Fundamentals of Accounting Unit 1

Which of the following account balances will typically be increased as a result of adjusting entries? (Select all that apply.) Supplies Interest Payable Cash Prepaid Rent Deferred Revenue Supplies Expense

Interest Payable Supplies Expense

Creditors want to see that a company that owes them money has ______.

assets that are greater than their liabilities

current ratio equation

current assets / current liabilities

Utilities Expense is ______. decreased when the service is paid credited when the service is received debited when the service is received credited when the service is paid

debited when the service is received

The double-entry system requires ______. (Select all that apply.) increases in assets to equal decreases in liabilities increases in liabilities to equal increases in stockholders' equity debits to equal credits total assets to equal total liabilities plus stockholders' equity

debits to equal credits total assets to equal total liabilities plus stockholders' equity

A contra-account ______. (Select all that apply.) Multiple select question. example is Accumulated Depreciation because it has a normal credit balance has a normal balance opposite of the account it offsets example is Accounts Payable because it has a normal balance opposite of Accounts Receivable example is Depreciation Expense because it has a normal debit balance

example is Accumulated Depreciation because it has a normal credit balance has a normal balance opposite of the account it offsets

The order in which assets are reported on the balance sheet is based on when the asset is ______. purchased expected to be used or turned into cash paid for and consumed expected to be sold and collected

expected to be used or turned into cash

The three types of activities reported on the statement of cash flows are the _____ activities, _____ activities, and _____ activities.

financing, operating, investing

The duality of effects refers to the fact that each transaction ______.

has at least two effects on the basic accounting equation

The main reason companies exist is to maximize their ______. profits legal liability owners' wealth expenses

profits owners' wealth

After posting all entries to the ledger, the Accounts Payable T-account will show which of the following? (Check all that apply.) purchases on account on the credit side beginning balance on the top of the debit side ending balance on the bottom of the credit side ending balance on the bottom of the debit side payments made on the debit side purchases on account on the debit side payments made on the credit side beginning balance on the top of the credit side

purchases on account on the credit side ending balance on the bottom of the credit side payments made on the debit side beginning balance on the top of the credit side

Which financial statement reports the accumulation of profits kept by the business during the current accounting period with that of prior periods?

statement of retained earnings

True or false: A company generates Retained Earnings by operating profitably.

true. Retained Earnings is the accumulated earnings the company has not distributed to stockholders.

What order to the activities appear on the statement of cash flows?

1) operating activities 2) investing activities 3) financing activities

Accounting Cycle Steps

1. Analyze business transactions 2. Journalize the transactions 3. Post to ledger accounts (T-accounts) 4. Prepare an unadjusted trial balance 5. Journalize and post adjusting entries to T accounts 6. Prepare an adjusted trial balance 7. Prepare financial statements 8. Journalize and post-closing journal entries 9. post to T-accounts 10. Prepare a post-closing trial balance

In which order, from top to bottom, is the order of the unadjusted trial balance?

1. assets 2. liabilities 3. common stock 4. retained earnings 5. revenues 6. expenses

Which of the following are true about the income statement? (Multiple select question) Each line item has a dollar sign after it, such as 100$. A dollar sign appears only at the top and bottom of the column of numbers. Revenues are listed before expenses. Each major caption has an underlined subtotal, such as Total Expenses. Revenues are listed after expenses. Net Income has a double underline. Each line item has a dollar sign in front of it, such as $100.

A dollar sign appears only at the top and bottom of the column of numbers. Revenues are listed before expenses. Each major caption has an underlined subtotal, such as Total Expenses. Net Income has a double underline.

Which statement is false? A trial balance is the same as a balance sheet. A trial balance can verify the equality of debits and credits. A trial balance can be taken at any point in time. A trial balance lists all the accounts with their current balances.

A trial balance is the same as a balance sheet.

Which ratio change provides good news about a company? An increase in debt-to-equity ratio A decrease in assets-to-equity ratio A decrease in the net profit margin ratio An increase in the net profit margin ratio

An increase in the net profit margin ratio

Which of the following is an example of proper accounting when it comes to reporting values on a company's balance sheet? (Check all that apply.) Company reported its inventory at its current market value, which is lower than its original cost. Company reported its damaged equipment at an amount lower than it originally cost. Company reported its land at the amount it could be sold for on the balance sheet date, which is higher than the original cost of the land. Company reported its notes receivable at the amount it originally loaned to employees, some of whom have since been laid off.

Company reported its inventory at its current market value, which is lower than its original cost. Company reported its damaged equipment at an amount lower than it originally cost.

