MGMT 200 Purdue Chapter 2

Which of the following contains a list of transactions affecting each account and the account's balance?

ANswer: -general ledger

"record all transactions for a particular item"

ANswer: -this describes an account

Rawlings Corp. borrows $3,000 on a note payable from Third National Bank. Which of the following is used to record this transaction?

ANswer: -Debit cash $3,000 -credit note payable $3,000.

Which of the following transactions increases total assets?

ANswer: -Provide services to customers on account.

In The basic accounting equation Each transaction will have a what effect?

ANswer: -dual

General Ledger

-provides, in a single collection, each / ALL account with its individual transactions and resulting account balance. -contains all asset, liability, stockholders' equity, revenue, and expense accounts.

6 steps in measuring external transactions

1. Use source documents to identify accounts affected by an external transaction 2. Analyze the impact of the transaction on the accounting equation 3. Assess whether the transaction results in a debit or credit to account balances 4. Record the transaction in a journal using debits and credits 5. Post the transaction to the general ledger 6. Prepare a trial balance

Journal

A form for recording ALL transactions in chronological order

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 ?

Answer: -3 Three accounts are affected: equipment, notes payable, and cash.

A(n) ______ is maintained for each financial statement item, whereas a(n) ______ contains all of the accounts of the company.

Answer: -Account -general ledger

A trial balance can best be explained as a list of

Answer: -All accounts and their balances at a particular date.

If a transaction decreases cash by $100, the balance sheet will balance if which of the following occurs? (Select all that apply)

Answer: -Another asset is increased -A liability is decreased

Tabor Company issues $20,000 of common stock to investors. Recording this transaction will include a credit to

Answer: -Common stock

Which of the following are stockholder equity accounts?

Answer: -Common stock -Retained earnings

Geo Corporation issues stock to investors for $100,000. Recording this transaction will include which of the following?

Answer: -Credit common stock -Debit to cash

Providing services to customers for cash would be recorded with a:

Answer: -Credit to Service Revenue.

The purchase of supplies with cash would be recorded as

Answer: -Debit Supplies -Credit Cash

The first step for analyzing the effect of transactions is:

Answer: -Determine one account in the accounting equation that will increase or decrease

Identify the three components of retained earnings.

Answer: -Dividends -Expenses -Revenues

True or false: A balance sheet is a list of all accounts and their balances showing that debits equals credits.

Answer: -False A TRIAL balance is a list of all accounts and their balances showing debits equals credits. A balance sheet presents assets, liabilities, and stockholders' equity.

What is the effect of net income on retained earnings?

Answer: -Increases retained earnings

In the language of accounting, the term "debit" always means

Answer: -Left-hand side

Which of the following transactions decreases stockholders' equity?

Answer: -Pay salaries for the current period

Which of the following transactions causes an increase in stockholders' equity?

Answer: -Provide services to customers on account.

What 3 components make way to balance sheet through retained earnings?

Answer: -Revenue - expenses - dividends

An account that is used informally for analysis instead of drawing a formal general ledger account is referred to as a:

Answer: -T - account

Which of the following is true about a trial balance?

Answer: -Total debit amounts should always equal total credit amounts.

True or false: The two functions of financial accounting are to measure business activities and prepare tax returns.

Answer: -True

If you wanted to know all the company's transactions for cash, you would access the cash ?

Answer: -account

A debit is used to decrease which of the following accounts?

Answer: -accounts payable

When a company performs services for a customer, and the customer agrees to pay for the services at a later date, the transaction is recorded in which account?

Answer: -accounts receivable

We what revenues to calculate retained earnings?

Answer: -add

Purposes of the trial balance... - is to assist us in preparing what for internal transactions? - To ensure all debits ? credits - used for ? purposes

Answer: -adjusting entries -equal -internal

Ledger contains ?

