Chapter 1 - 3

Which type of corporate information is not available to investors.

forecast of cash needs for the upcoming year

Which of the following is not one of the three forms of business organization?

investors

The partnership form of business organization

is a common form of organization for service-type businesses.

A business organized as a corporation

is owned by its stockholders

An advantage of the corporate form of a business is that

its ownership is easily transferable via the sale of shares of stock.

If total assets equal $120,000 and total liabilities equal $90,000, the total owners' equity must equal:

$ 30,000

If total assets equal $210,000 and total owners' equity equal $60,000, then total liabilities must equal:

$150,000

Which of the following is a primary user of accounting information with a direct financial interest in the business?

Creditor

Which of the following would not be considered an internal user of accounting data for a company?

Creditor of a company

Which of the following groups uses accounting information to determine whether the company can pay its obligations?

Creditors

General Ledger (Individual Assets)

Equipment, land, supplies, cash

Transactions

Events that must be recorded in the financial statements

Accounting transactions

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

A business organized as a separate legal entity owned by stockholders is a partnership,

False

External users of accounting information are managers who plan, organize, and run a business.

False

Investing activities involve collecting the necessary funds to support the business.

False

Management of a business firms are the only people who need accounting information.

False

Owners of business firms are the only people who need accounting information.

False

Payments to the owners are operating activities.

False

Proprietorships in the United States generate more revenue than the other two forms of business enterprise.

False

The economic resources that are owned by a business are called stockholders' equity.

False

The majority of U.S. business is transacted by proprietorships.

False

The purchase of equipment is an example of a financing activity.

False

Which of the following is not an advantage of the corporate form of business organization?

Favorable tax treatment

The proprietorship form of business organization.

Generally receives favorable tax treatment relative to a corporation.

To appear in a balance sheet of a business entity, an asset need not:

Have a ready market value.

From an accounting viewpoint, when is a business considered an entity separate from its owner(s)?

In each of the above situations, the business is an accounting entity separate from the activities of the owner(s).

Basic form of account

In its simples form, an account consists of 1) the title of the account 2) left or a debit side 3) right or a credit side

Purpose of a Ledger

Information in the Ledger provides management with the balances in various accounts.

General Ledger (Individual Liabilities)

Interest payable, salaries payable, accounts payable, Notes payable

Which of the following groups uses accounting information to determine whether the company's net income will result in a stock price increase?

Investors in common stock

Which of the following is descriptive of the proper form of a balance sheet?

Liabilities are listed before owners' equity.

Owner's equity in a business may decrease by

Losses from unprofitable operation of the business.

Which of the following would not be considered an external user of accounting data for the XYZ Company?

Management

Which of the following groups uses accounting information to determine whether a marketing proposal will be cost effective?

Marketing managers

Which of the following would not be considered an internal user of accounting data for the XYZ Company?

President of the employees' labor union.

Financial statements are designed primarily to:

Provide people outside the business organization with information about the company's financial position and operating results.

Which of the following is an advantage of corporations relative to partnerships and sole proprietorships?

Reduced legal liability for investors.

Which of the following statements concerning users of accounting information is incorrect?

Regulatory authorities are considered internal users.

General Ledger (Individual Stockholders equity)

Salaries Expense, servies revenue, common stock, retained earnings

A balance sheet:

Shows the assets, liabilities, and owners' equity of a business entity, values in conformity with generally accepted accounting principles.

Which one of the following is not considered one of three primary financial statements?

Statement of business activities.

Which of the following groups uses accounting information primarily to ensure the entity is operating within prescribed rules?

Taxing authorities

Profitability may be defined as:

The ability to increase the value of retained earnings.

Liquidity may be defined as:

The ability to pay debts of the company as they fall due.

A balance sheet is designed to show:

The assets, liabilities, and owners' equity in the business at the particular date.

T account

The basic form of an account. The alignment of these parts in an form of account resembles the letter T and therefore the account form is called a T Account.

Ledger

The group of accounts maintained by a company. -The entire group of accounts maintained by a company is called ledger.

Which of the following is the most appropriate and modern definition of accounting?

The information system that identifies, records, and communicates through the economic events of an organization to interested users.

Debit

The left side of an account. The act of entering an amount on the left side of the account is called debiting the account. When the debit amounts exceed the credits, an account has a debit balance. -Increased assets -decreased liabilities

General journal

The most basic form of journal. - The journal shows the debit and credit effects on a specific accounts for each transaction. Every company has a general journal.

Journalizing

The procedure of entering transaction data in the journal. -Entering transaction data in the journal is known as journalizing. - Separate journal entries are made each transaction. -A complete entry consists of: 1) the date of the transaction 2) the accounts and amounts to be debited and credited, and a brief explanation of the transaction.

Posting

The procedure of transferring journal entry amounts to the ledger accounts. -Transferring journal entries to the ledger accounts is called posting -Posting accumulates the effects of journalized transactions into individual accounts.

Transaction Analysis

The process of considering the transaction or event that has taken place and identify how transaction is going to impact the accounting equation.

Credit

The right side of an account. The act of entering an amount on the right side of the account is called crediting the account. When the credit amounts exceed the debit, an account has a credit balance. -Decreased assets -Increased Liabilities

Accounting information system

The system of collecting and processing transaction data and communicating financial information to decision makers. -Collects and processes transaction data -Communicates financial information to decision makers

If a company purchases equipment for $40,000 by issuing a note payable:

Total assets will increase by $40,000.

