ACC Chapter 2 / 3

List the steps in processing transactions in the correct order.

1. Identify transactions and source documents 2. Analyze transactions using the accounting equation 3. Record journal entry 4. Post entry to ledger

Show your understanding of the steps involved in adjusting entries by placing the following steps in the correct order of preparation

1. Prepare and unadjusted trial balance 2. Journalize and post adjusting entries 3. Prepare an adjusted trial balance 4. Prepare financial statements

Place the steps in the adjusting process in the correct order in which they would be performed.

1. determine what the current account balance is 2. determine the correct account balance should be 3. record an adjusting entry

Brown Co. had current assets of $15,000, total assets of $30,000 and current liabilities of $9,000 at the end of the year. The current ratio for the period is: Multiple choice question. 2.0 Reason: $15,000 / $9,000 = 1.67 1.67 0.5 Reason: $15,000 / $9,000 = 1.67 3.33 Reason: $15,000 / $9,000 = 1.67

1.67

On December 1, a company pays $3,600 for a 36-month insurance policy. After one month, accrual accounting requires _____ (100/3,600) of insurance expense be reported on the income statement ending December 31. However, if cash basis accounting is used, _____ (100/3,600) of insurance expense would be reported at the time of purchase.

100, 3600

It is a list of all ledger accounts which exist in a business and includes an identification number assigned to each account

A chart of accounts

In defining a reporting period, which of the following statements is (are) correct? Multiple select question. A one-year reporting period is known as the fiscal year. A reporting period can be one month, one quarter or one year. A reporting period refers to each day in the calendar year. A reporting period is determined by the business. A reporting period is used to determine the due date of payables.

A one-year reporting period is known as the fiscal year. A reporting period can be one month, one quarter or one year. A reporting period is determined by the business.

What is a plant asset? Multiple choice question. A plant asset is considered temporary and will be used up within one accounting period. A plant asset refers to the stock purchased by a business held for future investment. A plant asset is the portion of a current asset which will be used up in the next accounting period. A plant asset refers to a long-term tangible asset used to produce and sell products or services.

A plant asset refers to a long-term tangible asset used to produce and sell products or services.

The correct definition of an "account" includes which of the following? A bank report listing checks written and deposits made during a month A record of increases and decreases in a specific asset, liability, equity, revenue, or expense item A cashier's tape register receipt showing total dollars of sales made A customer's purchase order for buying merchandise

A record of increases and decreases in a specific asset, liability, equity, revenue, or expense item

It is a list of each account and its balance at any given time and is used to verify that debits = credits

A trial balance

An account titled Prepaid Rent would be classified as which of the following?

Asset account

___ are resources owned or controlled by a company and that have expected future benefits.

Assets

Which of the following formulas is correct in depicting the expanded accounting equation?

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

Dividends of $50 are paid to the shareholders of a company. How would this affect the equity of a business that paid the dividends?

Assets are decreased and equity is decreased.

Which of the following financial statements reports the financial position of a business at a point in time?

Balance sheet

When financial statements are prepared, unexpired prepaid accounts are recorded as ----- (expenses/assets/liabilities) and the expired portion of the prepaid account is reported as a(n)-------- (expense/asset/liability).

Blank 1: assets Blank 2: expense

Butter Company purchased $300 of supplies for cash. Illustrate how to record the transaction into T-accounts by completing the following sentence. The Supplies account would be ----- (debited/credited) on the ------ (left/right) side of the T-account and the Cash account would be ------ (debited/credited) on the ----- (left/right) side of the T-account.

Blank 1: debited Blank 2: left Blank 3: credited Blank 4: right

The Notes payable account is a(n) ----- (asset/liability/expense) account and is increased on the ------ (left/right) side of the T-account.

Blank 1: liability Blank 2: right

It is a list of all ledger accounts in a business and includes an identification number assigned to each account.

Chart of Accounts

Summarize the steps in the closing process by selecting the correct choice below. Multiple choice question. Close income statement credit balance accounts; close income summary; close dividends; close income statement debit balance accounts. Close income statement debit balance accounts; close income statement credit balance accounts; close income summary; close dividends. Close income statement credit balance accounts; close income statement debit balance accounts; close income summary; close dividends. Close income statement credit balance accounts; close income summary; close income statement debit balance accounts; close dividends.

Close income statement credit balance accounts; close income statement debit balance accounts; close income summary; close dividends.

Which of the following accounts directly impact equity? (Check all that apply.) Common Stock Expenses Assets Dividends Liabilities Revenue

Common Stock Expenses Dividends Revenue

There are several types of accounts that impact equity. Which of the accounts below cause equity to increase?

Common Stock and Revenues

Which of the following accounts has a normal credit balance? Common stock Accounts payable Prepaid Insurance Accounts receivable Supplies Unearned consulting revenue

Common stock Accounts payable Unearned consulting revenue

Individuals or organizations that have rights to receive payments from a business

Creditors

J. Jackson invested $1,000 in his business in exchange for common stock. Show how to use T-accounts to record this transaction by selecting the correct answer below.

