ACC 231 Campbell Exam 1

Examples of liabilities:

- accounts payable, notes payable, wages payable, saleries payable, taxes payable, dividends payable, bonds payable, unearned rent revenue, unearned service revenue

examples of assets:

- cash, investments, accounts receivable, notes receivable, supplies, inventory, prepaid insurance, prepaid rent, land, buildings, equipment, furniture, vehicles, patents, copyrights, licenses, trade marks, service marks, goodwill

Examples of Equity

- common stock, paid-in capital in excess par value -common stock, preferred stock, paid-in excess of par value - preferred stock, retained earnings

what is the general purpose for financial statements for a corporation?

- income statement - statement of retained earnings - balance sheet - statement of cash flow

External users of financial statements:

- stockholders - potential stockholders - creditors - potential creditors - government agencies - labor unions - the media

what are financial statements?

- the end product of the financial accounting system

the accounting equation

Assets = Liabilities + Equity

A company has a balance in its Supplies account of $4,600. The company counted its supplies on the last day of its accounting year. The company discovered that only $2,000 of supplies were on hand at the end of its accounting year. To record the use of its supplies, the company's adjusting journal entry would be:

Debit Supplies Expense $2,600 and credit Supplies $2,600

what is a company's management responsible for?

Developing, Implementing, and Monitoring the internal control system for the company

who sets the rules for other nations to follow when it comes to financial accounting?

International Accounting standards board (IASB)

what are the rules known as that the IASB issue?

International Financial Reporting Standards (IFRS)

what type of account are paid expenses?

asset

when does a company close revenues and expenses accounts to retained earnings?

at the end of the accounting period

which of the following accounts is decreased by a debit? a. rent expense b. wages payable c. accounts receivable d. dividends

b. wages payable

Which financial statement is for specific date such as "December 31, 2016," and NOT for a specific time period ending on a date such as "For the Year Ending December 31, 2016?"

balance sheet

In financial accounting, the difference between the cost of a depreciable fixed asset such as equipment and its accumulated depreciation is called its:

book value

how does a company plan on satisfying their liabilities?

by providing products or services in the future

how can a company incur a cost?

by transferring its stock in exchange for something else

how should the income statement be prepared?

by using accrual accounting

As supplies are used up by a company, the balance in the supplies account will become: a. a liability b. an asset c. an expense d. revenues

c. an expense

what do all company's have?

common stock

what type of account is accumulated depreciation?

contra asset

what type of normal balance does liabilities have?

credit - increased by a credit and decreased by a debit

what type of normal balance does equity have?

credit - increased by credit and decreased by debit

what are liabilities also known as?

creditors' equity

The current ratio is equal to:

current assets divided by current liabilities

which of the following accounts is increased by credit? a. wages expense b. land c. equipment d. retained earnings

d. retained earnings

what type of normal balance does assets have?

debit - the increase side of an account is always on the normal side - the decreased of an account is always on the opposite side of the normal side - So assets are increased by debits but decreased by credits

To record depreciation on equipment at the end of the accounting year as an adjusting journal entry, a company would:

debit depreciation expense and credit accumulated depreciation

At the end of the accounting period, a corporation has a balance in its Dividends account of $24,000. It is a normal balance. To close the Dividends account, the corporation would:

debit retained earnings $24,000 and credit dividends $24,000

service revenue has a normal balance of $100,000 at the end of the accounting year. To close the Service Revenue account, the company would:

debit service revenue $100,000 and credit income summary $100,000

what happens to the statement of retained earnings after the net loss or net income is applied?

dividends are declared by the corporation's board of directors and then subtracted to arrive at the ending balance in the retained earnings.

