts invested by shareholders Amounts earned by the corporation

Borrowing $50,000 from the bank and signing a note payable causes:

Cash to increase Notes payable to increase

A company debits cash to increase its cash account. A bank ----- the customer's checking account because the customer account represents a liability on the bank's balance sheet.

Credit

Royce corporation pays for supplies purchased in the previous month. What is the effect on the account equation for the payment of the supplies?

Decrease assets Decrease liabilities

The use of office supplies purchased on account in the previous month will have what effects on the balance sheet equation?

Decrease assets decrease retained earnings

Londa corporation pays employees $3,000 for the month. What is the effect on the balance sheet equation?

Decrease owners' equity Decrease assets

Salaries paid to employees ------ owners' equity for the expense incurred.

Decreases

Which of the following is an internal economic event? Issuing stock Depreciation equipment Borrowing from a bank Collecting accounts receivable

Depreciation equipment

An ------ events is any event that directly affects the financial position of the company

Economic

True or False: Retained earnings equal net income plus distribution to shareholders

False - RE equals net income less distribution to shareholder

True or False: An internal event involves an exchange between the company and a separate economic entity

False - external events involves separate entity

True or False: permanent accounts are closed at the end of the accounting period

False - temporary accounts are closed at the end of the accounting period

Economic events cause changes in

Financial position of a company

The accounts receivable control account is found in the ----- ledger, whereas individual customer accounts are located in the ----- ledger

General; subsidiary

Bigelow Company purchases supplies on account. What are the effects on the balance sheet equation?

Increase Assets Increase Liabilities

Hargrave Professional group performs legal services on account. What is the effect on this transaction on the balance sheet equation for Hargrave?

Increase assets

Ace cleaning services performs cleaning services for $2,000 cash. What are the effects on the balance sheet equation for ACE cleaning services?

Increase cash increase owners' equity

Norton Corp. has revenues of $5,000 and Expense of $2,000. What is the total effect on retained earnings?

Increases $3,000

Galaxy corporation issues 500 shares of $1 par value common stock for $5,000. What is the total effect on owners' equity?

Increases $5,000

An individual invests $10,000 to open a new business. What is the effect on assets?

Increases total assets

A T-account has space at the top for the account title and two sides for recording ----- and ----- to the account.

Increases; decreases

Purchasing supplies on account ------ the supplies account and ------ accounts payable.

Increases; increases

Which of the following are external events?

Paying employee salaries Collecting on a customer account Borrowing from the bank

True or False: The objective of an Enterprise Resource Planning(ERP) system is to create a customized software program that integrates the information of departments and functions of a company into single computer system

True - ERP systems are usually customized packages used in larger firms

True or False: In banking, a customer account is credited when cash is deposited because the customer account represents a liability to the bank.

True - because the bank must return the customer's money upon demand

Elements of the accounting equation are represented by __ which are contained in the general ledger.

accounts

Which of the following items is prepared at the end of the accounting period immediately before the financial statements are prepared?

adjusted trial balance

Transaction analysis includes ---- the source documents to determine the dual effect on the accounting equation

analyzing

The primary purpose of source document is to assist in

analyzing a transaction

The effect on the accounting equation from using supplies which had been previously recorded as an asset is:

assets decreases and owners' equity decreases

Zircon corp. has 100 clients and maintains a separate accounts receivable account for each client. the account receivable account in the general ledger that contains the total account receivable amount owed to Zircon by all customers is referred to as a

control account

In double-entry accounting system, the ------ represents the left side of the account.

debits

The payment of an account for supplies purchased in the previous month will ------ the cash account

decrease

In a double-entry accounting system, each transaction has a ----- effect on the accounting equation

dual or double

A ----- is a collection of accounts that tracks the increases and decreases in a company's financial position elements

general ledger

A transaction is an event that

has a dual effect on the accounting equation

A ----- account represents the basic financial position elements of the account equation and a ---- account keeps track of the changes in the retained earnings component of shareholders' equity

permanent; temporary

Which of the following are temporary accounts? Salary expense accounts payable revenue retained earnings

salary expense revenue