Debit Cash; credit Common stock

For the current year, Bubbles Office Supply had earned $600 of interest on investments. As of December 31, none of this interest had been received or recorded. Demonstrate the required half of the adjusting entry by choosing the correct statement below. Multiple choice question. Debit Cash for $600. Debit Interest revenue for $600. Debit Interest receivable for $600. Credit Interest receivable for $600.

Debit Interest receivable for $600.

Jeff, a shareholder of a business, received dividends of $100. How would this affect the total equity of the business?

Dividends would be increased and total equity would decrease as well.

---- is the owner's claim on a company's assets.

Equity

Which of the following statements is correct regarding expenses. Expenses are reported on the left side of the accounting equation. Expenses increase equity. Expenses are increased on the left side of their T-account because they decrease equity. Expenses result from products or services provided to customers

Expenses are increased on the left side of their T-account because they decrease equity.

A business pays $500 cash for rent. How would this payment affect the equity of a business?

Expenses are increased, so equity is decreased.

Which of the following statements are correct regarding a journal? In a journal, both the debit and credit side of the transaction can be seen. Transactions are generally entered in chronological order. A journal is used to record business transactions. Entering transactions into a journal is called posting. A journal reports the balance of all the accounts in a business.

In a journal, both the debit and credit side of the transaction can be seen. Transactions are generally entered in chronological order. A journal is used to record business transactions.

A 12-month insurance policy was purchased on Dec. 1 for $3,600 and the Prepaid insurance account was increased for the payment. Demonstrate the required adjusting journal entry on Dec. 31 by selecting from the choices below.

Insurance expense would be debited for $300.

Select the statement below that describes a post-closing trial balance. Multiple choice question. It is a listing of all temporary accounts and their balances after closing. It is a financial statement that describes all revenue and expense accounts after closing, It is a listing of all permanent accounts and their balances after closing. It is a listing of all permanent accounts and their balances immediately after the adjusting process.

It is a listing of all permanent accounts and their balances after closing.

Define the Income Summary account. It is a permanent account used during the closing process to summarize revenues and expenses. It is a temporary account used during the adjusting process to summarize assets and liabilities. It is a temporary account used during the closing process to summarize revenues and expenses.

It is a temporary account used during the closing process to summarize revenues and expenses.

Claims against the assets of a business

Liabilities

Which of the following statements are correct regarding how the financial statements are linked? (Check all that apply.) Net Income from the income statement is carried to the statement of retained earnings. Total assets from the balance sheet is carried to the statement of retained earnings. The ending balance in the retained earnings account is carried to the balance sheet. The ending balance in the retained earnings account is carried to the income statement.

Net Income from the income statement is carried to the statement of retained earnings. The ending balance in the retained earnings account is carried to the balance sheet.

Which of the following would be included on an income statement? (Check all that apply.) Total equity Total assets Net income Total expenses Total liabilities Total revenues

Net income Total expenses Total revenues

Identify the accounts below that would be classified as current liabilities on a classified balance sheet. (Check all that apply.) Multiple select question. Notes payable (due in three months) Mortgage payable Unearned rent Accounts payable Accounts receivable Notes payable (due in three years) Taxes payable

Notes payable (due in three months) Unearned rent Accounts payable Taxes payable

Which of the following are accurate statements regarding how to report or treat prepaid accounts? (Check all that apply.) Over time, the expired portion of prepaid accounts is removed from the account and reported as an expense. The unexpired portion of prepaid accounts are treated as assets. The expired portion of prepaid accounts is treated as liabilities. The expired portion of prepaid accounts is reported on the income statement as an expense.

Over time, the expired portion of prepaid accounts is removed from the account and reported as an expense. The unexpired portion of prepaid accounts are treated as assets. The expired portion of prepaid accounts is reported on the income statement as an expense.

Which of the following statements is correct about prepaid accounts Prepaid accounts are also called prepaid liabilities and are classified as liabilities. Prepaid accounts are current expense accounts and are reported on the income statement. Prepaid accounts are another name for accounts receivable and are reported as an asset. Prepaid accounts are also called prepaid expenses and are considered assets.

Prepaid accounts are also called prepaid expenses and are considered assets.

Which of the following would be considered a source document in an accounting system? (Check all that apply.) Purchase order Checks Sales receipt Budget Payroll records

Purchase order Checks Sales receipt Payroll records

Accrued _____ are earned in a period that are both unrecorded and not yet received in cash.

Revenues

Represents a ledger account and is a tool used to understand the effects of transactions.

T ACCOUNT

Describe the final step in the adjusting process. Multiple choice question. The final step is to post to a trial balance so financial statements can be prepared. The final step is to create an adjusting journal entry to get from step 1 to step 2. The final step is to determine the correct balance of an account. The final step is to determine the current balance of an account.

