ACC 201 Ch. 1 & 2

On 6/25, supplies costing $1,000 were purchased, but only $400 of this amount was paid on 6/25. The remainder of the bill went on account. To record this transaction on 6/25: supplies would be increased by $_____________: Cash would be decreased by $___________ and Accounts Payable would be increased by $_____________.

$1,000 $400 $600

Boaz company has beginning of year assets of $100 million and end of year assets of $120 million. Boaz net income is $5 million. Calculate Boaz Company's return on assets.

4.5 because $5 million/[($100 million+$120 million/)2] = 4.5%

Importance of accounting:

Accounting information helps users make business and financial decisions

Why does a business need accounting information?

Accounting records business transactions and communicates financial information.

The expanded accounting equation is defined as:

Assets = Liabilities + Common Stock + Revenues - Expenses - Dividends

Which of the following correctly depicts the accounting equation

Assets= liabilities + equity

Smith Company purchased $100 of supplies for her business and paid immediately. She would record this transaction in the accounting equation by which of the following?

Decrease Cash; increase supplies.

Statement best describes the effect of the expenses on equity:

Expenses cause equity to decrease

Which of the following statements describes the effect of expenses on equity?

Expenses caused equity to decrease

Choose all the accounts that affect equity:

Expenses, common stock, dividends, revenues

Statements represents how expenses affect equity:

Higher expenses result in lower total equity. If expenses increase, then total equity decrease.

Why accounting is useful?

It identifies, records, and communicates business transactions

Which of the following statements is correct regarding owner investments?

Owner investments cause equity to increase

Income statement

Reports the revenues and expenses incurred by a business for a period of time

This account belongs on the statement of retained earnings:

Retained earnings and dividends

Statement lists the rules of entering transactions into the accounting equation:

The accounting equation must always remain in balance so that assets always equal the sum of liabilities and equity.

An income statement reports a company's not income or net loss during a period. The following accounts would appear on an income statement:

Wages Expense Rent Expense Rent Revenue Service Revenue

Why accounting is important

We live in an Information Age whereby accounting information impacts everyone.

Users who do not directly run the organization and have limited access to accounting information are known as _______________________.

external users

Each of the following are areas of accounting opportunities:

financial, taxation, managerial

The broad opportunity of areas of accounting:

financial, taxation, managerial

Statement of cash flows

identifies the cash inflows and outflows over a period of time

Owner investments cause ______________ in equity

increase

Users of accounting information can be divided into two main groups.

internal and external

The accounts payable account is a _____________ account

liability

All of the following are part of the FASB conceptual framework:

objectives, qualitative characteristics, elements, recognition and measurement

The three factors that must exist fore a person to commit fraud include:

opportunity, pressure, and rationalization

An employee that has unpaid bills might exhibit the following fraud factors:

pressure

the FASB conceptual framework consist of all of the following:

qualitative characteristics, recognition and measurement, objectives, and elements

Generally accepted accounting principals (GAAP) wants information to have:

relevance and faithful representation

Balance Sheet

reports the balance of assets, liabilities and equity at a point in time

Statement of retained earnings

reports the changes in equity during a period of time

Define what the income statement reports by competing the following sentence: The income statement describes a company's ________________ and _______________ along with the resulting net income or loss over a period of time due to earnings related activities.

revenue, expenses

The four major types of transactions that effect equity in a business are:

revenues accounts, expenses accounts, dividends and common stock.

definition of an asset

something of value that a business owns or controls

To record the purchase of the supplies for cash, the correct entry into the equation would include an increase to _______________ and a decrease to __________________

supplies, cash

How expenses affect equity?

Higher expenses result in lower total equity. If expenses increase, then total equity decreases

Jack Pickle decided to start a small business as a corporation. His initial investment was 4,000 cash in exchange for common stock, record this transaction in the accounting equation.

Increase cash by $4,000, Increase Common stock by $4,000

Jack Pickle decided to start a small business as a corporation. His initial investment was $4,000 cash in exchange for common stock. Demonstrate how to record this transaction in the accounting equation.

Increase cash by $4,000; increase common stock by $4,000

On 8/1, supplies costing $500 were purchased on credit. Record this transaction in the accounting equation by:

Increasing supplies, and increasing accounts payable

Statements below defines an asset:

Resources controlled by the business An amount the company owns Resources with expected future benefits

Which of the statements below defines an asset?

Resources with expected future benefits. An amount the company owns. Resources controlled by the business.

Which of the following statements below lists the rules of entering transactions into the accounting equation?

The accounting equation must always remain in balance so that assets always equal the sum of the liabilities and equity.

When the recording transactions into the accounting equation, these statements are correct:

The accounting equation must always remain in balance. After recording the transactions, total assets will always equal total liabilities plus equity.

When supplies are purchased on credit it means that:

The business will pay for the supplies at a later time. The accounts payable account will increase. A liability has been incurred.

What are Generally Accepted Accounting Principals?

The concepts and rules that govern financial accounting practice.

Which of the following statements explain how the accounting equation applies to businesses

The equation states that Assets= Liabilities + Equity The equation reflects that the total of what a business owns at any point in time will equal the total of what it owes creditors and owners.

Correct definition of an income statement includes which of the following?

The statement describes a business's revenues and expenses over a period of time.

Correct definition of a balance sheet includes which of the following statements?

The statement reports the equality of the accounting equation at any point in time. The statement reports assets, liabilities and equity at a point in time. The statement reports the financial position of a company at a point in time.

Reason for the accounting equation

The total of everything owned by a business must always equal the total of what the businesses to creditors and owners

When supplies area purchased on credit it means that:

a liability has been incurred the business will pay for the supplies at a later time the accounts payable account will be increased

Jackson Company purchased office equipment costing $3,000 for his business immediately. Record this transaction.

decreasing cash; increasing equipment

Jackson company purchased office equipment costing $3,000 for his business and paid immediately. Record this transaction in the accounting equation by:

decreasing cash; increasing equipment

When using the accounting equation, recording the purchase of equipment for cash would include an increase to the ___________________ account and a decrease to the ___________________ account.

equipment, cash

Sally Smith decided to start a sea shell business organized as a corporation. Her initial investment in the business consisted of $10,000 in cash in exchange for common stock. Record this transaction in the accounting equation of the new business by:

increases cash; increasing common stock

Statements correctly represents the accounting equation:

What a business owns will always equal what it owes to creditors and owners.