ACG Chapter 3

a system that records the dual effect of each transaction in appropriate accounts

double-entry system

buy supplies for cash

= increase asset (supplies) and decrease cash asset

What journal entry is recorded as a result of performing services in exchange for cash?

A debit to Cash and a credit to Revenue Performing services in exchange for cash indicates that the company has earned the revenue so it records it as Revenue. Cash is also received so the balance in cash increases.

At the start of the month, Hawaii Inc. reported retained earnings of $154,000. During the month, Hawaii generated revenues of $35,000, incurred expenses of $20,000, received $25,000 of cash from stockholders in exchange for additional common stock, and paid dividends of $3,000. What is the balance in retained earnings at the end of the month?

Ending retained earnings = Beginning retained earnings + revenues for the current period - expenses for the current period - dividends for the current period. Ending retained earnings = $154,000 + $35,000 - 20,000 − 3,000 = $166,000 Retained earnings normally has a credit balance. This is a profitable company, so its retained earnings balance would be a credit balance. Note: selling (i.e., issuing) additional common stock to shareholders in exchange for cash increases stockholders' equity and assets; it does not affect net income or retained earnings.

A trial balance would only help in detecting which one of the following errors? A trial balance would help detect all of these errors. For a given transaction, the account that should have been debited was debited but no account was credited A journal entry that is posted twice A debit to retained earnings was debited to common stock by mistake For a given transaction, the account that should have been debited was credited and the account that should have been credited was debited

For a given transaction, the account that should have been debited was debited but no account was credited

Which of the is true with regards to the retained earnings account? It is a liability account and it normally has a debit balance. It is an expense account and it normally has a credit balance. It is a revenue account and it normally has a credit balance. It is an asset account and it normally has a credit balance. It is an equity account and it normally has a credit balance.

It is an equity account and it normally has a credit balance.

What type of account is unearned revenue?

Liability The unearned revenue account is classified as a liability. Unearned revenues are payments for future services to be performed or goods to be delivered. Until a company performs the services or delivers the goods, the amount is owed to the party that made the payment

Are advanced receipts from customers treated as revenue at the time of receipt? Why or why not?

No, revenue cannot be recognized until the work is performed. When collecting cash in advance from customers, the company receives cash (which increases its assets) and increases its liabilities (the liability account is called unearned revenues). The company does not recognize revenue as earned until it performs its obligation to the customer. Thus, assets increase and liabilities increase by the same amount when an advance from a customer is collected. Later, the company performs its obligation and the company then reduces the liability and recognizes revenue as earned..

Posting

accumulates the effects of journalized transactions in the individual ledger accounts.

the right side of an account

credit

an accounting record in which transactions are initially recorded in chronological order

journal

the process of recording transactions in a journal

journalizing

If management wants to know the total amount due from customers it should refer to the

ledger The entire group of accounts maintained by a company is referred collectively as the ledger. The ledger provides more than just account names. The ledger provides the balance in each of the accounts as well as keeps track of changes in these accounts' balances.

If cash is received in advance from a customer

liabilities will increase and assets will increase. Receiving cash in advance means that the business receives cash from a customer before the company provides the merchandise or services being sold to the customer. This creates an obligation or a liability to the company. We call this liability "unearned revenue." Liabilities increase and assets (i.e., cash) increase.

the procedure of transferring journal entries into the ledger accounts

posting

Norman Company had a transaction that increased its assets by $5,000 and increased its stockholders' equity by $5,000. This transaction could have been a(n) receipt of cash in exchange for performing services to a customer. payment of a dividend. payment of rent for the month. a note payable issued to a creditor in exchange for a loan. purchase of office equipment for cash.

receipt of cash in exchange for performing services to a customer The basic accounting equation is Assets = Liabilities + Equity; it must always balance. A $5,000 increase in assets combined with a $5,000 increase in stockholders' equity keeps the accounting equation in balance. Receiving cash increases assets and performing services causes the company to recognize revenues which increases a stockholders' equity account called retained earnings.

Customarily, a trial balance is prepared

at the end of an accounting period

Which of the following two accounts are both increased with debits? Dividends and Sales Revenue Service Revenue and Equipment Common Stock and Supplies Interest Expense and Accounts Payable Inventory and Rent Expense

inventory and Rent Expense The normal balance of any account is the side which increases that account. Debits increase assets, expenses, and dividends. Credits increase liabilities, equities, and revenues.

pay a dividend =

= decrease asset = decrease equity

An account is a part of a company's financial information system and is described by all except which one of the following? An account consists of three parts with one part being the account's title. The credit side is the right side of the account's T-account. The debit side is the left side of the account's T-account. An account has a debit and credit side. An account is a source document.

An account is a source document.