Owners claim to the assets of the business is called?

equity

what is equity?

equity is the claim of the owner(s) against the assets of the company - it is the residual amount (which means it is the difference between assets and liabilities)

what does the foreign corrupt practice act do?

it prohibits brides to high level officials of foreign governments to obtain or retain business. - it also requires all public companies to have a system of internal control

what does paid in capital represent?

it represents the amounts the owners have paid for the stock of the company

what does the sarbanes-oxley act require?

it requires public companies to document and verify their internal control. - the CFO and CEO have to sign off on the financial statements and on the internal controls.

what does the matching principle state?

it says that a company should record expenses in the same time period in which it records the related revenues

what should the net income of a company reflect?

it should reflect the achievements of a company's net of the related expenses

what is the statement of cash flow used for?

it shows a company's inflows and outflows of cash over a specified period of time

what is the balance sheet used for?

it shows the company's assests, liabilities, and equity account as of a specific date, which is usually the last day of the accounting period.

what does the cost principle state?

it states that a company should record assets at their historical cost rather than at their market cost. - company's look at assets for its value in use rather than its market value.

what does the revenue recognition principle state?

it states that a company should record revenue when it earns them through a sale or exchange of its products and services. - the company should record revenue when earned, which may be different time the company receives cash for the sale of its products and services

what does the full disclosure principle act state?

it states that a company should report the supporting details of its financial statements in the notes that accompany them.

what does the separate entity assumption state?

it states that business is accounted for separate and distinct from its owner(s)

what is the time period for financial statements?

less than a year known as interim financial statements

what type of account is unearned revenue?

liability

what else is the cost principle known as?

measurement principle

how many steps are there in the accounting cycle?

nine

are all liabilities payables?

no

Are dividends an expense?

no - they are distribution of at least part of the net income of the corporation to its stockholders - they reduce equity in the retained earnings -using dividends are optional - some company's debit dividends directly to the retained earnings

what are revenues and expenses also called?

nominal accounts -which means accounts in name only because they are a true part of retained earnings.

what does credit mean as noun and a verb?

noun= it means an entry on the right side of an account verb=it means make an entry on the right side of an account

what a debit mean as a noun and a verb?

noun=it means an entry on the left side of an account Verb= it means make an entry on the left side of an account

cost is an ________.

objective

what is the basic accounting period?

one year

what is not apart of the accounting equation?

revenues and expenses

what is an increase in equity?

revenues are an increase in equity from the sale of of a company's products and/ or services. - because equity accounts are increased by credit, revenues are increased by a credit and have a normal balance of credit and are decreased by debits

what does accrual accounting record?

revenues earned and expenses incurred - required by GAAP - the time that a company records revenues and expenses may be different from the time when the company recieves or pays cash.

what does the cash of basis of accounting record?

revenues when received in cash and expenses when paid in cash - Not allowed by GAAP - Is an Other Comprehensive Basis of Accounting (OCBOA)

what is the business entity assumption also known as?

separate entity assumption

what is an income statement used for?

showing a company's revenue and expenses and resulting net income or net loss over a specific time period.

what is the value of the currency assumed to be?

stable despite inflation

what are the owners of a corporation called?

stockholders or shareholders

what is the equity of a corporation called?

stockholders' equity or shareholders' equity - which includes paid-in capital, which is also known as contributed capital and retained earnings

what type of accounts are revenues and expenses?

temporary accounts that are part of the retained earnings

what does going-concern assumption state?

that a company is expected to operate in the indefinite future unless there is evidence to the contrary.

what does time period assumption state?

that the financial life of a company can be divided into distinct period of time such as years and quarters.

who does most of the changes to the GAAP?

the Financial Accounting Standards Board (FASB)

what appears on the balance sheet?

the accounts for assets, liabilities, and equity - they are real accounts and are NOT closed at the end of the accounting period

The recognition of assets that have become expenses is usually a part of what?

the adjusting journal entries at the end of the accounting period3

what is the ending balance in retained earnings also put on?

the balance sheet under equity

what dies the statement of cash flow show?

the company's actual cash flows from: 1. operating activities 2. investing activities 3. financing activities

what happens if a corporation has changes to other equity accounts besides retained earnings?

the corporation would prepare a statement of stockholders' equity instead of a statement of retained earnings - any changes in retained earnings would appear as a column in the statement of stockholders' equity

what is accounting?

the language of business

what happens after the beginning balance of retained earnings?

the net income from the income statement is added to the beginning balance in the retained earnings

what happens to the statement of retained earnings if a company had a net loss instead of net income?

the net loss would be subtracted from the beginning balance in the retained earnings

what is the result of expenses?

the result is that there is a decrease in equity as well as a decrease in assets and/ or increase in liabilities

what is the result of revenues?

the result is that there is an increase in assets and/or decrease in liabilities as well as an increase in equity

what are revenues?

