Chapter 1 and 2 Accounting

During its first year of operations, Mario Lupo formed Lupo Company and personally invested $15,000 in the business. The owner of Lupo Company withdrew $2,000 cash for personal use. The company earned $35,000 of revenues and incurred $23,000 of expenses. At the end of the year, the company's equity totaled:

$25,000

If equity is $30,000 and liabilities are $19,000, then assets must equal:

$49,000

Identify the accounting principle or assumption that best reflects each situation.

. A company reports details behind financial statements that would impact users' decisions.Full disclosure principle 2. Financial statements reflect the assumption that the business continues operating.Going-concern assumption 3. A company records the expenses incurred to generate the revenues reported.Expense recognition (matching) principle 4. Each business is accounted for separately from its owner or owners.Business entity assumption 5. Revenue is recorded when products and services are delivered.Revenue recognition principle 6. Information is based on actual costs incurred in transactions.Measurement (cost) principle

Which of the following statements is (are) correct regarding a T-account? (Check all that apply.)

1. A T-account represents a ledger account. 2. A T-account may be used as a tool to visualize the effects of a transaction. 3. A T-account will show the debit and credit effects of transactions.

Which of the following statements is (are) correct regarding the definition of a liability? (Check all that apply.)

1. A liability can be settled by transferring assets or providing products or services to others. 2. A liability is a debt owed by the business. 3. A liability is a claim by creditors against the assets of a business.

Match each of the descriptions with the term or phrase it best reflects.

1. An assessment of whether financial statements follow GAAP.Audit 2. Amount a business earns in excess of all expenses and costs associated with its sales and revenues.Net income 3. A group that sets accounting principles in the United States.FASB 4. Accounting professionals who provide services to many clients.Public accountants 5. Principles that determine whether an action is right or wrong.Ethics

Select the aspect of accounting associated with the following activities.

1. Analyzing and interpreting reports. Communicating 2. Presenting financial information. Communicating 3. Keeping a log of service costs. Recording 4. Measuring the costs of a product. Recording 5. Preparing financial statements. Communicating 6. Acquiring knowledge of revenue transactions. Identifying 7. Observing transactions and events .Identifying 8. Registering cash sales of products sold.Recording

Select the statements that are true regarding debiting and crediting. (Check all that apply.)

1. For an account where a debit is an increase, the credit is a decrease. 2. A credit will always decrease an asset account. 3. A debit or a credit can increase or decrease an account, depending on the account. 4. A debit will increase an expense account.

Which of the following statements are correct regarding a journal? (Check all that apply.)

1. In a journal, both the debit and credit side of the transaction can be seen. 2. Transactions are generally entered in chronological order. 3. A journal is used to record business transactions.

Part B. Identify the following users as either an Internal user or an External user.

1. Research and development executive Internal 2. Human resources executivE Internal 3. Politician External 4. Shareholder External 5. Distribution manager Internal 6. CreditorExternal 7. Production supervisor internal 8. Purchasing manager Internal

Which of the following statements are correct regarding how the financial statements are linked? (Check all that apply.)

1. The ending balance in the Owner, Capital account is carried to the balance sheet. 2. Net Income from the income statement is carried to the statement of owner's equity.

When entering transactions into accounts, the rules of double-entry accounting must be followed. These rules include: (Check all that apply.)

1. The total amount debited must equal the total amount credited. 2. There must be at least one credit and one debit. 3. The accounting equation must remain in balance.

Which of the following statements is (are) correct regarding unearned revenues? (Check all that apply.)

1. Unearned revenue refers to a liability that is settled when a company delivers a product or performs a service. 2. Unearned revenue is a liability account which is set up when a customer pays in advance for a product or service.

Part A. Identify the following questions as most likely to be asked by an Internal user or an External user of accounting information.

1. Which inventory items are out of stock?Internal user 2. Should we make a five-year loan to that business?External 3. What are the costs of our product's ingredients?Internal 4. Should we buy, hold, or sell a company's stock?External 5. Should we spend additional money for redesign of our product?Internal 6. Which firm reports the highest sales and income?external 7. What are the costs of our service to customers?Internal user

Select all that apply The general ledger can be used to determine which of the following: (Check all answers which apply)

1. common and unique accounts used by a business. 2. all accounts used by a company and their balances. 3. increases and decreases in all accounts in a business.

