Chapter 1: Learn Smart

Given the following list of accounts, identify which are classified as liabilities. a) Notes Payable b) Taxes Payable c) Accounts Receivable d) Wages Payable e) Common Stock f) Cash g) Accounts Payable h) Dividends

a) Notes Payable b) Taxes Payable d) Wages Payable g) Accounts Payable

Given the statements below, choose the most accurate definition of dividends. a) Cash or other assets an owner puts into the business. b) Outflow of resources to stockholders. c) Resources owned or controlled by a company. d) Cost of assets or services used to earn revenues. e) Assets earned from a company's earning activities.

b) Outflow of resources to stockholders.

The expanded accounting equation is defined as: __________= Liabilities + Common Stock + __________ - __________ - Dividends.

The expanded accounting equation is defined as: _Assets_= Liabilities + Common Stock + _Revenues_ - _Expenses_ - Dividends.

Given the following lists of accounts, choose the one that includes only assets. a) cash, building, accounts payable, land b) supplies, common stock, cash, accounts receivable c) cash, building, supplies, accounts receivable d) building, accounts payable, equipment

c) cash, building, supplies, accounts receivable

How would you characterize a company's Accounts Receivable account? a) It is an expense account. b) It is a revenue account. c) It is a liability account. d) It is an asset account.

d) It is an asset account.

Match the definition on the left with is correct type of business activity on the right. Definition - These activities provide the monies needed to pay for assets such as land and buildings. - These activities are the acquiring and disposing of assets that an organization uses to buy and sell its products. -These activities are the every day activities that occur in running a business, selling a product, or providing a service. Business Activity -Financing Activities - Investing Activities - Operating Activities

- These activities provide the monies needed to pay for assets such as land and buildings. -Financing Activities - These activities are the acquiring and disposing of assets that an organization uses to buy and sell its products. - Investing Activities -These activities are the every day activities that occur in running a business, selling a product, or providing a service. - Operating Activities

Match each item on left with the correct definition on the right. Item: -Expenses -Revenues -Dividends -Investments Definition: -Decrease equity and are the cost of assets or services used to earn revenue. -Increase equity and are the assets earned forma company's earning activities. -Decrease equity and are assets removed from the company and paid to the stockholders. -Increase equity and are assets an owner puts into the business.

-Expenses-Decrease equity and are the cost of assets or services used to earn revenue. -Revenues-Increase equity and are the assets earned forma company's earning activities. -Dividends-Decrease equity and are assets removed from the company and paid to the stockholders. -Investments-Increase equity and are assets an owner puts into the business

A corporation's equity has two main parts. Identify these two parts. a) Retained Earnings b) Expenses c) Contributed Capital d) Services Revenue

a) Retained Earnings c) Contributed Capita

An employee that has unpaid bills might exhibit the following fraud factor: a) Rationalization b) Pressure c) Opportunity

b) Pressure

Which of the following statements is correct regarding owner investments? a) Owner investments cause creditor debt to rise. b) Owner investments will cause assets to decrease. c) Owner investments do no affect equity. d) Owner investments cause equity to increase.

d) Owner investments cause equity to increase.

Net Income is calculated using the following formula: _________ (expenses/revenues/assets) - __________ (expenses/revenues/assets) = Net Income.

_revenues_ (expenses/revenues/assets) - _expenses_ (expenses/revenues/assets) = Net Income.

Identify the correct definition of an asset: a) An asset refers to the claims of the owners b) An asset is something of value that a business owns or controls c) An asset is an amount owed to a creditor.

b) An asset is something of value that a business owns or controls

ABC Co. performs $200 of services for a customer, but does not get paid right away. Demonstrates how ABC Co. would record this transaction in the accounting equation by completing the following sentence. ABC Co. would increase the Accounts (Payable/Receivable) __________ account and increase the (Cash/Revenue) _________ account in the accounting equation.

ABC Co. would increase the Accounts (Payable/Receivable) _Receivable_ account and increase the (Cash/Revenue) _Revenue_ account in the accounting equation.

Dividends cause a(n) (increase/decrease) _________ in equity and are recorded directly in the (retained earnings/dividends/equity) __________ account.

Dividends cause a(n) (increase/decrease) _decrease_ in equity and are recorded directly in the (retained earnings/dividends/equity) _dividends_ account.

Dividends of $60 each are paid to the corporation's stockholders. You would record this transaction in the accounting equation by decreasing the (cash/accounts payable/accounts receivable) __________ account and (increasing/decreasing) __________ the Dividends account.

Dividends of $60 each are paid to the corporation's stockholders. You would record this transaction in the accounting equation by decreasing the (cash/accounts payable/accounts receivable) _cash_ account and (increasing/decreasing) _increasing_ the Dividends account.

On 6/25, supplies costing $1,000 were purchased, but only $400 of this amount was paid on 6/25. The remainder of the bill went on account. To record this transaction on 6/25: Supplies would be increased by _____ (1,000/400/600); Cash would be decreased by _____ (1,000/400/600) and Accounts Payable would be increased by _____ (1,000/400/600).

