Finance SM 2

Which accounts require a credit entry to increase the account?

Retained earnings Accounts payable

A payment of cash dividends will decrease which of the following?

Retained earnings Stockholders' equity Assets

Which of the following accounts normally have a credit balance?

Retained earnings, common stock

Which type of account is increased with a credit?

Revenue

Identify accounts that require a credit to increase the account.

Revenue Common stock

Identify the three components of retained earnings.

Revenues Dividends Expenses

What are the three components of retained earnings?

Revenues, expenses, and dividends

For every journal entry, total _________ must be equal to total

debit : Credit

Accounts on the left side of the accounting equation (assets) are increased with a(n) _____________ to the account, whereas accounts on the right side of the accounting equation are increased with a(n) _______________

debit : credit

Cray purchases equipment for cash. Total assets will

remain the same.

When supplies are purchased on account, which of the following occurs?

A liability increases.

If a transaction decreases cash by $100, the balance sheet will balance if which of the following occurs?

A liability is decreased Another asset is increased

Select the accounts that increase with a debit.

Accounts receivable Supplies Advertising expense

Accounts receivable are assets which represent

Amounts owed by customers

Which of the following is used to record the summary of effects on one particular item?

An account

Where is the Deferred Revenue account reported in the financial statements?

As a liability

Analysis of Mueller Company's accounts show that as a result of a single transaction, both cash and notes payable increased by $10,000. Which of the following transactions would have caused this increase?

Borrowing cash and signing a promissory note

Jeremy issues 5,000 shares of common stock for $10 per share. Which of the following accounts are affected?

Cash Common stock

Which accounts require a debit entry to increase the account?

Cash Utility expense

Shriver Corp. borrows $25,000 from a bank and signs a two-year promissory note. What accounts will be affected by this transaction and what is the effect?

Cash increases Notes payable increases

Which of the following are stockholder equity accounts?

Common stock Retained earnings

London Corp. issues 1,000 shares of stock for $20 per share. What are the effects of this transaction?

Common stock is increased. Cash is increased.

Wolfgang Company's assets and stockholders' equity both increased by $50,000 as a result of a single transaction. Which of the following transactions would explain this increase?

Common stock was sold for cash

The last step for analyzing the effect of transactions is:

Confirm that assets are equal to liabilities plus stockholders' equity

Which of the following is on the right side of an account?

Credit

What effect will the payment of salaries to employees for the current period have on stockholders' equity?

Decrease

What is the effect of dividends on retained earnings?

Decrease

What is the effect of expenses on retained earnings?

Decrease

What is the effect of expenses on stockholders' equity?

Decrease

The first step for analyzing the effect of transactions is:

Determine one account in the accounting equation that will increase or decrease

A(n) ____________ is a cost of doing business during the period, whereas a(n) ___________Incorrect Unavailable is a distribution of cash to stockholders.

Expense : Dividend

True or false: The two functions of financial accounting are to measure business activities and prepare tax returns.

False

rue or false: The term debit means increase, and the term credit means decrease.

False

On February 1, Domino Corporation ordered inventory. The inventory was received on February 15. Domino paid for the inventory on February 27. On which of the following dates will Domino record a transaction?

February 27 February 15

When services are provided on account, what is the effect on stockholders' equity?

Increase

What are the effects of providing services on account to customers?

Increase assets Increase retained earnings

LMN Enterprises performs accounting services for a client for $3,000 cash. What is the effect on the accounting equation?

Increase assets and increase retained earnings

Rice borrows $20,000 from the bank. Which of the following is an effect of this transaction?

Increase liabilities

What effect does revenue have on retained earnings?

Increases

How is deferred revenue classified?

Liability

On May 1, Ace Electronics ordered office equipment. The equipment was delivered to Ace on May 15, and Ace agreed to pay for it by the end of the month. Ace paid for the equipment on May 31. When will Ace make the first entry in its accounting system for this purchase?

May 15

Which of the following is an external transaction?

Purchasing supplies from a vendor

The accounting equation is: Assets = Liabilities +

Stockholders' Equity

Ryan Corporation declares and pays a dividend. Which of the following is correct?

Stockholders' equity decreases.

London Corp. issues 1,000 shares of stock for $20 per share. What is the effect of this transaction on the accounting equation?

Stockholders' equity increases Assets increase

A journal entry should contain which of the following information?

