Chapter 4

In bookkeeping and accounting, ______ means left and ______ means right, and nothing more.

Debit, credit

Transactions:

- are economic interchanges between entities - are the starting point in the accounting process that ends with the preparation of financial statements

Asset accounts:

- decrease with credit entries - increase with debit entries - normally have a debit balance

Stockholders' equity accounts:

- decrease with debit entries - normally have a credit balance - increase with credit entries

Which of the following groups of accounts would be closed in the year-end closing process?

Insurance Expense, Service Revenue, Loss on Sale of Equipment, and Sales

Which of the following groups of accounts would all be closed in the year-end closing process?

Interest Income, Cost of Goods Sold, Dividends, and Gain on Sale of Land

Which of the following accounts would be closed during the year-end closing process?

Rent Expense, Gain on Sale of Land, Cost of Goods Sold, Service Revenue (only income statement accounts (revenues, expenses, gains, and losses) and dividends are closed to retained earnings

In the closing process, all income statement accounts (revenues, expenses, gains, and losses) and dividends are closed. What is the name of the account in which all the aforementioned accounts are closed into?

Retained Earnings

Assets = Liabilities + Paid-in capital +

Retained earnings (beginning of period) + Revenues (during the period) - Expenses (during the period)

Under accrual accounting, year-end adjustments are made: (Select all that apply). a. to ensure that expenses are recognized in the year in which they are incurred. b. to ensure that revenues are recognized in the year in which they are incurred. c. because revenue receipts may occur before or after the event that causes revenue recognition. d. to ensure that revenues are recognized in the year in which they are earned. e. because the cash disbursement for expenses may occur before or after the event that causes expense recognition.

a, c, d, e

If debits equal credits, then:

assets will equal the sum of liabilities and stockholders' equity.

Assets = Liabilities + Paid-in capital + Retained earnings ______ + ______ (Revenues/Expenses) - ______(Revenues/Expenses)

beginning, Revenue, Expenses

In bookkeeping and accounting, _____ means _____, and credit means right, and nothing more.

debit, left

Although revenues and expenses are reported on the income statement, they also:

impact stockholders' equity on the balance sheet.

When using the horizontal model for a transaction that affects both the balance sheet and the income statement, the balance sheet will balance when the:

income statement effect on stockholders' equity is considered.

Transactions are:

initially recorded in a journal and then posted to a ledger.

Transactions are initially recorded in a ______

journal

When using the horizontal model, the arrow from net income to stockholders' equity indicates that:

net income affects retained earnings, which is a component of stockholders' equity.

Although ______ and ______ are reported on the income statement, they also impact the ending balance of retained earnings shown on the balance sheet.

revenues, expenses

Accounts are summarized in financial ______ (statements/entities/transactions), whereas ______ (statements/entities/transactions) are summarized in accounts.

statements, transactions

If debits equal credits, then:

the company's balance sheet equation will be in balance.