Which of the following occurs when an account payable is paid with cash? Assets increase and liabilities increase Assets increases and liabilities decreases Assets decreases and liabilities decrease Assets decrease and stockholders' equity increases Stockholders' equity decreases and liabilities decrease

Assets decreases and liabilities decrease Accounts payable is a liability (i.e., it is an obligation). Paying an account payable reduces the liability and the payment of cash reduces cash (i.e., it reduces assets).

Which pair of accounts follows the rules of debits and credits in relation to increases and decreases in the same manner? Dividends and Accumulated Depreciation--Equipment Interest Expense and Accounts Payable Cash and Income Tax Expense Retained Earnings and Supplies Common Stock and Rent Expense

Cash and Income Tax Expense Assets, expenses, and dividends are increased by debits. Liabilities equities, and revenues are increased with credits. Cash is an asset account, and salaries expense is an expense account; both are increased by debits. Note that Accumulated Depreciation—Equipment is reported among assets but the company reports the asset (such as equipment) less accumulated depreciation. In this sense, accumulated depreciation accounts are the opposite of assets and accumulated depreciation accounts are decreased by debits.

3. Posting a. normally occurs before journalizing. b. transfers ledger transaction data to the journal. c. is an optional step in the recording process. d. transfers journal entries to ledger accounts.

D transfers journal entries to ledger accounts

Which of the following events is not recorded in a company's accounting records? The owner withdraws cash for personal use. Issuing a note in exchange for cash. A collection of cash in advance from a customer. Discussing with a customer the services a company offers. Performs services for a customer on account

Discussing with a customer the services a company offers.

2. Which types of accounts are decreased with debits: a. Assets, liabilities, and equities b. Assets, Revenues, and Dividends c. Liabilities, expenses, and Equities d. Revenues, e. Liabilities, Equities, and Revenues

E liabilities, equities, and revenues decrease debits

A company started the year with $40,000 in its Common Stock account and a credit balance in Retained Earnings of $27,000. During the year, the company earned net income of $25,000 and declared and paid $4,000 of dividends. In addition, the company sold additional common stock amounting to $15,000. As a result, the amount of its retained earnings at the end of the year would be

Stockholders' equity = Beginning Retained Earnings + Net Income - Dividends Stockholders' equity = 27,000 + 25,000 - 4,000 = $48,000

At the start of the month, Acme Enterprises reported a $34,000 debit balance in its cash account. During the month, Acme collected cash of $30,000 and made disbursements of $42,000. At the end of the month, the cash balance is

The ending cash balance equals the beginning cash balance plus cash receipts occurring during the period minus cash payments occurring during the period. The ending cash balance = $34,000 + 30,000 − 42,000 = $22,000. DEBIT

4. A trial balance will not balance if a. a correct journal entry is posted twice. b. a $200 purchase of supplies on account is debited to Supplies and credited to Cash. c. a $100 cash dividends is debited to the Dividends account for $1,000 and credited to Cash for $100. d. a $450 payment on account is debited to Accounts Payable for $45 and credited to Cash for $45.

a $100 cash dividends is debited to the Dividends account for $1,000 and credited to Cash for $100

A trial balance will not balance if a $500 payment of an account payable was debited to Accounts Payable for $50 and credited to Cash for $50. a $500 receipt of a customer's advance payment for services was recorded as a $500 debit to Cash and a $500 credit to Service Revenue. a $50 cash dividend was debited to Dividends for $500 and credited to cash for $50. a $500 collection of cash was not posted. a $50 cash purchase of supplies was posted twice.

a $50 cash dividend was debited to Dividends for $500 and credited to cash for $50.

What journal entry is recorded as a result of performing services in exchange for cash? A debit to Cash and a debit to Unearned Revenue A debit to Revenue and a credit to Cash A debit to Cash and a credit to Retained Earnings A debit to Cash and a credit to Unearned Revenue A debit to Cash and a credit to Revenue

a debit to Cash and a credit to Revenue

an individual accounting record of increases and decreases in a specific asset, liability, and stockholders' equity items

account

Events that require recording in the financial statements because they affect assets, liabilities, or stockholders' equity.

accounting transactions

Payment of a dividend decreases cash and increases stockholders' equity. decreases cash and decreases retained earnings. increases cash and increases stockholders' equity. increases retained earnings and increases expenses. increases expenses and decreases cash.

decreases cash and decreases retained earnings. Payment of dividends reduces cash and increases dividends. Dividends is a temporary account that will be closed at the end of the period (such as a year) and closing it will cause retained earnings to decrease.

Borrowing cash by signing a note payable

increases the payer's assets and liabilities. Borrowing cash by signing a note (i.e., issuing a note) indicates that assets increased (i.e., cash increased) and liabilities increased (i.e., notes payable increased).

A trial balance

is a list of accounts with their balances at a given point in time.

a list of accounts and their balances at a given time

trial balance

Jamal Company began the year with $75,000 in its Common Stock account and a credit balance in Retained Earnings of $24,000. During the year, the company earned net income of $35,000 and declared and paid $10,000 of dividends. In addition, the company sold additional common stock amounting to $15,000. Based on this information, what is the ending total of stockholders' equity?