On 6/25, supplies costing $1,000 were purchased, but only $400 of this amount was paid on 6/25. The remainder of the bill went on account. To record this transaction on 6/25: Supplies would be increased by _$1000_ (1,000/400/600); Cash would be decreased by _$400_ (1,000/400/600) and Accounts Payable would be increased by _$600_ (1,000/400/600).

Bob's Bakery is making a partial payment of $70 for baking supplies it purchased in a previous month. Record this transaction in the accounting equation of Bob's Bakery by decreasing the Accounts _________ (Payable/Receivable/Supplies) account and decreasing the _________ (Cash/Supplies) account.

Record this transaction in the accounting equation of Bob's Bakery by decreasing the Accounts _Payable_ (Payable/Receivable/Supplies) account and decreasing the _Cash_ (Cash/Supplies) account.

The correct definition of revenues is: Revenues __________ (increase/decrease) __________ (liabilities/equity) and are earned from the sale of products and services.

The correct definition of revenues is: Revenues _increase_ (increase/decrease) _equity_ (liabilities/equity) and are earned from the sale of products and services.

The four major types of transactions that affect equity in a business are __________ accounts, __________ accounts, dividends and common stock.

The four major types of transactions that affect equity in a business are _revenue_ accounts, _expense_ accounts, dividends and common stock.

Define what the income statement reports by completing the following sentence: The income statement describes a company's _________ (assets/revenues) and __________ (expenses/liabilities) along with the resulting net income or loss over a period of time due to earnings related activities.

The income statement describes a company's _revenues_ (assets/revenues) and _expenses_ (expenses/liabilities) along with the resulting net income or loss over a period of time due to earnings related activities.

When using the accounting equation, recording the purchase of equipment for cash would include an increase to the __________ (Cash/Equipment/Supplies) account and a decrease to the __________ (Cash/Equipment/Supplies) account.

When using the accounting equation, recording the purchase of equipment for cash would include an increase to the _Equipment_ (Cash/Equipment/Supplies) account and a decrease to the _Cash_ (Cash/Equipment/Supplies) account.

Identify the expanded accounting equation from the options below. a) Assets = Liabilities + Common Stock - Dividends + Revenues - Expenses b) Assets = Liabilities - Common Stock + Revenues - Expenses - Dividends c) Assets + Liabilities = Common Stock + Revenues - Expenses - Dividends

a) Assets = Liabilities + Common Stock - Dividends + Revenues - Expenses

Smith Company purchased $100 of supplies for her business and paid immediately. She would record this transaction in the accounting equation by which of the following? a) Decrease Cash; Increase Supplies. b) Increase Cash; Increase Supplies. c) Increase Cash; Increase Expenses. d) Increase Supplies; Increase Revenues.

a) Decrease Cash; Increase Supplies.

Which of the following statements represent(s) how expenses affect equity? a) If expenses increase, then total equity decreases. b) Higher expenses result in lower total equity. c) If expenses increase, then total equity increases. d) If expenses decrease, then equity will decrease.

a) If expenses increase, then total equity decreases. b) Higher expenses result in lower total equity.

Describe the order in which a company prepares financial statements. a) Income Statement b) Balance Sheet c) Statement of Retained Earnings d) Statement of Cash Flows

a) Income Statement c) Statemetn of Retained Earnings b) Balance Sheet d) Statement of Cash Flows

Which statements below define equity? a) It is the accumulated revenues and owner's investments minus the accumulated expenses and dividends since the company began. b) It is the total dollar amount of debt owned to creditors of the business. c) They are resources owned by the business. d) Claims of the owner(s) on the assets of the business. e) Equity is equal to assets minus liabilities.

a) It is the accumulated revenues and owner's investments minus the accumulated expenses and dividends since the company began. d) Claims of the owner(s) on the assets of the business. e) Equity is equal to assets minus liabilities.

Given the list of accounts below, identify which of them would appear on a balance sheet. a) Supplies b) Rent Expense c) Utilities Expense d) Accounts Payable e) Retained Earnings, 12/31 f) Rental Revenue g) Equipment h) Cash

a) Supplies d) Accounts Payable e) Retained Earnings, 12/31 g) Equipment h) Cash

When recording transactions into the accounting equation, which of the following statements are correct? a) The accounting equation must always remain in balance. b) At least two accounts will be affected when recording a transaction. c) Cash must always equal Equity. d) After recording the transaction, total assets will always equal total liabilities plus equity. e) Expenses are listed on the right side of the accounting equation and will increase the equity account.

a) The accounting equation must always remain in balance. b) At least two accounts will be affected when recording a transaction. d) After recording the transaction, total assets will always equal total liabilities plus equity.

Which of the following statements best represents the accounting equation? a) The total of everything owned by a business must always equal the total of what the business owes to creditors and owners. b) The equation monitors the legal agreements made with creditors and what is owed to them at any point in time. c) The owners' rights are equal to the creditors' rights. d) The equation may sometimes be out of balance at the end of a year.

a) The total of everything owned by a business must always equal the total of what the business owes to creditors and owners.

