Chapter 1-4

Della's Donuts had cash inflows from operating activities of $36,500; cash outflows from investing activities of $31,500, and cash outflows from financing activities of $21,500. Calculate the net increase or decrease in cash.

$16,500 decrease.

A $30 credit to Sales was posted as a $250 credit. By what amount is Sales in error?

$220 overstated.

if assets are $372,000 and equity is $106,000, then liabilities are:

$266,000.

A company reported total equity of $145,000 at the beginning of the year. The company reported $210,000 in revenues and $165,000 in expenses for the year. Liabilities at the end of the year totaled $92,000. What are the total assets of the company at the end of the year?

$282,000.

A company's balance sheet shows: cash $24,000, accounts receivable $30,000, equipment $50,000, and equity $72,000. What is the amount of liabilities?

$32,000.

On June 30 of the current year, the assets and liabilities of Phoenix, Inc. are as follows: Cash $21,500; Accounts Receivable, $7,750; Supplies, $750; Equipment, $17,000; Accounts Payable, $10,300. What is the amount of owner's equity as of July 1 of the current year?

$36,700

Flash had cash inflows from operations $61,900; cash outflows from investing activities of $47,600; and cash inflows from financing activities of $25,600. The net change in cash was:

$39,900 increase.

The assets of a company total $700,000; the liabilities, $200,000. What are the claims of the owners?

$500,000.

At the beginning of January of the current year, Thomas Law Center's ledger reflected a normal balance of $52,200 for accounts receivable. During January, the company collected $15,000 from customers on account and provided additional services to customers on account totaling $12,600. Additionally, during January one customer paid Thomas $5,100 for services to be provided in the future. At the end of January, the balance in the accounts receivable account should be:

$52,200 beginning balance - $15,000 of collections + $12,600 of additional services on credit = $49,800.

If assets are $373,500 and equity is $103,000, then liabilities are:

270500

If equity is $220,000 and liabilities are $152,000, then assets equal:

68,000.

All of the following statements regarding a sales invoice are tru

A sales invoice is a type of source document. A sales invoice gives rise to an entry in the accounting process. A sales invoice is used by buyers to record purchases. A sales invoice is used by sellers to record the sale.

Assets created by selling goods and services on credit are:

Accounts receivable.

The financial statement that reports whether the business earned a profit and also lists the revenues and expenses is called:

An Income statement.

Source documents

Are the sources of accounting information.

Resources that are expected to yield future benefits are:

Assets

Prepaid expenses are:

Assets that represent prepayments of future expenses.

An account used to record the owner's investments in the business is called a(n):

Capital account.

Source documents include all of the following

Checks. Bank statements. Sales tickets. Purchase orders.

Wisconsin Rentals purchased office supplies on credit. The general journal entry made by Wisconsin Rentals will include a:

Credit to Accounts Payable.

If Tim Jones, the owner of Jones Hardware proprietorship, uses cash of the business to purchase a family automobile, the business should record this use of cash with an entry to:

Debit Tim Jones, Withdrawals and credit Cash.

An accountant has debited an account for $4,200 and credited a liability account for $2,800. Which of the following would be an incorrect way to complete the recording of this transaction?

Debit another asset account for $1,400.

Rocky Industries received its telephone bill in the amount of $300, and immediately paid it. Rocky's general journal entry to record this transaction will include a

Debit to Telephone Expense for $300

All of the following are True regarding ethics

Ethics are beliefs that separate right from wrong. Ethics rules are often set for CPAs. Are critical in accounting. Ethics can be hard to apply.

A company borrows $125,000 from the Eastside Bank and receives the loan proceeds in cash. This represents a(n):

Financing activity.

Technology

Has closely linked accounting with consulting, planning, and other financial services.

A partnership:

Has unlimited liability for its partners.

Accounting is an information and measurement system that does all of the following

Identifies business activities. Records business activities. Communicates business activities. Helps people make better decisions

A limited partnership

Includes a general partner with unlimited liability

If the assets of a business increased $89,200 during a period of time and its liabilities increased $66,600 during the same period, equity in the business must have:

Increased $22,600.

Unearned revenues are:

Liabilities created when a customer pays in advance for products or services before the revenue is earned.

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

Matching principle.

An example of a financing activity is:

Obtaining a long-term loan.

An example of an operating activity is:

Paying wages.

An example of an investing activity is:

Purchase of land.

The statement of owner's equity:

Reports how equity changes over a period of time.

The following transactions occurred during July: 1. Received $910 cash for services provided to a customer during July. 2. Received $2,300 cash investment from Barbara Hanson, the owner of the business. 3. Received $760 from a customer in partial payment of his account receivable which arose from sales in June. 4. Provided services to a customer on credit, $380. 5. Borrowed $6,100 from the bank by signing a promissory note. 6. Received $1,260 cash from a customer for services to be rendered next year. What was the amount of revenue for July?

Revenues = $910 (1) + $380 (4) = $1,290

The income statement reports all of the following

Revenues earned by a business. Expenses incurred by a business. Net income or loss earned by a business. The time period over which the earnings occurred.

External users of accounting information include

Shareholders. Customers. Government regulators. Creditors.

Cash investments by owners are listed on which of the following statements?

Statement of owner's equity and statement of cash flows.

Ethical behavior requires:

That auditors' pay not depend on the success of the client's business.

A trial balance taken at year-end showed total credits exceed total debits by $5,400. This discrepancy could have been caused by:

The balance of $6,000 in the Office Equipment account being entered on the trial balance as a debit of $600.

A trial balance taken at year-end showed total credits exceed total debits by $5,760. This discrepancy could have been caused by:

The balance of $6,400 in the Office Equipment account being entered on the trial balance as a debit of $640.