$139,000 = common stock + retained earnings = (75,000 + 15,000) + (24,000 + 35,000 - 10,000)

In its first month of operations, a company's cash account has total debit entries amounting to $27,500 and total credit entries amounting to $24,900. At the end of the month, the cash account has a

$2,600 debit balance. When a company begins, all of its accounts have a zero balance. This company has debit entries for cash of $27,500 and credits of $24,900 in its cash account during its first month. Debits increase asset accounts' balances, such as cash, and credits decrease assets' accounts balances. The balance in the cash account at the end of the period will be $2,600 debit balance (i.e., $27,500 dr. − $24,900 cr. = $2,600 dr.; when an account's debits exceed its credits, the account has a debit balance).

At the start of the month, Acme Enterprises reported a $34,000 debit balance in its cash account. During the month, Acme collected cash of $30,000 and made disbursements of $42,000. At the end of the month, the cash balance is

$22,000 debit. The ending cash balance equals the beginning cash balance plus cash receipts occurring during the period minus cash payments occurring during the period. The ending cash balance = $34,000 + 30,000 − 42,000 = $22,000.

A company's financial records report the following accounts and balances at the end of the year: Accounts payable$ 4,000 Accounts receivable 5,000 Cash 14,000 Common stock 5,800 Dividends 2,500 Interest expense 18,700 Notes payable 5,400 Prepaid insurance 3,000 Retained insurance 3,200 Service revenue 25,200 What would the company show as its total credits on its trial balance

$43,600 Certain accounts normally have debit balances, including assets, expenses, and dividends. This company's accounts that have debit balances include its assets (i.e., accounts receivable, cash, prepaid insurance, accounts receivable), expenses (i.e., interest expense), and dividends. These sum to $43,600 (i.e., 5,000 + 14,400 + 2,500 + 3,000 + 18,700 = 43,600).Other accounts normally have credit balances, including liabilities, equities, and revenues. This company's accounts that have credit balances include its liabilities (i.e., accounts payable, notes payable), equities (i.e., common stock, retained earnings), and revenues (i.e., service revenue). These sum to $43,600 (i.e., 4,000 + 5,800 + 5,400 + 3,200 + 25,200 = 43,600). Note: total debits equal total credits.al debits equal total credits.

pay wage expense=

= decrease assets = decrease equity

receive cash in exchange for services to be provided to customers =

= increase assets = increase equity

collect cash from a customer for services to be provided to customers in the future =

= increase assets = increase liabilities

purchase inventory on account =

= increase assets = increase liabilities

Which of the following events is not recorded in a company's accounting records? Equipment is purchased on account. A collection of cash in advance from a customer. The owner withdraws cash for personal use. A decision to offer a company's services in a new geographic area. A company prepays one year's insurance

A decision to offer a company's services in a new geographic area.

Which of the following errors, each considered individually, would cause the trial balance to be out of balance? - A $300 collection of cash for services provided to a customer was recorded twice. - A $350 transaction was not posted. - A payment of $150 to a creditor was posted as a $150 debit of $150 to Accounts Payable and a $148 debit to Cash. - A payment of $59 for supplies was posted as a $95 debit to Supplies and a $95 credit to Cash. - Cash received from a customer for services to be performed later was posted as a $350 debit to Cash and a $350 credit to Accounts Payable.

A payment of $150 to a creditor was posted as a $150 debit of $150 to Accounts Payable and a $148 debit to Cash.

Which of the following is an example of a source document that provides evidence of a transaction? A chart of accounts for the company The ledger for the company A trial balance prepared at year-end All of these A sales slip recording a sale of services to a customer

A sales slip recording a sale of services to a customer Examples of source documents include a bill or invoice, a cash register document, and a sales slip

An account is a part of a company's financial information system and is described by all except which one of the following? An account is a source document. An account has a debit and credit side. An account consists of three parts with one part being the account's title. The credit side is the right side of the account's T-account. The debit side is the left side of the account's T-account.

An account is a source document.

Wilson Company has the following accounts and account balances at the end of its first year: Accounts payable, $3,000 Cash, $19,000 Common stock, ? Dividends, $1,000 Expenses, $14,000 Notes payable, $4,000 Prepaid insurance, $3,000 Revenues, $23,000 What is the balance of its common stock account at the end of the first year?