If a company purchases equipment for $60,000 cash:

Total assets will remain the same.

Accounting communicates financial information about a business to both internal and external users.

True

Assets are resources owned by a business and provide future services or benefits to the business.

True

Corporate stockholder generally pay higher taxes but have no personal liability.

True

Financing activities for corporations include borrowing money and selling shares of their own stock.

True

The information needs and questions of external users vary considerably.

True

The liability of corporate stockholders is limited to the amount of their investment.

True

Two primary external users of accounting information are investors and creditors.

True

External users want answers to all of the following questions except.

Will the company be able to afford employee pay raises this year?

Limitation Of Trial Balance

-A trial balance is limited in that it will balance and therefore not uncover errors when: 1) A transaction is not journalized 2) a correct journal entry is not posted 3) a journal entry is posted twice 4) incorrect accounts are used in journalizing and posting 5) offsetting errors are made in recording the amount of a transaction.

Normal Balance

-Every account classification has a normal balance, whether it is a debit or credit. -For that particular account, the opposite side entries should never exceed the normal balance.

Basic Steps in the recording process

1)Analyze each transactions for its effect on the accounts 2) Enter transaction in information in a Journal 3) Transfer journal information to the appropriate accounts in the ledger

Joe Blow Wholesale Dress Co. sold dresses to Flow Glow Retail Shoppe. Floe., the owner, said she would pay for them at a later which Joe Blow Dress Co. agreed to. Joe Blow Dress Co. is considered:

A creditor

Which of the following is a user of accounting information with an indirect financial interest in a business?

A financial adviser

General ledger

A ledger that contains all asset, liability, stockholders' equity, revenue, and expense accounts. -A general ledger contains all the assets, liabilities, and stockholders' equity accounts.

Chart of accounts

A list of a company's accounts.

Trial balance

A list of accounts and their balances at a given time. -A trial balance is a list of accounts and their balances at a given time. -The primary purpose of the trial balance is to prove the mathematical equality of debits and credits after posting. -A trial balance may uncover errors in journalizing and posting. -A trial balance is useful in the preparation of financial statements.

Double-entry system

A system that records the two-sided effect of each transaction in appropriate accounts. -In a double entry system, equal debits and credits are made in the account for each transaction. -Thus, the total debits will always equal the total credits and the accounting equation will always stay in balance.

Chart of accounts

Accounts in the general ledger are listed in the chart of accounts. *Assets- cash, account receivable, advertising supplies, prepaid insurance, office equipment, accounted depreciation- office equipments *Liabilities- Notes payable, Accounts payable, Interest Payable, Unlearned servies revenue, Salaries payable * Stockholders Equity- Common stock, retained earning, dividends, income summary *Revenues- Service Revenue *Expense- Salaries Expense, supplies expense, rent expense, insurance expense, interest expense, depreciation expense

Which type of corporate information is readily available to investors?

Amount of net income retained in the business

Journal

An accounting record in which transactions are initially recorded in chronological order. -Transactions are initially recorded in chronological order in a journal before being transferred to the accounts. -The journal shows the debit and credit effects on a specific accounts for each transaction. -The journal makes several significant contributions to the recoding process: 1) It disclose in one place the complete effect of a transaction. 2) It provides a chronological record of transactions. 3) It helps to prevent or locate errors because the debit and credit amounts for each entry can be readily compared.

The nature of an asset is best described as:

An economic resource owned by a business and expected to benefit future operations.

Account

An individual accounting record of increases and decreases in specific asset, liability, stockholders' equity, revenue or expense items. -An account is an individual accounting record of increase and decrease in a specific asset, liability or stockholders equity item. -A company will have separate accounts for such items as cash, salaries expense, account payable and so on.

The principle of adequate disclosure means that a company should dislclose;

Any financial facts that a reasonable informed person would consider necessary for the proper interpretation of the financial statements.

The way in which financial statements relate is known as:

Articulation

Expanded accounting equation

Assets= Liabilities + Stockholders Equity ->(Common Stock)+(Retained earnings)-> (Revenues)-(Expenses)-(Dividends)

Normal balance for each of the following Items

Common Stock- Credit Revenues- Credit Assets- Debit Dividends- Debit Expenses- Debit Liabilities- Credit

The valuation of assets in the balance sheet is based primarily upon:

Cost, because cost is usually factual and verifiable.

Which of the following is not a principal type of business activity?

Delivering

Owner's equity in a business may increase by:

Earnings from profitable operation of the business.

A corporation has which of the following set of characteristics?

Easier to transfer ownership and raise funds, no personal liability

The liability created by a business when it purchases coffee beans and coffee cups on credit from suppliers is termed a(n)

account payable

The right to receive money in the future is called a(n)

account receivable

A business organized as a separate legal entity is a

corporation

The group of users accounting information changed with achieving the goals of the business is its

managers

A small neighborhood barber shop is operated by its owner would likely be organized as a

proprietorship.

Most business enterprises in the United States are

proprietorships and partnerships

A local retail shop has been operating as sole proprietorship. The business is growing and now the owner wants to incorporate. Which of the following is not a reason for this owner to incorporate?

the prestige of operating as a corporation.