Which line items appear on the statement of retained earnings? (Check all that apply.) Expenses Revenue Dividends ending balance of Retained Earnings Cash Net Income Accounts Payable

Dividends Ending balance of Retained Earnings Net Income

Which of the following statements are true? Supplies are purchased from suppliers, while equipment is donated by stockholders. Equipment is furniture or machinery that can be used for years. Supplies are assets, but equipment is a liability. Supplies are assets that can be used in the process of earning revenue in the near future.

Equipment is furniture or machinery that can be used for years. Supplies are assets that can be used in the process of earning revenue in the near future.

True or false: The unadjusted trial balance reports the increases and decreases in each account that occurred during the accounting period.

False. A trial balance lists all the accounts with their current unadjusted balances and indicates whether the total debits equals total credits for all of the accounts.

True or false: All of the accounts listed on an Unadjusted Trial Balance are also listed on the Balance Sheet.

False. Only the assets, liabilities, Common Stock and Retained Earnings accounts are reported on the balance sheet. Revenues and expenses are reported on the income statement.

Which of the following is not one of the five steps to apply when determining revenue? Determine the transaction price Recognize revenue when each performance obligation is satisfied Identify the contract that identifies the rights and obligations Identify that the cash has been received Identify the seller's performance obligation Allocate the transaction price to the performance obligation

Identify that the cash has been received

Which of the following statements are true about the balance sheet. (Select all that apply.) It reports the changes in the assets, liabilities and stockholders' equity during the accounting period. It is sometimes called the statement of financial position. It reports the economic resources and claims on those resources. It reports the assets, liabilities and stockholders' equity at a point in time.

It is sometimes called the statement of financial position. It reports the economic resources and claims on those resources. It reports the assets, liabilities and stockholders' equity at a point in time.

Which are 3 common misconceptions users of an income statement may have?

Net Income reports all changes of value that occurred during the accounting period. Net Income does not include estimates. Net Income equals Cash.

Which of the following represents the written promise to repay a bank? Accounts Receivable Accounts Payable Notes Payable Promissory Receivable

Notes payable

income statement equation

Revenues - Expenses = Net Income

Which of the following statements is correct regarding the adjustment for salaries and wages accrued but not paid at the end of the accounting period? Salaries and Wages Expense will increase by the amount of the unpaid salaries and wages. Salaries and Wages Payable will be recorded as a debit for the amount of the unpaid salaries and wages. Salaries and Wages Payable will decrease by the amount of the unpaid wages. Salaries and Wages Expense will be recorded as a credit for the amount of the unpaid salaries and wages.

Salaries and Wages Expense will increase by the amount of the unpaid salaries and wages.

What is a good starting point for determining which accounts require adjustment? Journal Income statement Balance sheet Unadjusted trial balance

Unadjusted trial balance

Individual expenses are accumulated in separate _____

accounts

A balance sheet shows ______. revenues and expenses at a single point in time changes in assets, liabilities, and stockholders' equity during the accounting period assets, liabilities, and stockholders' equity at a single point in time changes in cash during the accounting period

assets, liabilities, and stockholders' equity at a single point in time

A classified balance sheet shows subtotals for current _____ and ______ current .

assets; liabilities

Adjusting entries are recorded ______. Multiple choice question. at the beginning of each accounting period at the end of the accounting period before financial statements are prepared as the final step in the accounting cycle in order to prepare balances for the next accounting period daily to ensure revenues and expenses are properly stated and up-to-date

at the end of the accounting period before financial statements are prepared

Financing cash flows meaning and examples

borrowing from banks, repaying loans, receiving cash for stock

investing cash flows meaning and examples

buying/selling productive resources buildings, land, equipment

A company typically receives ______, an asset, when it issues stock to its owners.

cash/money

All transactions ______. (Select all that apply.) must affect both assets and liabilities have at least two effects on the accounting equation must affect both assets and stockholders' equity must affect assets affect assets, liabilities, and/or stockholders' equity

have at least two effects on the accounting equation affect assets, liabilities, and/or stockholders' equity

Businesses earn profits by ______. having revenues greater than expenses providing service or selling goods at more than the cost to provide the service or deliver the goods issuing new stock shares to their owners borrowing from creditors

having revenues greater than expenses providing service or selling goods at more than the cost to provide the service or deliver the goods

The heading of an income statement ______. (Select all that apply.) states that it is for external users only includes the time period covered includes the name of the company indicates if the reported numbers are rounded to the nearest thousand or million states that it was prepared in accordance with generally accepted accounting principles

includes the time period covered includes the name of the company indicates if the reported numbers are rounded to the nearest thousand or million