Assets = Liabilities + Common stock + Retained earnings Wilson's assets include cash and prepaid insurance (i.e., 19,000 + 3,000 = 22,000). Wilson's liabilities include accounts payable and notes payable (i.e., 3,000 + 4,000 = 7,000). This is Wilson Company's first year. Its retained earnings at the start of the first year is zero. Retained earnings increases y net income and it decreases by dividends. Wilson's retained earnings at the end of the first year equals retained earnings at the start of the current year plus current-year net income minus current year dividends (i.e., 0 + 23,000 - 14,000 - 1,000 = 8,000). Assets = liabilities + retained earnings + common stock Common stock = Assets - liabilities - retained earnings Common stock = 22,000 - 7,000 - 8,000 Common stock = 7,000

A debit is the normal balance for which account listed below? Cash Accounts Payable Retained Earnings Common Stock Revenue

Cash The normal balance of any account is the side which increases that account. Debits increase assets, expenses, and dividends. The normal balance of assets, expenses, and dividends is a debit balance. Credits increase liabilities, equities, and revenues. The normal balance of liabilities, equities, and revenues is a credit balance. Cash is an asset account.

A company's financial records report the following accounts and balances at the end of the year: Accounts payable$ 3,000 Accounts receivable 3,700 Cash 13,100 Common stock 4,600 Dividends 1,200 Interest expense 17,500 Notes payable 4,200 Prepaid insurance 1,700 Retained insurance 1,400 Service revenue 24,000 What would the company show as its total credits on its trial balance

Certain accounts normally have debit balances, including assets, expenses, and dividends. This company's accounts that have debit balances include its assets (i.e., accounts receivable, cash, prepaid insurance, accounts receivable), expenses (i.e., interest expense), and dividends. These sum to $37,200 (i.e., 3,700 + 13,100 + 1,200 + 1,700 + 17,500 = 37,200).Other accounts normally have credit balances, including liabilities, equities, and revenues. This company's accounts that have credit balances include its liabilities (i.e., accounts payable, notes payable), equities (i.e., common stock, retained earnings), and revenues (i.e., service revenue). These sum to $37,200 (i.e., 3,000 + 4,600 + 4,200 + 1,400 + 24,000 = 37,200). Note: total debits equal total credits.

Barnes Company's financial records report the following accounts and balances at the end of the year:Accounts Payable..................... $ 3,300 Accounts Receivable................. 4,000 Cash............................................. 14,500 Common Stock........................... 4,900 Dividends.................................... 400 Interest expense........................ 18,000 Notes Payable............................ 4,500 Prepaid Insurance....................... 2,000 Retained earnings....................... 1,700 Service revenue....................... 24,500 What would the company show as its total credits on its trial balance?

Certain accounts normally have debit balances, including assets, expenses, and dividends. This company's accounts that have debit balances include its assets (i.e., accounts receivable, cash, prepaid insurance, accounts receivable), expenses (i.e., interest expense), and dividends. These sum to $38,900 (i.e., 4,000 + 14,500 + 400 + 2,000 + 18,000 = 38,900). Other accounts normally have credit balances, including liabilities, equities, and revenues. This company's accounts that have credit balances include its liabilities (i.e., accounts payable, notes payable), equities (i.e., common stock, retained earnings), and revenues (i.e., service revenue). These sum to $38,900 (i.e., 3,300 + 4,900 + 4,500 + 1,700 + 24,500 = 38,900).Note: total debits equal total credits.

A company's financial records report the following accounts and balances at the end of the year: Accounts payable$ 4,000 Accounts receivable 5,000 Cash 14,000 Common stock 5,800 Dividends 2,500 Interest expense 18,700 Notes payable 5,400 Prepaid insurance 3,000 Retained insurance 3,200 Service revenue 25,200 What would the company show as its total credits on its trial balance?

Certain accounts normally have debit balances, including assets, expenses, and dividends. This company's accounts that have debit balances include its assets (i.e., accounts receivable, cash, prepaid insurance, accounts receivable), expenses (i.e., interest expense), and dividends. These sum to $43,600 (i.e., 5,000 + 14,400 + 2,500 + 3,000 + 18,700 = 43,600).Other accounts normally have credit balances, including liabilities, equities, and revenues. This company's accounts that have credit balances include its liabilities (i.e., accounts payable, notes payable), equities (i.e., common stock, retained earnings), and revenues (i.e., service revenue). These sum to $43,600 (i.e., 4,000 + 5,800 + 5,400 + 3,200 + 25,200 = 43,600). Note: total debits equal total credits.al debits equal total credits.

An accountant has debited a liability account for $1,000 and credited an asset account for $1,200. There is one missing part of the transaction. What can be the missing part of the transaction that needs to be recorded Debit an expense account for $200. Debit a different asset account for $1,000. Credit a revenue account for $200. Nothing further must be done. Credit another liability account for $200.

Debit an expense account for $200. The basic accounting equation is assets equal liabilities plus equity. It must stay in balance meaning total assets must equal total liabilities plus total stockholders' equity, and this relation must be maintained in every transaction. If a transaction debited a liability account by $1,000 then liabilities decreased by $1,000. If that same transaction also credited an asset account by $1,200 then it decreased assets by $1,200. The missing part of the transaction must cause assets to equal liabilities plus equity. Acceptable options include (1) decreasing (i.e., debiting) a different liability account for $200, (2) increasing (i.e., debiting) a different asset for $200, and (3) decreasing (i.e., debiting) an equity account for $200. Debiting an expense account increases it, and that reduces equity via the closing entries.