The final step is to create an adjusting journal entry to get from step 1 to step 2.

Identify which group of accounts may require adjustments at the end of the accounting period. Multiple choice question. Unearned revenue; Supplies; Prepaid rent Cash; Notes receivable; Land Utilities expense; Cash; Common Stock

Unearned revenue; Supplies; Prepaid rent

Which of the following statements correctly explains how to prepare a trial balance? (Check all that apply.) Verify that the total debit balances equals the total credit balances. Total debit account balances do not have to equal total credit account balances in order for the financial statements to be prepared. Compute the total of debit balances and the total of credit balances. List each account title and its amount from the ledger.

Verify that the total debit balances equals the total credit balances. Compute the total of debit balances and the total of credit balances. List each account title and its amount from the ledger.

Which of the following statements best describes the purpose of the Owner, Capital account? When a business distributes assets to owners, the distribution is recorded in the Common Stock account. When an owner invests in a business, the invested amount is recorded in the Common Stock account When a business is owed money from a customer, the amount is recorded in the Common Stock account. When a business owes a vendor, the obligation amount is recorded in the Common Stock account.

When an owner invests in a business, the invested amount is recorded in the Common Stock account

Which of the following describes a general ledger?

a record containing all accounts used by a company.

------- refer to promises to pay later, which may arise from the purchase of supplies or services.

accounts payable

Accrual basis accounting is defined as: (Check all that apply.) Multiple select question. an accounting system that uses the adjusting process to recognize revenues when earned and expenses when incurred. an accounting system which is consistent with generally accepted accounting principles. an accounting system that uses the matching principle to determine when to recognize revenues and expenses. an accounting system that recognizes revenues when cash is received and records expenses when cash is paid.

an accounting system that uses the adjusting process to recognize revenues when earned and expenses when incurred. an accounting system which is consistent with generally accepted accounting principles. an accounting system that uses the matching principle to determine when to recognize revenues and expenses.

Prepaid accounts are ----- (assets/liabilities) that represent prepayments of future expenses and are increased with a ----- (debit/credit).

assets, debit

The balance sheet reports:

assets, liabilities and the ending retained earnings balance

____ ______ is the original cost of an asset minus its accumulated depreciation.

book value

A ----- asset account is used to record the costs of purchasing a store, office, warehouse or factory.

building

Checks, money orders, supplies are all forms of -----

cash

Current assets are: Multiple choice question. property, plant and equipment that are tangible and depreciated cash and other resources that are expected to be sold, collected or used within one year difficult to convert to cash or other monetary assets equipment and other assets that have a life greater than one year

cash and other resources that are expected to be sold, collected or used within one year

The T-account for Accounts payable had 4 transactions entered into it. It was increased by $300 and $100 and decreased by $50 and $150, respectively. The balance in the Accounts payable account at the end of the period would be a ____(debit/credit) balance of ______

credit, 200

A ---- is an individual or organization that has a right to receive payments from a business.

creditor

StoryBook Company provided services to several customers during the month of December. These services have not yet been paid by the customers. StoryBook should record the following adjusting entry at the end of December: (Check all that apply.) debit accounts receivable credit accounts payable credit services revenue debit services revenue debit cash

debit accounts receivable credit services revenue

A 12-month insurance policy was purchased on Dec. 1 for $4,800 and the Prepaid insurance account was initially increased for the payment. The required adjusting journal entry on December 31 includes a: (Check all that apply.)

debit to Insurance expense for $400. credit to Prepaid insurance for $400.

The T- account for Cash had 3 transactions entered into it. It was increased by $400 and decreased by $100 and $30, respectively. The balance in the Cash account at the end of the period would be ____ (debit/credit) balance of _____

debit, 270

The account title is shown at the top of a T-account. The left side of a T-account is called the _____ side and the right side is called the ____ side.

debit, credit

Total liabilities/Total assets

debt ratio

adjusting journal entry is made at the ____

end

----- cost is initially recorded as an asset and the cost is gradually expensed through the Accumulated Depreciation account.

equipment

The cost of doing business

expenses

The statement of retained earnings reports:

how equity changed over a period of time

It is a book of original entry that includes a chronological record of all transactions that have occurred within a business during a period occurred

journal

A ----- is a claim by a creditor against the assets of a business.

liability

Transferring entries from the general journal to the general ledger is called

posting

------ accounts are assets that represent prepayments of future expenses.

prepaid

Cash basis accounting recognizes ____ (equity/revenues/expenses) when cash is received and records______ (revenues/expenses/liabilities) when cash is paid.

revenues, expenses

Closing means to transfer account balances from _______ (asset/liability/permanent/temporary) accounts so that they will start with a _______ (contra/larger/zero) balance at the beginning of the next period.

temporary, zero

An income statement reports

the revenues minus the expenses incurred by a business