Zen began a new consulting firm on January 5. Following are total account balances after each of the company's first five transactions (using the accounting equation form). Analyze the accounting equation for each transaction and match the given transaction with its most likely description.

1.The owner invested $40,000 cash in the business.selected answer correct2.The company purchased supplies for $3,000 by paying $2,000 cash and putting $1,000 on credit.selected answer correct3.The company purchased equipment for $8,000 cash.selected answer correct4.The company billed a customer $6,000 for services provided.selected answer correct5.The company provided services for $1,000 cash.

Which statement best describes a T-account?

A T-account represents a ledger account and is a tool used to show the effects of one or more transactions.

Identify the correct principle for each of the following activities using the drop-down list.

A company records the expenses incurred to generate the revenue reported. Expense recognition principle Revenue is recognized when goods are provided to the customer at the amount expected to be received.Revenue recognition principle A company reports the details behind financial statements that would impact user's decisions.Full-disclosure principle Accounting information is based on actual cost.Measurement principle

Which of the following statements is the correct definition of a creditor?

A creditor is an individual or organization that has a right to receive payments from a business.

Which of the following statements is correct in regards to debiting and crediting an account?

A debit or a credit can increase an account, depending on what kind of account it is.

Choose the statement below that correctly explains a general journal.

A journal is a complete record of each transaction in one place and includes the debit and credit of each transaction.

Which of the following statements is the correct definition of a liability?

A liability is a claim by a creditor against the assets of a business.

The correct definition of an "account" includes which of the following?

A record of increases and decreases in a specific asset, liability, equity, revenue, or expense.

Which of the following is the best definition of a source document in the accounting process?

A source document identifies and describes transactions and is the basis for entering an event into the accounting system.

Which of the following statements explains what a trial balance is?

A trial balance confirms that the sum of debit account balances equals the sum of credit account balances.

Why is accounting important?

Accounting information impacts all of us.

Which of the following statements is accurate regarding Accounts payable?

Accounts payable refer to promises to pay later, which may arise from the purchase of supplies or services.

Accounting Equation

Assets = Liabilities + Equity

The accounting equation is:

Assets = Liabilities + Equity.

The expanded accounting equation is:

Assets = Liabilities + [Owner, Capital − Owner, Withdrawals + Revenues − Expenses].

match and mix

Assets- Resources owned or controlled by the business Owner's equity- The residual interest in the assets of a business after deducting the business's debts Revenues- Sales of products and services to customers Liabilities- The obligations owed by the business to creditors

At the beginning of the year, Addison Company's assets are $300,000 and its equity is $100,000. During the year, assets increase $80,000 and liabilities increase $50,000. What is the equity at year-end? Office Store Company has assets equal to $123,000 and liabilities equal to $47,000 at year-end. What is the equity for Office Store Company at year-end? At the beginning of the year, Quaker Company's liabilities equal $70,000. During the year, assets increase by $60,000, and at year-end assets equal $190,000. Liabilities decrease $5,000 during the year. What are the beginning and ending amounts of equity?

Assets=Liabilities+EquityBeginning$300,000=$200,000selected answer correct+$100,000Change80,000=50,000+30,000selected answer correctEnding$380,000selected answer correct=$250,000selected answer correct+$130,000selected answer correct $123,000=$47,000+$76,000selected answer correct Assets=Liabilities+EquityBeginning$130,000selected answer correct=$70,000+$60,000selected answer correctChange60,000=(5,000)+65,000selected answer correctEnding$190,000=$65,000selected answer correct+$125,000selected answer correct

The T-account for Accounts payable had 4 transactions entered into it. It was increased by $300 and by $100 and decreased by $50 and by $150, respectively. Its balance at the end of the period would be a (debit/credit) balance of $.

Blank 1: credit Blank 2: 200 or $200

The T- account for Cash had 3 transactions entered into it. It was increased by $400 and decreased by $100 and $30, respectively. The balance in the Cash account at the end of the period would be a (debit/credit) balance of $.