Which of the following is false with regards to the double-entry system of recording transactions? Each transaction affects at least one income statement account and at least one balance sheet account. All of these are false. Each transaction is recorded with an equal dollar amount of debits and credits. Each transaction affects the balances of at least two different accounts. None of these are false.

Each transaction affects at least one income statement account and at least one balance sheet account.

A company began the year with $84,000 in its common stock account and a credit balance in retained earnings of $36,000. During the year, the company earned net income of $24,000 and declared and paid $6,000 of dividends. In addition, the company sold additional common stock amounting to $22,000. What is the ending total stockholders' equity?

Ending contribution capital = Beginning contributed capital + additional stock issued Ending contributed capital = 84,000 + 22,000 = 106,000 Ending retained earnings = Beginning retained earnings + net income - dividends Ending retained earnings = 36,000 + 24,000 - 6,000 = 54,000 Total equity = contributed capital + retained earnings Total equity = 106,000 + 54,000 = 160,000

A company started the year with $65,000 in its common stock account and a credit balance in retained earnings of $30,000. During the year, the company earned net income of $15,000 and declared and paid $5,000 of dividends. In addition, the company sold additional common stock amounting to $15,000. As a result, the amount of its retained earnings at the end of the year would be

Ending retained earnings = Beginning Retained Earnings + Net Income - Dividends Ending retained earnings = 30,000 + 15,000 - 5,000 = $40,000

At the start of the current year, investors contribute $10,000 to a newly formed corporation. During the year, the corporation earned revenues of $45,000, paid expenses of $22,000, and paid dividends to the owners of $5,000. It also borrowed $10,000 by issuing a note. At the end of the year, the balance in retained earnings will be

Ending retained earnings = Beginning retained earnings + Revenues - Expenses - Dividends Ending retained earnings = $0 + 45,000 - 22,000 - 5,000 = $18,000 Retained earnings is an equity account; it normally has a credit balance. Note: This is the company's first-year so its beginning retained earnings is zero. Also, certain transactions do not affect retained earnings, such as borrowing money by issuing a note.

During its first year of operations, a corporation had revenues of $65,000 and expenses of $33,000. One the last day of the first year, the corporation borrowed $8,000 and paid cash dividends of $18,000. What is the balance in retained earnings at year-end?

Ending retained earnings = Beginning retained earnings + Revenues - Expenses - Dividends Ending retained earnings = $0 + 65,000 - 33,000 - 18,000 = $14,000 Note: This is the company's first-year so its beginning retained earnings is zero. Retained earnings is an equity account; it normally has a credit balance. Certain transactions do not affect retained earnings, such as borrowing money by issuing a note and purchasing equipment.

At the start of the current year, a corporation's retained earnings account had a credit balance of $282,000. During the year, the corporation earned revenues of $40,000, incurred expenses of $24,000. At the end of the year, it purchased equipment for $10,000 in exchange for a $10,000 note and it paid dividends of $4,000. What is the balance in retained earnings at the end of May?

Ending retained earnings = Beginning retained earnings + Revenues - Expenses - Dividends Ending retained earnings = $282,000 + 40,000 - 24,000 - 4,000 = $294,000 Retained earnings is an equity account; it normally has a credit balance. Certain transactions do not affect retained earnings, such as borrowing money by issuing a note and purchasing equipment.

During its first year of operations, Acme Company had revenues of $135,000 and expenses of $87,000. The business also paid cash dividends of $10,000 and purchased $25,000 of equipment in exchange for cash during the first year. What is the balance in the company's retained earnings account at the end of its first year?

Ending retained earnings = Beginning retained earnings + net income - dividends. Other transactions, such as purchased of equipment, are ignored.Ending retained earnings = $0 + $135,000 - $87,000 - $10,000 = $38,000. Retained earnings normally has a credit balance; it occurs when revenues exceed expenses and dividends.

At the start of the month, a corporation reported retained earnings of $163,000. During the month, it earned revenues of $44,000, incurred expenses of $21,000, borrowed $10,000 by signing a note payable, and paid dividends of $2,000. What is the balance in retained earnings at the end of the month?

Ending retained earnings = Beginning retained earnings + revenues for the current period - expenses for the current period - dividends for the current period. Ending retained earnings = $163,000 + $44,000 - 21,000 − 2,000 = $184,000 Retained earnings normally has a credit balance. This is a profitable company, so its retained earnings balance would be a credit balance. Note: signing a note increased notes payable (i.e., liabilities) and increased cash (i.e., assets); borrowing money did not affect net income or retained earnings.

