Accounting 207 Terms and Questions

Stockholder's equity

"business worth"

Liabilities

"obligations" due at some future date

A company uses $100,000 in cash to pay off $100,000 in notes payable. This would result in a:

$100,000 credit to Cash and a $100,000 debit to Notes Payable

In 1999, the Denim Company bought land that cost $15,000. In $2005, a similar piece of land was bought for $28,000 and the company's existing land was estimated to be worth $18,000. On the balance sheet at the end of 2005, the land that was purchased in 1999 would be reported at: (hint: adheres to the cost principle)

$15,000

At the end of last year, the company's totaled $860,000 and its liabilities totaled $740,000. During the current year, the company's total assets increased by $58,000 and its total liabilities increased by $24,000. At the end of the current year, stockholders equity was:

$154,000

If XYZ Company had $12 million in revenue and net income of $3 million then its expenses must have been:

$9 million

What is the minimum number of accounts that must be involved in any transaction?

2

A company issues $20 million in new stock. The company later uses this money to pay off promissory notes. How many accounts will be affected by these transactions and which particular account names are most likely to be used the effects of these transactions?

3 accounts affected: Contributed Capital, Cash, and Notes Payable

A company issues $20 million in new stock. It later uses this money to pay off promissory notes. How many different accounts and which account names are affected by these two transactions?

3 accounts involved: contributed capital, cash, and notes payable.

the separate entity assumption means:

A company's financial statements reflect only the business activities of that company.

Recording an adjusting entry to recognize depreciation would cause which of the following?

A decrease in assets and stockholders' equity, and an increase in expenses.

Current Liabilities

Accounts payable, salaries payable, notes payable (due in 1 year), interest payable, mortgage payable ( due in 1 year) , unearned revenue

Liabilities + Stockholders Equity=

Assets

A company borrows $2 million from its bank. It then uses this money to buy equipment. How does this transaction affect the accounting equation?

Assets and Liabilities both rise $2 million

If a company is paid $20,000 on account receivable and uses the money to pay $20,000 on accounts payable then:

Assets would decrease by $20,000 while liabilities would decrease by $20,000

Captions in balance sheet

Assets, Liabilities, Stockholder's Equity

Which is normally not affected by an adjustment?

Cash

When do companies end their fiscal year?

Companies can choose to end their fiscal year on any date they feel is most relevant

Which of the following statements about an adjusted trial balance is true?

Debits should equal credits both before and after adjustments are made

Which of the following is not an expense

Dividends

Which of the following accounts do not normally have a credit balance on an adjusted trial balance?

Dividends declared

statement of cash flow

I. "cash" from operating activities II. "cash" from investing activities III. "cash" from financial activities (we only want cash coming from operating activities)

What does the statement of cash flow define?

It defines what caused "cash" to change from what it was last year

Which of the following would not affect a company's net income?

Paying a dividend to stockholders, dividends are not an expense, they have nothing to do with the generation of revenue.

If total debits are not equal to total credits in a trial balance, which of the following errors may have occurred?

Posting a credit to Accounts Payable as a debit.

A current asset is one that:

The company will use up or convert into cash in less than one year

The first financial statement prepared after the adjusted trial balance is:

The income statement

During November 2005, Asler, Inc., performs consulting services. The client does not pay Asler until January, 2006

Using the accrual basic of accounting, the revenue is reported in November 2005. Using the cash basis of accounting, the revenue is reported in January 2006

Debit/Credit Rules

When assets increase they get debited, when they decrease they are credited. When liabilities increased they get credited, when they decrease they get debited. When stockholders equity increase they get credited, when they decrease they get debited.

6 "obligations" or liabilities a company has:

accounts payable- money company owes, salaries payable, notes payable- contract: money borrowed from a bank, interest payable, mortgage payable, unearned revenue,

disclosure principle

allows us to verify numbers, uses footnotes and puts anything in narrative that the numbers don't tell us

Accumulated Depreciation

an asset contra- account

transaction

any business event that impacts the balance sheet equation

definition of current asset

assets that we'll be converting into cash or be consumed within 1 year or the operating cycle, whichever is longer

definition of non-current assets

assets that will be available beyond the current year or operating cycle, whichever is longer

If a company uses $50,000 of its cash to buy an asset then assets and liabilities will:

be unchanged

Non-current assets

buildings (net), land, equipment (net)

Current Assets

cash, accounts receivable, inventory, supplies, prepaid insurance

8 values or "assets" a company has:

cash, accounts receivable- money coming in, inventory- in business to sell, supplies- stuff you need thats readily used, prepaid insurance, building, land, equipment

2 equities a company has:

common stock, retained earnings

Expenses:

cost of goods sold, salaries expense, utilities expense, advertising, rent expense, interest expense, supplies expense (supplies that were an asset but have been used up or consumed), insurance expense, depreciation expense.

expenses are

costs incurred (used up/consumed/expired) to generate revenues, whether or not cash is paid

working capital

current assets-current liabilities

Matching principle

dictates that efforts (expenses) must be matched with results (revenues)

materiality threshold principle

dollar amount which defines materiality (i.e. accounting substance)

The notes to the financial statements:

explain what policies were used to prepare the financial statements, provide additional information about what is included in the financial statements, and provide additional information about financial matters that are not included in the financial statements

The sales revenue account has a credit balance of $367,200 at year end. After closing entries are made the account will:

have a zero balance

One of the major advantages of making adjustments in order to improve the quality of financial statements is that they:

insure that revenues and expenses are recognized during the period they are earned and incurred.

Assets are listed on the balance sheet in order of:

liquidity

Financial statements are most commonly prepared:

monthly, quarterly, and annually

Non-current liabilities

mortgage payable beyond current year, notes payable beyond current year

The characteristic shared by all liabilities is that they

obligate the company to do something in the future.

non current liabilities

obligations that are due or must be performed beyond the current accounting period

3 business forms

proprietorships, partnerships, corporations

cost principle

report all assets to their "cost" never to be altered

Consistency principle

requires company to report their information in same manner they did last year (i.e., whichever method of depreciation they pick, they must stick with )

net income

revenue- expenses, tells us how the business is performing

auditor

reviews financial statements

During 2005, a company's assets rise $56,000 and its liabilities rise $38,000. If no dividend is paid and no further capital is contributed, stockholders equity would:

rise $18,000

Revenues:

sales revenue, service revenue

International Accounting Standards Board

set up to handle same as FASB, except worldwide standards

What type of business organization only have one owner?

sole proprietorship

Balance Sheet

statement of "financial position" at a certain point in time

In the U.S., generally accepted accounting principles are established by:

the Financial Accounting Standards Board

Assets

things of "value"

cash basis accounting

used for income tax reporting but not financial statement reporting

Depreciation

value lost resulting from obsoleteness, market value decline, or wear and tear.

entity principle

we are accounting for a well defined business unit, not to be co-mingled with the owner(s) or other business entities