Chapter 2 SmartBook

Which of the principles below are true regarding transaction analysis? (select all that apply) Every transaction causes total assets, liabilities and stockholders' equity to increase. Every transaction affects at least two accounts. Every transaction affects one asset account and one liability or stockholders' equity account. The accounting equation must remain in balance after each transaction.

Every transaction affects at least two accounts. The accounting equation must remain in balance after each transaction.

Most balance sheet elements are recorded at their _________.

Historical cost

Which statement is correct regarding entering transactions into the accounting equation? If total assets are increased, then liabilities only are increased as well. If one account is credited, then at least one other account must be credited as well. If total assets increased, then the total of liabilities plus stockholders' equity must also have increased. If one asset account is increased, then another asset account must be decreased in order for the left side of the accounting equation to be balanced.

If total assets increased, then the total of liabilities plus stockholders' equity must also have increased.

After entering a transaction into the accounting equation, an increase in total assets can be accompanied by a(n) (increase/decrease) ____________ in total liabilities and/or (equity/assets) __________.

Increase, equity

A company typically receives ___________, an asset, when it issues stock to its owners.

Cash/capital

Under the going concern or ____________ assumption, a business normally is assumed to exist long enough to meet its contractual obligations and plans.

Continuity

List the steps in the accounting cycle in chronological order: Close revenues, expenses, gains, and losses to Retained Earnings Post amounts to the general ledger Prepare financial statements Record journal entries in the general journal Analyze transactions Adjust revenues and expenses in the journal and post to the ledger

1. Analyze transactions 2. Record journal entries in the general journal 3. Post amounts to the general ledger 4. Adjust revenues and expenses in the journal and post to the ledger 5. Prepare financial statements 6. Close revenues, expenses, gains, and losses to Retained Earnings

_________ are economic resources owned by the company.

Assets

A common characteristic of assets is their ability to provide ___________ to the company.

Benefits

Which of the following is true? Land purchased 20 years ago is not reported on the balance sheet because it was paid for too many years ago. Land purchased 20 years ago is reported on the balance sheet at its higher current value. Land purchased 20 years ago is reported on the balance sheet at the original price paid for it.

Land purchased 20 years ago is reported on the balance sheet at the original price paid for it.

The ____________ unit assumption states that financial statement elements should be measured in terms of the United States dollar, without any adjustment for changes in purchasing power (e.g. inflation).

Monetary

Which accounting assumption states that financial statement elements should be measured in terms of the US dollar for business in the United States?

Monetary unit

Mauricio, the owner of Pizza Aroma, spent $2,500 of his own money to take his family to Disney World. Because of the separate-entity assumption, Pizza Aroma's financial statements will report ______.

Nothing about this trip

Credit means ______.

Right

A common characteristic of assets is their ability to provide ___________ to the company.

Services/benefits

When a business issues common stock, what does it give to its owners?

Stock certificates

Transaction analysis is based on which two principles? Every transaction affects stockholders' equity Every transaction affects cash Every transaction affects assets The accounting equation remains in balance with each transaction Every transaction affects at least two accounts

The accounting equation remains in balance with each transaction Every transaction affects at least two accounts

An asset is initially recorded at ______.

The total cost incurred to acquire it

True or false: The accounting equation is Assets = Liabilities + Stockholders' Equity

True

If a company is not expected to continue in business, its assets should be valued and reported at their ___________ values.

liquidation

The separate entity assumption assumes the balance sheet of a corporation reports ______________.

only the results of the business's activities

liabilities appear on the ______ side of the accounting equation and are increased with amounts that appear on the _______ side of liability T-accounts.

right, credit