At the start of the month, a corporation reported retained earnings of $136,000. During the month, it earned $20,000, incurred expenses of $12,000, purchased equipment for $5,000 and paid dividends of $2,000. What is the balance in retained earnings at the end of the month?

Ending retained earnings = Beginning retained earnings + revenues for the current period - expenses for the current period - dividends for the current period. Ending retained earnings = $136,000 + $20,000 - 12,000 − 2,000 = $142,000 Retained earnings normally has a credit balance. This is a profitable company, so its retained earnings balance would be a credit balance. Note: Purchasing equipment increased equipment (i.e., assets) and either decreased cash (i.e., assets) or increased notes payable (i.e., liabilities); purchasing equipment did not affect net income or retained earnings.

At the start of the month, a corporation reported retained earnings of $163,000. During the month, it earned revenues of $44,000, incurred expenses of $21,000, borrowed $10,000 by signing a note payable, and paid dividends of $2,000. What is the balance in retained earnings at the end of the month?

Ending retained earnings = Beginning retained earnings + revenues for the current period - expenses for the current period - dividends for the current period. Ending retained earnings = $163,000 + $44,000 - 21,000 − 2,000 = $184,000 Retained earnings normally has a credit balance. This is a profitable company, so its retained earnings balance would be a credit balance. Note: signing a note increased notes payable (i.e., liabilities) and increased cash (i.e., assets); borrowing money did not affect net income or retained earnings.

Which of these step occurs earliest in the recording process? Journalize the transaction Prepare the closing entries Prepare a trial balance Prepare financial statements Post to a journal

Journalize the transaction The recording process does steps in a certain order. The first step is to analyze each transaction in terms of its effects on the accounts. This begins with examining a source document that provides evidence of a transaction or event that needs to be recorded. Examples of source documents include a bill or invoice, a cash register document, and a sales slip. The second step is to enter the transaction information in the journal (i.e., journalize the transaction). Third, transfer the journal information to the appropriate accounts in the ledger (i.e., post it to the ledger).

On March 1, a company hires a new employee who will start to work on March 6. The employee will be paid on the last day of each month. Should a journal entry be made on March 6? Why or why not?

No, hiring an employee is an important event; however it is not an economic event that should be recorded.

6. Which of the following transactions increases the company's total assets? a. The company provided services on account to a customer. b. The company received its monthly utility bill. c. The company collected cash from a customer who previously bought services on account. d. The company paid employees this week's wages. e. The company borrowed $10,000 issuing a note to the creditor.

Providing services on account increases accounts receivable which is an asset, and providing services increases service revenue which increases revenues and equity. Toal assets increase Borrowing money increases cash which is an asset, and issuing a note as evidence of the loan increases notes payable which is a liability. total assets increase

A company has the following accounts and account balances at the end of its first year: Accounts payable, $1,000 Cash, $15,000 Common stock, Not given Dividends, $2,000 Expenses, $15,000 Notes payable, $4,000 Prepaid insurance, $2,000 Revenues, $20,000 What is the balance of its common stock account at the end of the first year?

The basic accounting equation (i.e., Assets = Liabilities + Equity) must stay in balance. The accounting equation can be expanded as follows: Assets = Liabilities + Common stock + Retained earnings Wilson's assets include cash and prepaid insurance (i.e., 15,000 + 2,000 = 17,000). Wilson's liabilities include accounts payable and notes payable (i.e., 1,000 + 4,000 = 5,000). This is Wilson Company's first year. Its retained earnings at the start of the first year is zero. Retained earnings increases y net income and it decreases by dividends. Wilson's retained earnings at the end of the first year equals retained earnings at the start of the current year plus current-year net income minus current year dividends (i.e., 0 + 20,000 - 15,000 - 2,000 = 3,000).Assets = liabilities + retained earnings + common stock Common stock = Assets - liabilities - retained earnings Common stock = 17,000 - 5,000 - 3,000 Common stock = 9,000

A company has the following accounts and account balances at the end of its first year: Accounts payable, $4,000 Cash, $20,000 Common stock, Not given Dividends, $1,000 Expenses, $17,000 Notes payable, $6,000 Prepaid insurance, $2,000 Revenues, $22,000 What is the balance of its common stock account at the end of the first year?

The basic accounting equation (i.e., Assets = Liabilities + Equity) must stay in balance. The accounting equation can be expanded as follows: Assets = Liabilities + Common stock + Retained earnings Wilson's assets include cash and prepaid insurance (i.e., 20,000 + 2,000 = 22,000).Wilson's liabilities include accounts payable and notes payable (i.e., 4,000 + 6,000 = 10,000). This is Wilson Company's first year. Its retained earnings at the start of the first year is zero. Retained earnings increases y net income and it decreases by dividends. Wilson's retained earnings at the end of the first year equals retained earnings at the start of the current year plus current-year net income minus current year dividends (i.e., 0 + 22,000 - 17,000 - 1,000 = 4,000). Assets = liabilities + retained earnings + common stock Common stock = Assets - liabilities - retained earnings Common stock = 22,000 - 10,000 - 4,000 Common stock = 8,000

A company has the following accounts and account balances at the end of its first year: Accounts payable, $3,000 Cash, $19,000 Common stock, Not given Dividends, $1,000 Expenses, $14,000 Notes payable, $4,000 Prepaid insurance, $3,000 Revenues, $23,000 What is the balance of its common stock account at the end of the first year?