Blank 1: debit Blank 2: 270 or $270

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

Blank 1: decreases

Accounts payable refer to promises to pay later by the business and are classified as a(n) (asset/liability/expense) account.

Blank 1: liability or liabilities

A trial balance is a(n) (list/balance/chart) of accounts and their balances at a point in time and is used to confirm that the sum of debit account balances equals the sum of account balances. Use one word for each blank.

Blank 1: list Blank 2: credit

Transferring entries from the general journal to the general ledger is called (posting/preparing/journalizing).

Blank 1: posting

The rules of double-entry accounting say that for each transaction at least accounts are involved, with at least one debit and one

Blank 1: two or 2 Blank 2: credit

Which of the following accounts is an asset? (Check all that apply.)

Building Supplies Cash Accounts receivable

Identify which of the following lists include only examples of assets.

Building, cash, accounts receivable

Accounting certifications include:

CPA

Owner, Withdrawals

Cash outflows to the owner for personal use.

Cash can take many forms. From the lists of items below, choose the one which includes only items that would be defined as cash. Multiple choice question.

Coins, checks, money orders

Generally Accepted Accounting Principles

Concepts and rules that govern financial accounting.

Ethics

Correct match: Beliefs that separate right from wrong.

Revenues

Correct match: Proceeds from the sale of products or services to customers.

Expenses

Cost of providing goods and services to customers.

Liabilities

Creditors' claims on assets.

mix and match

Creditors- Individuals or organizations that have rights to receive payments from a business Liabilities- Claims against the assets of a business Assets- Things of value owned by a business Expenses- The costs of providing products and services.

Select the correct term for the following types of users:

Customers- External Information User Purchasing manager- Internal Information User Marketing Manager- Internal Information User Suppliers- External Information User Labor Union- External Information User

Expense Recognition Principle

Expenses are recorded when incurred to generate reported revenue.

Classify the following business activities using the drop-down list.

Happenings that affect the accounting equationEventsselected answer correctExchanges of value between two entitiesExternal transactionsselected answer correctExchanges within an entityInternal transactions

Analyze the following transaction and select the best answer.Tyler invests $2,000 cash to form a consulting business set up as a proprietorship. This transaction will:

Increase equity by $2,000. Correct

From the lists of accounts below, which one contains only revenue accounts?

Interest revenue, Professional fees earned, Sales

match

It is a collection of all accounts and balances that exist in a business.- A general ledger It is a book of original entry that includes a chronological record of all transactions that have occurred within a business during a period occurred- A journal It is a list of each account and its balance at any given time and is used to verify that debits = credits- A trial balance It is a list of all ledger accounts and includes an identification number assigned to each account- A chart of accounts

Which of the following statements is the best definition of the Chart of Accounts?

It is a list of all ledger accounts in a business and includes an identification number assigned to each account.

_____ includes opportunities in general accounting, cost accounting and internal auditing

Managerial accounting

Which of the following items would be considered "cash" and reflected in a company's Cash account? (Check all that apply.)

Money orders Checks Coins

Owner, Capital

Owner contributions of cash and other assets

There are several types of accounts that impact equity. Which of the accounts below cause equity to increase?

Owner's capital and revenues

Equity

Owner's claim on assets.

Which of the following statements is the correct definition of owner's equity?

Owner's equity is the owner's claim on a company's assets.

External Users

Persons using accounting information who are not directly involved in running the organization.

Which of the following is correct regarding posting a transaction?

Posting means to transfer journal information to a ledger.

Identify the type of activity by choosing the best answer for each question.Select each item listed below as being an identifying, recording, or a communicating activity.

Preparing and entering a list of checks issued.Recording Using a cash register to enter sales.Recording Entering a list of the sales invoices, including the prices and quantities, for the company's recordkeeper.Identifying Interpreting information from financial reports.Communicating Preparing financial statements for creditors.Communicating

Identify the correct assumption for each of the following activities using the drop-down list.

Presumes that the business will continue operating in the future.Going-concern assumption A business is accounted for separately from other business entities and its owner.Business entity assumption Transactions and events are expressed in units of money.Monetary unit assumption The life of the company can be divided into specific time periods.Time period assumption

Accounting professionals who provide services to many clients.