they are an increase in equity resulting from a sale of a company's product and/or services.

what happens to supplies?

they are consumed, prepaid insurance expires as a function of time, and the cost of the deterioration of buildings, vehicles, equipment is recorded through the adjustment for depreciation

what are liablities

they are obligations to transfer assets (usually cash) or to provide services to another entity in the future as a result of past transactions or events. - they are also the claims of creditors against a company's asset

what are expenses?

they are the cost that have expired in the process of generating revenues

What are retained earnings?

they are the cumulative net income of a corporation since its inception minus all cumulative dividends - it does NOT represent cash

what are financial statements?

they are the output of the financial accounting system - it must be reasonably reliable to the users of the financial statements for the statements to have any value - so before the company publishes its financial statements, it must adjust its accounts so that the amounts are reasonably accurate

what are the internal controls?

they are the procedures a company establishes, implements, and monitors. 1. to protect the company's assets 2. ensure reasonably reliable financial statements 3. promote efficiency 4. adherence to management's policies

what are assets?

they are things of value a company owns or controls. - assets include cash, investments of cash, claims to cash ( accounts receivable and notes receivable) and costs that a company has incurred that will provide future benefits.

what could happen to assets over time?

they could turn into expenses

how do accountant help management?

they help fulfill their responsibilities for the internal control system

what happens if a company does use dividends?

they must close it to the retained earnings at the end of the accounting period. - because equity accounts are decreased by a debit, dividends are increased by a debit and have a normal balance of debit and are decreased by a credit.

what is the statement of retained earnings used for?

to show a company's change in retained earnings over a specified period of time

If a company provides service for cash,

total assets increase and total equity increases

when a company collects an account receivable for a sale it had previously made on a credit:

total assets remain the same

what is an unearned revenue account?

when a company receives payment for products or services before it provides them

When does net loss occur?

when the total revenues are less than total expenses - the time period could be a year, a quarter or a month

when does net income occur?

when total revenues are greater than total expenses

How is the statement of retained earnings started?

with the beginning balance in the retained earnings

Are all payables liabilities?

yes

Is an Unearned revenue account a Liability?

yes

How to balance any account:

1. add up all the debits, including the beginning debit balance 2. add up all the credits, including any beginning credit balance 3. subtract the smaller total from the larger total 4. the difference is the amount of the balance 5. place the difference on the side of the account with the larger total

what are the steps of the accounting cycle?

1. analyze business transactions (checks, receipts, and invoices) 2. record the business transactions chronologically in a journal 3. post the transactions recorded in the journal to the accounts in the general ledger 4. prepare an unadjusted trial balance (which is a list of the accounts in the general ledger with their debt and credit balances and a total of the debits and credits 5. prepare adjusted journal entries and post them to the accounts in the general ledger. (also shown them as adjustments on a worksheet) 6. prepare an adjusted trial balance 7. prepare the income statement, statement of retained earnings, balance sheet, and statement of cash flows, and related notes to the financial statements 8. prepare and post the closing journal entries 9. prepare and post-closing trial balance

Steps in the Adjusting Process

1. know what the account balances are. The balances are obtained from the unadjusted trial balance. The balances shown there are the balances from the accounts in the general ledger 2. determine what the account balances should be through careful thought and analysis. This may require the taking of inventories of such as supplies. This part is the most challenging 3. prepare adjusting journal entries to change the account balances from what they should be. Post the adjusted journal entries to the accounts in the general ledger. Also, the company should show the adjustments on a worksheet to use in preparing the adjusted trial balance.

what three activities do cash flows come from?

1. operating activities 2. investing activities 3. financing activities

what 3 factors need to occur in order for fraud to occur?

1. opportunity 2. pressure of incentive 3. rationalization or attitude

What are the 4 managerial functions?

1. planning 2. controlling 3. decision making 4. performance evaluation

what else does the cash flow statement show?