A customer of Laden Consulting Company makes a $400 payment of cash on a bill for services provided last month. Record this transaction into the accounting equation of Landen Consulting by: a) decreasing Accounts Receivable, $400. b) decreasing Accounts Payable, $400. c) Increasing Revenue, $400. d) Increasing Cash, $400.

a) decreasing Accounts Receivable, $400. d) Increasing Cash, $400.

When supplies are purchased on credit it means that: a) the business will pay for the supplies at a later time. b) the Accounts Payable account will be increased. c) the business will be paying for the supplies right away. d) a liability has been incurred.

a) the business will pay for the supplies at a later time. b) the Accounts Payable account will be increased. d) a liability has been incurred.

Identify the importance of accounting by selecting the statement that is correct below. a) Accounting information helps users make business and financial decisions. b) Accounting is a system that identifies, records, and communicates an organization's business activities. c) Accounting information is primarily used only at the end of the year when tax returns and financial statements are prepared.

b) Accounting is a system that identifies, records, and communicates an organization's business activities.

Sally Smith decided to start a sea shell business organized as a corporation. He initial investment in the business consisted of $10,000 in cash in exchange for common stock. Record this transaction in the accounting equation of the new business by: a) decreasing Cash; Increasing Common Stock. b) Increasing Cash; Increasing Common Stock. c) Increasing Accounts Payable; Increasing Revenues. d) Increasing Cash; Increasing Expenses.

b) Increasing Cash; Increasing Common Stock.

Melton's Door Company pays rent on the building facilities of $5,000 on May 1. Show how to record this transaction in the accounting equation of Melton's Door Company. a) Rent Expense will be decreased b) Rent Expense will be increased. c) Cash will be increased.

b) Rent Expense will be increased.

Which of the following statements is/are true regarding the effect of revenues on the equity of a business? a) Revenues cause equity to decrease and the result from the costs of doing business. b) Revenues that increase equity have many forms, such as consulting services and rental revenue. c) Revenues cause equity to increase.

b) Revenues that increase equity have many forms, such as consulting services and rental revenue. c) Revenues cause equity to increase.

Given the statements below, choose the most accurate definition of owner investments. a) Cost of assets or services used to earn revenues. b) Stock issuances c) Resources owned or controlled by a company d) Assets earned from a company's earning activities.

b) Stock issuances

Which of the following statements explain(s) how the accounting equation applies to businesses? a) The equation states that Revenues - Expenses = Assets. b) The relation of assets, liabilities and equity is reflected in the equation. c) The equation states that Assets = Liabilities + Equity. d) The equation applies to all transactions. e) The equation reflects the fact that, at any point in time, total revenues will always equal total liabilities assets. f) The equation reflects that the total of what a business owns at any point in time will equal the total of what it owes creditors and owners.

b) The relation of assets, liabilities and equity is reflected in the equation. c) The equation states that Assets = Liabilities + Equity. d) The equation applies to all transactions. f) The equation reflects that the total of what a business owns at any point in time will equal the total of what it owes creditors and owners.

The three sections of the statements of cash flows includes all of the following: a) cash b) investing c) accounting d) operating e) financing

b) investing d) operating e) financing

From the following statements, identify the correct definition of a liability. a) The claims of a business's owners. b) Something of value that a business owns. c) A company's obligation to provide assets, products, or services to others.

c) A company's obligation to provide assets, products, or services to others.

If a customer makes a partial payment of $100 on a service for which you have already billed him, you would record this transaction into the accounting equation by: a) increasing Cash and increasing Expenses. b) decreasing Cash and increasing Revenue. c) increasing Cash and decreasing Accounts Receivable. d) Increasing Cash and decreasing Accounts Payable.

c) increasing Cash and decreasing Accounts Receivable.

Bob's Bakery receives its utility bill of $800 for the month and pays it immediately. Record this transaction in the accounting equation. a) Increase Expenses and Increase Cash. b) Increase Cash and increase Account Payable. c) Increase Accounts Payable and Increase Expenses. d) Increase Expenses and Decrease Cash.

d) Increase Expenses and Decrease Cash.

If a customer makes a partial payment of $100 on a service for which you have already billed him, you would record this transaction into the accounting equation by: a) Increasing Cash and Increasing Expenses. b) Increasing Cash and decreasing Accounts Payable. c) Decreasing Cash and increasing Revenue. d) Increasing Cash and Decreasing Accounts Receivable.

d) Increasing Cash and Decreasing Accounts Receivable.

Jackson's Catering Company provided cookies worth $3,000 to the local college. The college paid immediately. Record this transaction in Jackson's accounting equation by: a) Increasing Cash; Increasing Expenses b) Decreasing Cash; Increasing Revenues c) Increasing Supplies; Increasing Revenues d) Increasing Cash; Increasing Revenues

d) Increasing Cash; Increasing Revenues