Accounting Unit 1

Which of the following statements are true about the balance sheet

-It is sometimes called the statement of financial position. -It reports the economic resources and claims on those resources. -It reports the assets, liabilities and stockholders' equity at a point in time.

The statement of retained earnings reports the amount

-of earnings distributed to the company's owners during the accounting period -of earnings kept by the company

Businesses earn profits by ______

-providing service or selling goods at more than the cost to provide the service or deliver the goods -having revenues greater than expenses

The heading of an income statement should include ______

-the accounting period covered by the statement -the title "Income Statement" -the name of the business

True or False. The accounting equation is Assets = Liabilities + Stockholders' Equity.

True (stockholders equity is the same as owners equity)

Creditors want to see that a company that owes them money has

assets that are greater than its liabilities

A classified balance sheet shows subtotals for current ___ and ____

assets, liabilities

What are the primary ways in which a business may be organzied

corporation, partnership, sole proprietorship

A company purchased supplies and promised to pay $200 for them next month. The increase in Accounts Payable would be recorded with a ______.

credit

A company made a $1,000 payment on its $100,000, 20-year mortgage. The decrease in liabilities would be recorded with a Blank______ to Notes Payable. Multiple choice question.

debit

A company paid $500 for supplies that it purchased last month. The decrease in liabilities would be recorded with a ___ to accounts payable

debit

Assets have a normal_____ balance

debit

A net loss will ______

decrease retained earnings

Retained earnings are ______.

decreased by dividends increased by net income

The underlying rules of accounting in the US are called _____ principles

generally accepted accounting

The underlying rules of accounting in the US are called

generally accepted accounting principles (GAAP)

The duality of effects refers to the fact that each transaction ______

has at least two effects on the basic accounting equation

All transactions ______.

have at least two effects on the accounting equation affect assets, liabilities, and/or stockholders' equity

Events that do not involve exchanges between the company and someone else but affect assets, liabilities and/or stockholders' equity are called ____ events

internal

The main reason companies exist is to maximize their

owners wealth, profit

The statement of retained earnings reports the ______

profits that have accumulated in the company over time

Select all of the line-items found on a statement of retained earnings for the month ended September 30

Add: Net Income Retained Earnings, September 30 Subtract: Dividends Retained Earnings, September 1

True or False. When a company issues common stock, it gives cash to its owners in exchange for stock.

False

What is the order of an Income statement

- Name of Company -Income Statement - For the year of ended...

Place the single-step income statement items in the proper order from top to bottom.

1) Revenues 2) Expenses 3) Net Income

Which of the following are possible effects on the accounting equation when recording a transaction that increases a liability by $100?

A stockholders' equity account decreases by $100 An asset increases by $100

Which of the following is the basic accounting equation?

Assets = Liabilities + Stockholders' Equity (owners equity)

Which transactions are recorded in the accounting system?

Both external exchanges and internal events

Which group is responsible for creating the US GAAP?

Financial Accounting Standards Board (FASB)

Which of the following are assets?

Land Cash Equipment

Which line items appear on the statement of retained earnings?

Net Income Dividends ending balance of Retained Earnings beginning balance of retained earnings

What is the effect on total stockholders' equity when a company purchases a cash register for a cash payment of $1,200?

No effect

A single-step income statement includes which of the following?

Revenues Net Income Expenses

Company X issued $10,000 of common stock to its owners for cash. It recorded the transaction by increasing assets and increasing liabilities. Which of the following statements are correct?

Stockholders' equity will be too low. Liabilities will be too high.

A transaction may be recorded with an increase in an asset and a decrease in a(n) ______.

another asset

The purpose of the balance sheet is to report the amount of ______

assets, liabilities, and stockholders' equity at a specific point in time

What does a business typically receive when it issues stock to owners?

cash

The issuance of common stock is recorded with a debit to ______ and a credit to ______

cash, common stock

The 4 financial statements consist of the _____ statement, the statement of _____ earnings, the _____ sheet, and the statement of _____ flows

income, retained, balance, cash

A debit to Cash and a credit to Common Stock is recorded when a company:

incorporates and its owners contribute cash.

What is the effect on total assets when a company purchases land for a cash payment of $10,000?

no effect

The statement of retained earnings is

one of the 4 financial statements

The Mortgage Payable account is increased with an entry on the ____ side of the T-account.

right (credit)

A corporation earns profits for its stockholders by

selling goods at more than their cost providing services at more than cost

A classified balance sheet ______.

shows subtotals for current assets and current liabilities

a ______ _____ income statement reports a single measure of income. It reports the difference between total revenues and total expenses

single step

A company purchased a new cash register in exchange for a cash payment of $1,200. The company recorded only an increase of $1,200 in the Equipment account. No entry was made to the Cash account. As a result, ______.

the accounting equation is not in balance total assets are too high

An income statement is referred to as a single-step income statement because

the format separates total revenues from expenses and reports a single measure of income

Business activities that affect the basic accounting equation and are recorded in the accounting system are called

transactions