The basic accounting equation (i.e., Assets = Liabilities + Equity) must stay in balance. The accounting equation can be expanded as follows: Assets = Liabilities + Common stock + Retained earningsWilson's assets include cash and prepaid insurance (i.e., 19,000 + 3,000 = 22,000). Wilson's liabilities include accounts payable and notes payable (i.e., 3,000 + 4,000 = 7,000).This is Wilson Company's first year. Its retained earnings at the start of the first year is zero. Retained earnings increases y net income and it decreases by dividends. Wilson's retained earnings at the end of the first year equals retained earnings at the start of the current year plus current-year net income minus current year dividends (i.e., 0 + 23,000 - 14,000 - 1,000 = 8,000). Assets = liabilities + retained earnings + common stockCommon stock = Assets - liabilities - retained earnings Common stock = 22,000 - 7,000 - 8,000 Common stock = 7,000

7. A transaction is recorded as a debit to cash and a credit to accounts receivable. Describe the transaction. a. The company sold goods or services to a customer on account. b. the company paid a supplier. c. The company earned revenue. d. The company collected from a customer who previously purchased goods or services on account. e. The company purchased supplies on account.

The company collected from a customer who previously purchased goods or services on account.

Jefferson Corporation purchased supplies for $200. Which of the following is true? a. Total assets increased by $200. b. Total assets decreased by $200. c. Total liabilities increased by $200. d. Total equity decreased by $200. e. Total assets did not change, total liabilities did not change, and total equity did not change.

The total assets did not change, total liabilities did not change, and total equity did not change Buying supplies increases supplies which is an asset, so assets increase by $200. Paying $200 of cash decreases cash which is an asset, so assets decrease by $200.

The usual sequence of steps in the transaction recording process is

analyze, journalize, and then post to the ledger.

Powell Company provided consulting services and collected $500 for the services provided. As a result of this transaction

assets and equity increased by $500. Performing services for cash indicates that assets increased (i.e., cash increased) and revenue increased. Revenue is recognized when it is earned. Increasing revenue increases net income and retained earnings. Retained earnings is a stockholders' equity account, so stockholders' equity increases when revenue is earned.

If services are performed in exchange for cash, then the service provider's

assets and equity will increase. Performing services for cash indicates that assets increased (i.e., cash increased) and revenue increased. Revenue is recognized when it is earned. Increasing revenue increases net income and retained earnings. Retained earnings is a stockholders' equity account, so stockholders' equity increases when revenue is earned.

If a company pays for a one-year insurance policy that will expire next year, then

assets increase and assets decrease Paying for a one-year insurance policy reduces the company's cash so assets decrease. In exchange for the cash, the company receives insurance coverage that will benefit the company for the next 12 months, and that coverage is an asset. So, assets increase and decrease by equal amounts, and liabilities and stockholders' equity are not affected.

If a company pays for a one-year insurance policy that will expire next year, then

assets increase and assets decrease. Paying for a one-year insurance policy reduces the company's cash so assets decrease. In exchange for the cash, the company receives insurance coverage that will benefit the company for the next 12 months, and that coverage is an asset. So, assets increase and decrease by equal amounts, and liabilities and stockholders' equity are not affected.

If a company buys supplies on account, then

assets increase and liabilities increase Buying supplies indicates that supplies are acquired, and supplies are assets so assets increase. Buying "on account" indicates that cash has not been paid. Rather, a liability is created for the amount owed. This transaction increases an asset (i.e., supplies) and increases a liability (i.e., accounts payable). Stockholders' equity is not affected.

If a company receives cash from a customer before performing services for the customer, then

assets increase and liabilities increase. Receiving cash from a customer before the company provides the merchandise or performs services being sold to the customer creates an obligation or a liability to the company. We call this liability "unearned revenue." Liabilities increase and assets (i.e., cash) increase.

A company pays employees' salaries. This transaction will immediately affect the

balance sheet, income statement, retained earnings statement, and cash flows statement. The company pays cash to its employees so the company's cash decreases. This reduces its total assets which affects the company's balance sheet. The company also records salaries expense. Expenses lower net income reported on the income statement, and expenses reduce retained earnings which affects the retained earnings statement and the balance sheet. Paying salaries is a cash outflow. It affect the cash flows statement.

a list of the accounts a given company maintains

chart of accounts

An accountant has debited an asset account for $800 and credited a liability account for $700. There is one missing part of the transaction. Which of the following cannot be a correct way to complete the recording of the transaction? None of these can be a correct way to complete the transaction. Credit a stockholders' equity account for $100. All of these can be a correct way to complete the transaction. Credit a different asset account for $100. Debit a stockholders' equity account for $100.

debit a stockholders' equity account for $100.