Revenues are:

The increase in equity from a company's earning activities.

An accounting information system communicates data to help businesses make better decisions.

True

Revenue is properly recognized:

When cash is received, even if it is before providing goods or services.

The accounting assumption that requires every business to be accounted for separately from other business entities, including its owner or owners is known as the:

business entity assumption

Decreases in equity that represent costs of assets or services used to earn revenues are called:

expenses

A debit entry is always favorable.

f

A limited liability company offers the limited liability of a partnership or proprietorship and the tax treatment of a corporation

f

Accounts are normally decreased by debits.

f

Asset accounts normally have credit balances and revenue accounts normally have debit balances.

f

Credits always increase account balances.

f

From an accounting perspective, an event is a happening that affects the accounting equation, but cannot be measured.

f

Identifying the proper ethical path is always easy.

f

Internal users include lenders, shareholders, brokers and managers.

f

Owner financing refers to resources contributed by creditors or lenders.

f

Owner's withdrawals are expenses.

f

Planning activities are the means an organization uses to pay for resources like land, buildings, and equipment to carry out its plans.

f

The three common forms of business ownership include sole proprietorship, partnership, and non-profit.

f

The trial balance can serve as a replacement for the balance sheet, since debits must equal with credits.

f

Withdrawals by the owner are a business expense.

f

Creditors' claims on the assets of a company are called:

liabilities

Social responsibility:

s a concern for the impact of our actions on society.

A journal gives a complete record of each transaction in one place, and shows the debits and credits for each transaction.

t

An account is a record of increases and decreases in a specific asset, liability, equity, revenue, or expense item.

t

An income statement reports the revenues earned less expenses incurred by a business over a period of time.

t

Generally, the ordering of accounts in a trial balance typically follows their identification number from the chart of accounts, that is, assets first, then liabilities, then owner's capital and withdrawals, followed by revenues and expenses.

t

Good ethics generally translates to good business

t

The primary objective of financial accounting is to provide general purpose financial statements to help external users analyze and interpret an organization's activities.

t

The purchase of supplies on credit should be recorded with a debit to Supplies and a credit to Accounts Payable.

t

Accounting is an information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organization's business activities.

true

Bookkeeping is the recording of transactions and events and is only a part of accounting.

true

The primary objective of financial accounting is to provide general purpose financial statements to help external users analyze and interpret an organization's activities.

true

The chart of accounts is a list of all the accounts used by a company and includes an identification number assigned to each account.

t

The Financial Accounting Standards Board is the private group that sets both broad and specific accounting principles.

t

f assets are $99,000 and liabilities are $32,000, then equity equals:

$67,000.

A company's balance sheet shows: cash $22,000, accounts receivable $16,000, office equipment $50,000, and accounts payable $17,000. What is the amount of owner's equity?

$71,000.

Andrea Conaway opened Wonderland Photography on January 1 of the current year. During January, the following transactions occurred and were recorded in the company's books: 1. Conaway invested $15,000 cash in the business. 2. Conaway contributed $21,500 of photography equipment to the business. 3. The company paid $2,400 cash for an insurance policy covering the next 24 months. 4. The company received $6,300 cash for services provided during January. 5. The company purchased $6,500 of office equipment on credit. 6. The company provided $2,900 of services to customers on account. 7. The company paid cash of $1,650 for monthly rent. 8. The company paid $3,250 on the office equipment purchased in transaction #5 above. 9. Paid $290 cash for January utilities. Based on this information, the balance in the cash account at the end of January would be:

(1) $15,000 - (3) $2,400 + (4) 6,300 - (7) $1,650 - (8) $3,250 - (9) $290 = $13,710.

How would the accounting equation of Boston Company be affected by the billing of a client for $10,000 of consulting work completed?

+$10,000 accounts receivable, +$10,000 revenue.

If a parcel of land that was originally purchased for $85,000 is offered for sale at $150,000, is assessed for tax purposes at $95,000, is recognized by its purchasers as easily being worth $140,000, and is sold for $137,000. What is the effect of the sale on the accounting equation for the seller?

Assets increase $52,000; owner's equity increases $52,000.

Rent expense that is paid with cash appears on which of the following statements?

Income statement and statement of cash flows.

A company acquires equipment for $75,000 cash. This represents a(n)

Investing activity

Operating activities

Involve using resources to research, develop, purchase, produce, distribute and market products and services

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

Revenue recognition principle

The accounting principle that requires accounting information to be based on actual cost and requires assets and services to be recorded initially at the cash or cash-equivalent amount given in exchange, is the:

cost principle

Specific accounting principles are basic assumptions, concepts, and guidelines for preparing financial statements and arise out of long-used accounting practice.

f

The Sarbanes-Oxley Act (SOX) does not require public companies to apply both accounting oversight and stringent internal controls.

f

The accounting equation implies that: Assets + Liabilities = Equity.

f

Understanding generally accepted accounting principles is not necessary to use and interpret financial statements.

f

When a company bills a customer for $600 for services rendered, the journal entry to record this transaction will include a $600 debit to Services Revenue.

f

Both U.S. GAAP and IFRS prepare the same four basic financial statements.

t

Every business transaction leaves the accounting equation in balance.

t

External auditors examine financial statements to verify that they are prepared according to generally accepted accounting principles.

t

If insurance coverage for the next three years is paid for in advance, the amount of the payment is debited to an asset account called Prepaid Insurance.

t

Opportunities in accounting include auditing, consulting, market research, and tax planning

t

Planning is defining an organization's ideas, goals, and actions.

t

Posting is the transfer of journal entry information to the ledger.

t

Revenues are increases in equity from a company's earning activities.

t

Strategic management is the process of determining the right mix of operating activities for the type of organization, its plans, and its markets

t