Financial and Managerial Accounting - Chapter 3

If a company bought a $60,000 piece of equipment on July 1, and the useful life of the equipment is 5 years, the equipment depreciation expense for the month of august is __________

$1,000

Daves Inc., purchased a 1-year insurance policy for $4,800 on July 1, Insurance expenses for the quarter ending September 30 is

$1,200

The balance in Johnston, Inc.'s Cash account on July 1 is 82000. During July, the following debit entries were posted to the cash account: 7-7, 10000; 7-14, 12000; and 7-31, 22000. The following credit entries were posted to the cash account: 7-7, 14000; 7-14, 19000; 7-21, 17000; and 7-31, 32000. Johnston, Inc.'s cash account balance at July 31 is __________

60000

Journal

A chronological record of transactions, showing for each transaction the debits and credits to be entered in specific ledger accounts. The simplest type of journal is a general journal

Green systems sold and delivered modems to Blue computers for $60,000 to be paid by Blue in three equal installments over the next three months. The journal entry made by Blue Computers to record the last of the three installment payments will include:

A debit of $220,000 to accounts payable

Net loss

A decrease in owners' equity resulting from unprofitable operations

Dividends

A distribution of resources by a corporation to its stockholders. The resource most often distributed is cash

income statement

A financial statement summarizing the results of operations of a business by matching its revenue and related expenses for a particular accounting period. Shows the net income or net loss

Double-entry accounting

A system of recording every business transaction with equal dollar amounts of both debit and credit entries. As a result of this system, the accounting equation always remains in balance; in addition, the system makes possible the measurement of not income and also the use of error-detecting devices such as a trial balance.

Objectivity

Accountants' preference for using dollar amounts that are relatively factual - as opposed to merely matters of personal opinion. Objective measurements can be verified

The period time covered by an income statement is termed the company's _________ period

Accounting or Fiscal

If advertising services are purchased with the bill to be paid in 45 days, which account is credited?

Accounts payable

Ledger

An accounting system includes a separate record for each item that appears in the financial statements. Collectively, these statements are referred to as a companies' ledger. Individually, these records are often referred to as ledger accounts

debit

An amount entered on the left side of a ledger account. It is used to record an increase in an asset or a decrease in a liability or in owners' equity

Credit

An amount entered on the right side of a ledger account. It is used to record a decrease in an asset or an increase a liability or owners' equity

Net income

An increase in owners' equity resulting for profitable operations. Also, the excess of revenue earned over the related expenses for a given period

In an accounting system, ledger accounts generally appear in the following order: __________ accounts first, _________ accounts second, and owners' _________ third

Asset Liability Equity

The allocation of an expenditure to expense is particularly judgmental for which accounts?

Building Equipment

To record the cash purchase of buildings requires a debit entry to ___________ and credit entry to __________

Buildings Cash

accrual basis of accounting

Calls for recording revenue in the period in which it is earned and recording expenses in the period in which they are incurred. The effect of events on the business is recognized as services are rendered or consumed rather than when cash is received or paid

As a company generates revenue, which asset accounts are most likely to increase?

Cash Accounts Receivable

A company purchased a 30000 piece of equipment by paying 10000 cash and issuing a not payable for the unpaid balance. This transaction required a:

Credit to cash of 10000 Credit to notes payable of 20000 Debit to equipment of 30000

A company purchased a 30000 piece of equipment by paying 10000 cash and issuing a note payable for the unpaid balance. This transaction required a:

Credit to cash of 10000 Debit to equipment of 30000 Credit to notes payable of 20000

If debit entries to an account exceed the total of credit entries to an account, that account has a __________ balance

Debit

Eagle News has a $6,000 account receivable from one of its advertisers, Allowed Floors. When Eagle receives $3,600 from Allowed as a partial payment:

Eagle should credit accounts receivable for $3,600

If employee wages for a month are paid immediately in cash, which account is debited?

Expense

True or False: A business that reports profits will always have sufficient cash.

False

True or False: Dividends are an expense; therefore, they are recorded with debits

False

True or False: When the debit and credit columns of a trial balance are equal in amount, all transactions have been analyzed and recorded correctly throughout the period

False

Aspects of accounting that are more analytical than the accounting cycle include

Forecasting probable results of future operations Tax planning Interpreting accounting information Designing information systems

A credit entry ha which of the following effects?

It increases a liability account It increases an owners' equity account It decreases an asset account

What effect does earning revenue have on the accounting equation?

Owners' equity increases

Which of the following results when a business reports a profit, but declares (pays) no dividends?

Owners' equity increases

A trial balance can be out of balance for which of the following reasons?

Posting a debit as a credit Listing an asset account in the credit column

The cash account provides information on the

Record of cash receipts Record of cash disbursements Current cash balance

When a dividend is declared, the balance in which account is reduced?

Retained earnings

Journal entries recorded in the general ledger include

Short explanations of transactions Dollar amounts of the transactions Dates of the transactions

retained earnings

That portion of stockholders' (owners') equity resulting form profits earned and retained in the business

Expenses

The cost of the goods and services used up in the process of obtaining revenue

Matching principle

The generally accepted accounting principle that determines when expenses should be recorded in the accounting records. The revenue earned during an accounting period is matched (offset) with the expenses incurred in generating that revenue

Realization principle

The generally accepted accounting principle that determines when revenue should be recorded in the accounting records. Revenue is realized when services are rendered to customers or when goods sold are delivered to customers

Clinton prepares monthly financial statements. Which of the following violates the matching principle?