The effects of paying a dividend on the basic accounting equation are to decrease assets and decrease liabilities. increase assets and decrease assets by the same amount. Total assets do not change. decrease assets and decrease stockholders' equity. increase assets and increase liabilities. increase liabilities and increase stockholders' equity.

decrease assets and decrease stockholders' equity. Basic accounting equation: Assets = Liabilities + Stockholders' Equity Paying a dividend decreases cash (i.e., decreases assets) and decreases retained earnings which is an equity account. Thus, asset decrease and equity decreases.

Retained earnings is decreased by

expenses Retained earnings is net income that a company retains in the business. It includes net income since the inception of the business—not just the current year's net income. Retained earnings is increased by net income (which is increased by revenues and decreased by expenses) and decreased by distributions to owners (such as dividends). The costs that a firm incurs when operating its business (i.e., its expenses) cause retained earnings to decrease.

a company performs services for cash. this transaction will immediately affect the

income statement, retained earnings statement, cash flows statement and balance sheet When a company performs services it recognizes revenue as earned. This affects the income statement, and it also affects net income which appears on the retained earnings statement. So, earning revenue has an indirect effect on the retained earnings statement. Collecting cash from customers increases its assets which affects the balance sheet. Collecting cash also affects the cash flows statement. This transaction does not affect income statement accounts (e.g., revenues and expenses). It also does not affect retained earnings or the retained earnings statement.

A company pays the current month's rent. This transaction will immediately affect the

income statement, retained earnings statement, cash flows statement, and balance sheet. When a company pays the current month's rent, it decreases cash which affects the balance sheet and the cash flows statement. It also records rent expense which affects the income statement. Since it affects net income, it indirectly affects retained earnings and the retained earnings statement.

A company performs services for cash. This transaction will immediately affect the income statement, balance sheet, and retained earnings statement only. income statement and cash flows statement only. income statement, retained earnings statement, cash flows statement, and balance sheet. balance sheet and retained earnings statement only. income statement only.

income statement, retained earnings statement, cash flows statement, and balance sheet. When a company performs services it recognizes revenue as earned. This affects the income statement, and it also affects net income which appears on the retained earnings statement. So, earning revenue has an indirect effect on the retained earnings statement. Collecting cash from customers increases its assets which affects the balance sheet. Collecting cash also affects the cash flows statement. This transaction does not affect income statement accounts (e.g., revenues and expenses). It also does not affect retained earnings or the retained earnings statement.

the effects of purchasing supplies on account on the basic accounting equation are to

increase asset and increase liabilities Basic accounting equation: Assets = Liabilities + Stockholders' Equity Purchasing supplies on account increases supplies (i.e., increases assets) and increases a liability account called accounts payable. Thus, asset increase and liabilities increase.

The effects of receiving cash from a customer in exchange for performing services on the basic accounting equation are to decrease assets and decrease liabilities. decrease assets and decrease stockholders' equity. increase assets and increase stockholders' equity. increase liabilities and increase stockholders' equity. increase assets and increase liabilities.

increase assets and increase stockholders' equity. Receiving cash increases assets and increases the company's revenue, and an increase in revenue will increase the company's retained earnings and equity. Thus, assets increase and equity increases.

If a previously unrecorded expense is recorded when it is paid with cash recording the the transaction will

increase expenses and decrease assets.

If cash is received from owners as an investment by stockholders

stockholders' equity will increase and assets will increase. Receiving cash from stockholders as an investment in the company by stockholders is a contribution to capital. This transaction increases the company's assets (specifically, it increases the cash account) by the amount of cash received and it increases the company's stockholders' equity (specifically, it increases the common stock account).

The series of steps used by accounting information system

the accounting cycle

If the sum of the debit column equals the sum of the credit column in a trial balance, it indicates

the mathematical equality of the accounting equation. A trial balance where debits equal credits simply states the mathematical equality of the accounting equation. If the trial balance' debits equals credits, errors can still exist (e.g., perhaps a company's accountant forgot to record a transaction causing debits and credits to both be wrong by the same amount)

If a transaction affected two accounts and total equity increased by $4,000, then

total assets must have increased by $4,000 or total liabilities must have decreased by $4,000. The accounting equation: Assets = Liabilities + EquityThe accounting equation must always be in balance. Every transaction has two effects on the accounting equation. If total equity increased by $4,000 and the transaction affected only two accounts, then either (i) total assets increased by $4,000 or (ii) total liabilities decreased by $4,000.