Public accountants

Which of the following would be considered a source document in an accounting system? (Check all that apply.)

Purchase order Payroll records Sales receipt Checks

Revenue Recognition Principle

Recognizes revenue when goods or services are provided to customers.

Which of the following accounts are examples of expenses? (Check all that apply.)

Rent expense Supplies expense

From the following lists of accounts, choose the list(s) which contains only expense accounts.

Rent expense, salaries expense, insurance expense

Assets

Resources a company owns or controls.

Which of the following accounts impact equity? (Check all that apply.)

Revenue Owner, Capital Owner, Withdrawal Expenses

Which of the following accounts are examples of revenues? (Check all that apply.)

Sales Service revenue Fees earned

internal user

Someone within a company that uses financial information to inform company decision making.

On January 31, Jean Consulting Company receives a bill for that month's utilities in the amount of $500. Jean sets it aside because she does not plan to pay the bill until its due date of February 15. What effect, if any, does this event have on the company's accounting equation as of January 31?

The business must record this event, which would increase liabilities and decrease equity on January 31.

Which of the following best and fully describes a general ledger?

The general ledger is a record containing all accounts used by a company.

Match the term and the definition.

The recording of transactions and events only, either manually or electronically.Recordkeeping An information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organization's business activities.Accounting

Which of the following would be included on an income statement? (Check all that apply.)

Total revenues Total expenses Net income

Determine whether each description best refers to a sole proprietorship, partnership, corporation, or limited liability company (LLC).

a. Micah and Nancy own Financial Services, which pays a business income tax. Micah and Nancy do not have personal responsibility for the debts of Financial Services.Corporation b. Riley and Kay own Speedy Packages, a courier service. Both are personally liable for the debts of the business.Partnership c. IBC Services does not have separate legal existence apart from the one person who owns it.Sole proprietorship d. Trent Company is owned by Trent Malone, who is personally liable for the company's debts.Sole proprietorship e. Ownership of Zander Company is divided into 1,000 shares of stock. The company pays a business income tax.Corporation f. Physio Products does not pay a business income tax and has one owner. The owner has unlimited liability for business debt.Sole proprietorship g. AJ Company pays a business income tax and has two owners.Corporation h. Jeffy Auto is a separate legal entity from its owner, but it does not pay a business income tax.Limited liability company

Identify the impact of each of the given transactions on the accounting equation.

a. The company pays cash toward an account payable.Decreases an asset and decreases a liability.selected answer correctb. The company purchases equipment on credit.Increases an asset and increases a liability.selected answer correctc. The owner invests cash in the business.Increases an asset and increases equity.selected answer correctd. The company pays workers for wages earned.Decreases an asset and decreases equity.selected answer correcte. The company purchases supplies for cash.Increases an asset and decreases an asset.selected answer correctf. The company provides services for cash.Increases an asset and increases equity.

Assets = Liabilities + Equity

accounting equation

An assessment of whether financial statements follow GAAP.

audit

The general ledger can be used to determine which of the following: (Check all answers which apply)

common and unique accounts used by a business. all accounts used by a company and their balances. increases and decreases in all accounts in a business.

Principles that determine whether an action is right or wrong.

ethics

Assets = Liabilities + [Owner, Capital − Owner, Withdrawals + Revenues − Expenses]

expanded accounting equation

A group that sets accounting principles in the United States.

fasb

The organization that is primarily responsible for developing GAAP for use by all U.S. companies is the:

fasb

The organization that is responsible for issuing International Financial Reporting Standards is the:

iasb

Illustrate how the financial statements are linked by placing them in the correct order of preparation.

ncome statementeequity balance sheet

Amount a business earns in excess of all expenses and costs associated with its sales and revenues.

net income

The majority of accounting opportunities are in _____ accounting.

private

When the product or service related to an unearned revenue is delivered, the earned portion of the unearned revenue is transferred to a Blank______ account.

revenue

Accounting

system that idenrecords, and communicates an organization's business activities.

An income statement reports:

the revenues minus the expenses incurred by a business