Answer: -all the individual accounts used by a company

Smith Company's journal shows a debit to cash and a credit to notes payable, both for $15,000. This indicates that Smith Company:

Answer: -borrowed $15,000 cash and signed a note

What systems automatically and instantly post information from the journal to the general ledger accounts and calculate account balances?

Answer: -computerized

Revenues increase retained earnings. Retained Earnings is a what account, so we what revenues with a credit?

Answer: -credit -increase

A debit to an expense is essentially a what to Retained Earnings, decreasing the account? Bc Retained earnings act like revenues

Answer: -debit

Expenses, on the other hand, decrease retained earnings. Thus, we do the opposite of what we do with revenues: we increase expenses with a what?

Answer: -debit

Because expenses reduce retained earnings, a ______ to expense is essentially a(n) ______ to retained earnings.

Answer: -debit -debit

Roland Corporation borrows $10,000 from the bank by signing a promissory note. Recording this transaction will include:

Answer: -debit to cash -credit to notes payable

We refer to increases in liabilities and stockholders' equity (right-hand side accounts) as credits, and decreases in those accounts as what?

Answer: -debits

Expenses ______ retained earnings; therefore, to increase any expense, one would ______ the expense account.

Answer: -decrease -debit

A credit to Cash will:

Answer: -decrease in assets

An increase in expenses or dividends has the effect of what stockholders' equity in the basic accounting equation?

Answer: -decreasing

After we've posted journal entries to the general ledger accounts, the sum of the accounts with debit balances should ? the sum of the accounts with credit balances.

Answer: -equal

For each transaction, the total debits must ? total credits.

Answer: -equal

Dividends decrease retained earnings (revenue) , so we also record a what in dividends with a debit

Answer: -increase

Revenues cause retained earnings to ?

Answer: -increase

-If total assets increase, then liabilities or stockholders' equity what by the same amount. -If total assets decrease, then liabilities or stockholders' equity what by the same amount.

Answer: -increase -decrease

What effect does revenue have on retained earnings?

Answer: -increases

An increase in revenues has the effect of what stockholders' equity in the basic accounting equation.

Answer: -increasing

Klick's journal shows a debit to cash and a credit to common stock. This journal entry indicates that Klick:

Answer: -issued shares to stockholders

If you wanted to know all the company's transactions for March 2, you would access the ?

Answer: -journal The date is really important

Notes are indications of ?

Answer: -liabilities

The two roles of financial accounting are to:

Answer: -measure business activities of the company. -communicate information to external parties for decision making purposes.

Purchasing land with cash would have what effect on the accounting equation?

Answer: -no effect

The process of transferring debit and credit information from the general journal to the general ledger is known as:

Answer: -posting

The process of transferring information from a journal entry to the specific accounts affected in the general ledger is referred to as

Answer: -posting

The purpose of a general ledger is to ?

Answer: -provide in a single location the list of transactions affecting each account and the account's balance.

Indigo Company's journal reveals that equipment was debited and notes payable was credited, both for $10,000. Indigo Company must have ?

Answer: -purchased equipment and signed a note for the purchase price

Examples of External Transactions

Answer: -selling products to a customer -purchasing supplies from a vendor -paying salaries to an employee -borrowing money from a bank

Which of the following accounts normally has a credit balance?

Answer: -service revenue

Common stock represents investments by ?

Answer: -stockholders

Retained earnings is a component of what?

Answer: -stockholders' equity

We what expenses and dividends to calculate retained earnings?

Answer: -subtract

Accounts receivable are assets which represent

Answer: -the amounts owed BY customers.

External Transactions

conducted between the company and a separate economic entity

Trial Balance

is a list of all accounts and their balances at a particular date, showing that total debits equal total credits.

Posting

is the process of transferring the debit and credit information from the journal to individual general ledger accounts.

Debit

left

Account

provides a record of the business activities related to a particular item.

Journal Entry

records a transaction has a place for the date of the transaction, the relevant account names, debit amounts, credit amounts, and a description of the transaction

Credit

right