The _____ _____ is the financial statement that summarizes the financial impact of operating activities and reports the amount of profit earned during the accounting period.

income statement

A financial statement heading states that it was prepared: "For the Year Ended December 31, 2020." What types of financial statements could this be? (Multiple select question) income statement statement of cash flows statement of retained earnings balance sheet

income statement statement of cash flows statement of retained earnings

Net income appears on which financial statement?

income statement and statement of retained earnings

The US Financial Accounting Standards Board is working with the International Accounting Standards Board to ______. (Check all that apply.) make financial statements more comparable preserve the unique identity of each country's financial reporting rules eliminate differences in financial reporting among countries make sure that next year's meeting is hosted by an IFRS country

make financial statements more comparable eliminate differences in financial reporting among countries

Identifying the performance obligation is an important step in determining whether to recognize revenue especially when the contract involves ______. the accrual and deferral of revenue multiple obligations the collection of cash in advance of satisfying the obligation the sale of goods or services on account

multiple obligations. When a contract has multiple obligations, it is important to identify each separately and then determine the price for each obligation and record the revenue only when the specific obligation has been satisfied.

Retained Earnings represents: (Multiple select question) amounts given to the company by its stockholders in exchange for stock. net income generated by the company through profitable operations that has not been distributed to its stockholders. amounts earned (revenues minus expenses) that have been kept by the company.

net income generated by the company through profitable operations that has not been distributed to its stockholders. amounts earned (revenues minus expenses) that have been kept by the company.

All accounting systems Blank______. (Select all that apply.) record and summarize financial effects of transactions combine beginning balances with the activity during the accounting cycle to yield the ending balances for each account. must be computerized follow the accounting cycle are Excel spreadsheets

record and summarize financial effects of transactions combine beginning balances with the activity during the accounting cycle to yield the ending balances for each account. follow the accounting cycle

The closing entry for dividends involves a debit to Retained Earnings and a credit to Dividends. The debit to Retained Earnings causes a(n) _______ in the balance of the account.

reduction

In accordance with the expense recognition principle, expenses are recorded in the period the ______. related liabilities are paid related assets are recorded cash is received related revenues are recorded cash is paid

related revenues are recorded

Information that always makes a difference in a decision is Blank______. audited provided by GAAP cash based relevant

relevant

Cost Principle

requires that assets and liabilities be recorded at the amounts that were measurable at the time transactions occurred

The net profit margin ratio is calculated by dividing net income by ______.

revenue

Operating cash flows meaning and examples

running the business rent, wages, sales

A corporation earns profits for its stockholders by ______. (Check all that apply.) selling goods at more than their cost issuing stock to them for cash ensuring revenues are less than expenses providing services at more than cost

selling goods at more than their cost providing services at more than cost

A _____-_____ income statement reports a single measure of income. It reports the difference between total revenues and total expenses

single-step

US GAAP are ______. the accounting rules developed by the FASB for use in the United States the oversight board that supervises auditors another term for IFRS the accounting rules developed by the IASB for use in the United States

the accounting rules developed by the FASB for use in the United States

Accounts Receivable is ______. reported in the liabilities section of the balance sheet always less than the company's cash reported on the income statement the amount the company expects to pay for previous credit sales the amount the company expects to collect for previous credit sales

the amount the company expects to collect for previous credit sales

An income statement is referred to as a single-step income statement because ______.

the format separates total revenues from expenses and reports a single measure of income

The heading of an income statement should include ______. (Select all that apply.) Multiple select question. the title "Income Statement" a heading formatted in any manner the accounting period covered by the statement the date on which the statement was prepared the name of the business the name of the person who prepared the statement

the title "Income Statement" the accounting period covered by the statement the name of the business

True or false: After the closing entries have been posted, the new balance in the retained earnings account will equal the retained earnings reported on the balance sheet.

true

Accounts are: (choose one) listed only on the income statement, but not on any other financial statement. used to accumulate and report the effects of each different business activity. used only by the largest corporations.

used to accumulate and report the effects of each different business activity.

Financial information is enhanced when it is ______. verifiable timely understandable comparable future-oriented on a cash-basis

verifiable timely understandable comparable

The expense recognition (matching) principle dictates ______. the ordering of current assets and current liabilities on the balance sheet when revenues are recognized on the income statement where on the income statement expenses should be presented when costs are recognized as expenses on the income statement

when costs are recognized as expenses on the income statement