Ch. 1 and Ch. 2 Principles of Accounting 1

Assets total $1,200; equity totals $700. What are total liabilities? $1200= ? + $700

$1200=$500+$700

If a company is considering the purchase of a parcel of land that was acquired by the seller for $85,000, is offered for sale at $150,000, is assessed for tax purposes at $95,000, is recognized by the purchaser as easily being worth $140,000, and is purchased for $137,000, the land should be recorded in the purchaser's books at:

$137,000

On May 31 of the current year, the assets and liabilities of Riser, Inc. are as follows: Cash $20, 500; Accounts Receivable, $7, 250; Supplies, $650; Equipment, $12,000; Accounts Payable, $9, 300. What is the amount of owner's equity as of May 31 of the current year?

$31,000

If equity is $300,000 and liabilities are $192,000, then assets equal:

$492,000

Assets total $800; liabilities total $200. What is equity? $800=$200+?

$800=$200+$1600

Liabilities total $500, equity totals $400. What are total assets? =$500+$400

$900=$500+$400

Business Entity Assumption

A business is accounted for separately from other business entities, including its owner.

Full Disclosure Principle

A company reports the details behind financial statements that would impact user's decisions in the notes to the financial statements

Income statement

A financial statement that subtracts total expenses from total revenue to yield a net income or net loss over a specified period of time.

Building

Account type: Asset Normal Balance: DR

Prepaid Rent

Account type: Asset Normal Balance: DR

Supplies

Account type: Asset Normal Balance: DR

Accounts Receivable

Account type: Asset Normal Balance: DR

Accumulated Depreciation

Account type: Contra-Asset Normal Balance: CR

Mike Brady, Capital

Account type: Equity Normal Balance: CR

Advertising Expense

Account type: Expense Normal Balance: DR

Salaries Expense

Account type: Expense Normal Balance: DR

Unearned Fees

Account type: Liability Normal Balance: CR

Accounts Payable

Account type: Liability Normal Balance: CR

Consulting Income

Account type: Revenue Normal Balance: CR

Interest Earned

Account type: Revenue Normal Balance: CR

Ledger

Also called the general ledger, the record containing all accounts and their balances for a business

The Accounting Equation is

Assets = Liabilities + Owner's Equity

If a company purchases equipment costing $4,500 on credit, the effect on the accounting equation would be:

Assets increase $4,500 and liabilities increase $4,500

revenue

Assets received as a result of selling a service or product to customers: Fees Earned and Service Revenue

Saddleback Company paid off $30,000 of its accounts payable in cash. What would be the effects of this transaction on the accounting equation?

Assets, $30,000 decrease; liabilities, $30,000 decrease

Accounts increased with a debit

Assets, Withdrawals, and Expense

Owner's Equity=

Capital - Owner's Withdrawals + Revenue - Expenses (Umbrella Sheet)

Expenses

Costs necessary to earn revenues. Expenses decrease owner's equity. Rent Expense, Salaries Expense, and Supplies Expense

Liabilities

Creditors' claims on assets. Accounts Payable, Salaries Payable, Unearned Ticket Revenue

Accounts balance

Difference between total debits and total credits for an account

Which of the following accounting principles prescribes that a company record its expenses incurred to generate the revenue reported?

Expense recognition (Matching) principle

Balance sheet

Financial statement that lists types and dollars amounts of assets, liabilities, and equity at a specific date

The rule that requires financial statements to reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue, is the:

Going-concern assumption

If the assets of a business increased $89,000 during a period of time and its liabilities increased $67,000 during the same period, equity in the business must have:

Increased $22,000

Accounts increased with a credit

Liabilities, Owner's Equity, and Revenues

Trial Balance

Listing of accounts and their balances at a specific date. Total debit balances equal total credit balances

The area of accounting aimed at serving the decision making needs of internal users is:

Managerial accounting

The accounting concept that requires financial statement information to be supported by independent, unbiased evidence is:

Objective principle

If a company uses $1,300 of its cash to purchase supplies, the effect on the accounting equation would be:

One asset increases $1,300 and another asset decreases $1,300; causing no effect

Cost-Benefit

Only info with benefits of disclosure greater than their cost need be disclosed

Withdrawals

Payment of cash or other assets from a proprietorship or partnership to its owner or owners.

Revenue Recognition Principle

Record revenue when goods or services are provided to customers, and at an amount expected to be received from the customer

Debit

Recorded on the left side; an entry that increases asset and expense accounts, and decreases liability, revenue, and most equity accounts; abbreviated Dr.

Credit

Recorded on the right side, it increases liability, revenue, and owner's equity accounts, and decreases asset, withdrawal, and expense accounts: abbreviated CR.

Statement of Owner's Equity

Report of changes in equity over a period of time; adjusted for increases from owner investment and net income and for decreases from withdrawals and net loss

The question of when revenue should be recognized on the income statement according to GAAP is addressed by the:

Revenue recognition principle

Increases in equity from a company's sales of products or services are:

Revenues

Net Income=

Revenues - Expenses

Define GAAP and identify the body primarily responsible for developing GAAP.

Rules that specify acceptable accounting practices. Financial Accounting Standards Board (FASB)

Journal

The book of original entry, the record transactions are entered before they are posted to ledger accounts.

Going-Concern Assumption

The business is presumed to continue operating instead of being closed or sold

Time Period Assumption

The life of a company can be divided into time periods, such as months and years

Equity

The owner's claim on assets and is equal to Assets-Liabilities

Posting

The process of transferring journal entry information to the ledger

Three factors must exist for a person to commit fraud (The Fraud Triangle)

They are: Opportunity, pressure, and rationalization

Assets

Things a business owns that are used in the operations of the business and have an economic life greater than one year. Cash, Accounts Receivable, and Building

T-account

Tool used to show the effects of transactions and events on individual accounts.

Contessa Company collected $42,000 cash on its accounts receivable. The effects of this transaction as reflected in the accounting equation are:

Total assets, total liabilities, and total equity are unchanged.

ethics are

accepted standards of good and bad behavior and individual beliefs that distinguish right from wrong

Measurement Principle (Cost Principle)

accounting information is based on actual cost

The two types of accounting are

financial and managerial

Accounting includes the activities of_,_, and_

identifying, recording, and communication

There are two types of accounting users

internal & external

external users

lenders, shareholders, governments, consumer groups, external auditors, customers

internal users

officers, managers, internal auditors, sales staff, budget officers, controllers

Materiality

only information that would influence the decisions of a reasonable person need be disclosed

Three types of Business Entities

sole proprietorship, partnership, corporation

Monetary Unit Assumption

transactions and events are expressed in monetary units

A resource that the owner takes from the company is called a:

withdrawal