1. the beginning balance of cash 2. the net income or decrease in cash 3. ending balance in cash - the ending balance in cash must equal the same amount as the cash shown on the balance sheet

Tex company uses accrual accounting and uses the calendar year as its accounting year. On October 1, it purchased a 12-month property and casualty insurance policy for $4,800. It debited all $4,800 to Prepaid Insurance. It has not made any additional journal entries with respect to this insurance policy. To adjust the Prepaid Insurance account on December 31, Tex Company would: A) Debit Prepaid Insurance 1,200 and credit Insurance Expense 1,200 B) Debit Insurance Expense 1,200 and credit Prepaid Insurance 1,200 C) Debit Prepaid Insurance 3,600 and credit Insurance Expense 3,600 D) Debit Insurance Expense 3,600 and credit Prepaid Insurance 3,600

B) Debit Insurance Expense 1,200 and credit Prepaid Insurance 1,200

To record the collection of a customer's account for a sale the company had previously made on credit (on account), the company would: A) Debit Accounts Receivable and credit Cash B)Debit Cash and credit Accounts Receivable C)Debit Cash and credit Accounts Payable D)Debit Accounts Payable and credit Cash

B) debit cash and credit accounts receivable

Which of the following accounts has a normal balance of debit? A) Accounts Payable B) Wages Expense C) Common Stock D) Service Revenue

B) wages expense

The beginning balance in Accounts Receivable was $30,000, which was a normal balance. The debits to Accounts Receivable during the year were $465,000. The credits to Accounts Receivable during the year were $450,000. What was the ending balance in Accounts Receivable? A) $15,000 debt B) $15,000 credit C) $45,000 debit D) $45,000 credit

C) $45,000 debit

C.L.E.A.R

Credit Liabilities Equity Revenues

D.E.A.D

Debit Expenses Assets Dividends or Drawing

A corporation's income statement shows net income of $75,000 for the year. After it closed its revenue and expense accounts, the Income Summary account shows a credit balance of $75,000. To close the Income Summary account, the corporation would:

Debit Income Summary $75,000 and Credit retained earnings $75,000

what are the 3 factors of fraud known as?

Fraud triangle

Financial accounting in the US is governed by a set of rules known as ______________.

Generally accepted accounting principles (GAAP) -

which of the following accounts is increased by a debit? a. cash b. accounts payable c. service revenue d. common stock

a. cash

which of the following accounts is decreased by a credit? a. equipment b. accounts payable c.service revenue d. retained earnings

a. equipment

what is the matching principle also known as?

expense recognition principle

what is a decrease in equity?

expenses are a decrease in equity from costs that have expired in the process of generating revenues - because equity accounts are decreased by debit, expenses are increased by debit and have a normal balance of debit and are decreased by credit.

Which financial statement must be prepared first?

income statement

Goodwill is and example of a(n)

intangible asset

what do some company's have?

issued preferred stock

what does the general ledger contain?

it contains all accounts of assets liabilities, equity, revenues, and expenses.

what is a limited partnership?

it has at least one general partner who has unlimited liability and can manage a partnership. - they are investors with limited liability who may not take part in the management of the partnership - often the general partner in this partnership is a corporation whose stockholders have limited liability

why does management use financial statements?

it helps them carry out some of their managerial functions

what is a sole proprietorship?

it is a business owned by one individual

what is a limited liability company?

it is a company with one or more owners called members. Each member has limited liability

What is a chart of accounts?

it is a listing of all accounts in the general ledger with their account numbers with related types of accounts grouped together.

what is a corporation?

it is an artificial person that has received a charter from a state government or in a rare cases from the federal government.

what is a partnership?

it is an unincorporated business owned by two or more persons. - it can be individuals or artificial persons such as corporations or even other partnerships.

The adjusting process:

it is not practical for companies to record the changes in many accounts every day that occur because of consumption or usage of its assets, such as the use of supplies or the expiration of insurance policies

What is financial accounting?

it is the branch of accounting that deals with the recording of business transactions. - data from these transactions are summarized and used to prepare the general purpose for financial statements

what is a cost?

it is the transfer of assets and/ or incurring a debt in exchange for something else. - it is an asset if it will provide the company with future benefits such as an increase in cash flow or causing a reduction in cash outflows. - a cost is also an expense if it will NOT provide the company with any future benefits

what value does an expensive asset have?

it may have little market value, but it may have a large value for its use in producing a company's products that it can sell for large profits

what does the monetary unit assumption mean?

it means that the company can express its financial information in dollars or other currency.

what does payable mean?

it means the company expects to satisfy the liability with cash