The premium on a six-month insurance policy is charged immediately to expense

Revenue

The price of goods and services charged to customers fro goods and services rendered by the business

Posting

The process of transferring information from the journal to individual accounts in the ledger

General Journal

The simplest type of journal, it has only two money columns-one for credits and one for debits. This journal may be used for all types of transactions, which are later posted to the appropriate ledger accounts

Accounting Period

The spinoff time covered by an income statement. One year is the accounting period for much financial reporting, but financial statements are also prepared by companies for each quarter of the year and for each month

Conservitism

The traditional accounting practice of resolving uncertainty by choosing the solution that leads to the lower (more conservative) amount of income being recognized in the current accounting period. This concept is designed to avoid overstatement of financial strength or earning

time period principle

To provide the users of financial statements with timely information, net income is measured for relatively short accounting periods of equal length. The period of time covered by an income statement is termed the companies' accounting period

If a company purchases equipment for cash:

Total assets and owners' equity will remain unchanged

True or False: Revenue is recognized when it has been earned, regardless of when cash is received from customers

True

In February of each year the Carlton Hotel holds a very popular wine tasting event. Tickets must be ordered and paid for in advance, and are typically sold out by November of the preceding year. The realization principle indicates that the revenue form these ticket sales should be recognized in the period in which the:

Wine tasting event is held

The cash settlement (payment) of a 40000 account payable results in:

a decrease in cash of 40000

When a company's expenses exceeds its revenue, its income statement will report

a net loss

The equality of debits and credits in the general ledger is proved by preparing

a trial balance

Accounting records help to establish __________ for business assets and transactions

accountability

The period of tome covered by an income statement is termed the company's __________ period

accounting

If a consultant provides consulting services in June, but the bill is not due from the client until July, the account debited by the consultant in June to record the transaction is

accounts receivable

If payment is occurs at the time the expense is incurred, then

assets are reduced

If revenue is recognized when cash is received, and expenses are recognized when cash is paid, the accounting system in use is the

cash basis

The journal is a _________ record of business transactions

chronological

In most businesses, the accounting cycle is performed using

computer software

The right side of an account is called the ________

credit side

The sum of all debts in the general ledger must equal the sum of all __________

credits

An owners' equity account is decreased via a __________ entry

debit

Dividends reduce owners' equity, therefore they are recorded with __________ entries

debit

The entry to record the issuance (sale) of stock to investors in exchange for cash, requires a _________ to cash, and a __________ to capital stock

debit credit

A company made an error by recording too much revenue. To correct this error, the Revenue account should be __________

debited

A company purchased land for 50000 by paying 20000 cash, and by issuing a note payable for the remainder of the amount owed. It recorded this transaction by ___________ land for 50000, __________ cash for 20000, and _________ notes payable for ___________

debiting crediting crediting 30000

In every transaction that is recorded,

debits must equal credits

As a result of declaration of dividends, the retained earnings balance __________

decreases

The need for debit entries and credit entries, equal in dollar amount , to be recorded for every transaction is referred to as __________ __________ accounting

double-entry

Revenue is recognized when a business has completed the __________ process.

earnings

An account is maintained for

every individual asset, liability, owners' equity, revenue, and expense

An account is maintained for _________

every individual asset, liability, owners' equity, revenue, and expense

Earnings are generally retained in a business to

finance growth

The 12 month accounting period used by an entity is called its

fiscal year

Posting simply means updating the _________ accounts for the effects of the transactions recorded in the journal

ledger

Posting simply means updating the __________ accounts for the effects of the transactions recorded in the journal.

ledger

The record used to keep track of the increases and decreases in financial statement items is termed a __________ account

ledger

The source of the amounts needed to prepare financial statements is a

ledger

Transactions recorded in a journal are periodically posted to a

ledger

If an expense will not be paid until after it is incurred, then

liabilities are increased

By offsetting revenue with resources consumed in generating that revenue, the matching principle provides the best measure of

net income

Expenses decrease __________ ___________ therefore, expenses are recorded with _________ entries

owners' equity, debit

Expenses are incurred to

produce revenue

Net income is a measure of a company's

profitability

The accounting cycle begins with the initial __________ of business transactions

recording

An expense always

reduces owners' equity

In determining net income, we offset the current periods expenses against the current periods __________

revenue

Net income is equal to _________ minus __________

revenues, expenses

Which of the following are examples of typical expenses?

salaries depreciation

When the future benefits of certain expenditures, such as employee training costs, are not possible to determine or measure, accountants often rely upon

the principle of objectivity the concept of conservatism

When the future benefits of certain expenditures, such as employee training costs, are not possible to determine or measure, financial accountants often rely upon

the principle of objectivity and the concept of conservatism

Accounting Cycle

the sequence of accounting procedures used to record, classify, and summarize accounting information. The cycle begins with the initial recording of business transactions and concludes with the preparation of formal financial statements

General journal entries are recorded

throughout the accounting period as transactions occur

Accounting records are often used to obtain detailed information pertaining to a particular __________

transaction

In the general ledger a separate 'account' is maintained for each:

type of asset and liability and for each element of owners' equity

Posting entries to the ledger involves

updating information that pertains to individual accounts