The date Accounts and amounts debited Accounts and amounts credited Description of the transaction

Rory purchases supplies for cash. Which of the following occurs?

Total assets remain the same

True or false: For each journal entry, debits must be equal to credits.

True

True or false: The accounting equation must always remain in balance.

True

When should revenue be recorded?

When the services are performed

Indicate which situations would require Zenda Company to record revenue in the current period.

Zenda performs services on account. Zenda performs services for cash.

When cash is received in advance for services to be performed at a later date, an asset is increased and

a liability is increased.

A company records the effects of transactions for a particular item in a(n)

account.

The term __________ cycle refers to the full set of procedures utilized to measure and communicate business transactions to external decision makers.

accounting

The full set of accounting procedures used to measure and communicate business transactions is referred to as the

accounting cycle.

The account deferred revenue is used to record

an obligation to perform services in the future

Marcy receives $10,000 cash in advance from customers for services to be performed in the following year. This transaction would cause

assets to increase and liabilities to increase.

Accounts receivable are

assets.

The acronym DEALOR can be used to remember how debits and credits affect different accounts. The three types of accounts that are increased with debits (represented by the DEA in the acronym) are

assets. expenses. dividends.

Slim purchases equipment with cash. The accounts affected are

cash and equipment.

A list of all account names used to record transactions of a company is referred to as the

chart of accounts

The two components of stockholders' equity are

common stock and retained earnings

In a double entry accounting system, the right side of the account is referred to as a ___________

credit

In a double entry accounting system, the right side of the account is represented by a(n) ____________.

credit

Stockholders' equity accounts normally have a _________ balance.

credit

Stockholders' equity accounts normally have a________ balance.

credit

The accounting equation is Assets = Liabilities + Stockholders' Equity. Accounts on the right side of this equation are increased with

credits.

A proper journal entry includes the ______, the account and amount debited, the account and amount credited, and a brief explanation of the transaction.

date

In a double-entry accounting system, the ____________ represents the left side of the account.

debit

Because dividends reduce retained earnings, a ______ to dividends is essentially a ______ to retained earnings.

debit; debit

Because expenses reduce retained earnings, a ______ to expense is essentially a(n) ______ to retained earnings.

debit; debit

For every journal entry, total _______ must be equal to total credits.

debits

The accounting equation is Assets = Liabilities + Stockholders' Equity. Accounts on the left side of this equation are increased with

debits.

When a company pays salary expense, the effects are to

decrease assets. decrease stockholders' equity.

Carlson Corporation pays a dividend to its investors. The effect of the dividend is to

decrease retained earnings.

What is the effect of dividends paid on the expanded accounting equation?

decrease retained earnings. decrease assets

Dividends paid to stockholders will cause retained earnings to

decrease.

Expenses will cause retained earnings to

decrease.

Dividends ______ retained earnings; therefore, to increase dividends, one would ______ the dividends account.

decrease; debit

Expenses ______ retained earnings; therefore, to increase any expense, one would ______ the expense account.

decrease; debit

When a company receives cash in advance from customers for services to be performed in the future, the transaction affects the ______ account.

deferred revenue

After the accountant analyzes the impact of a transaction on the accounting equation, the next step in the measurement process is to

determine the accounts to debit and credit.

Crane purchases equipment by signing a note payable with the equipment dealer for $10,000. The accounts affected for Crane are

equipment and notes payable.

Credits increase revenues, whereas debits increase

expenses and dividends.

True or false: The term debit means increase, and the term credit means decrease.

false

On January 1, Kim pays for two years of rent in advance. The effect of this transaction

has no effect on total assets.

Revenues cause retained earnings to

increase

Ramirez purchases $50,000 of equipment by signing a note payable. The effects are

increase in assets. increase in liabilities

Zelda purchases $10,000 of supplies on account. The effects of this transaction are to

increase liabilities. increase assets.

On January 1, Lorna pays $36,000 of rent in advance. The effects of this transaction are to

increase prepaid rent. decrease cash

Revenues ______ retained earnings; therefore, to increase any revenue, one would ______ the revenue account.

increase; credit

Net income ______ retained earnings.

increases

Transactions that are typically recognized at the end of the period and do not include an exchange with a separate company are referred to as _____________ transactions.

internal

A chronological record of all economic events affecting a firm are recorded in a(n)

journal

A(n)______________ entry describes the format for recording a transaction.

journal

The commonly used format for recording a transaction is referred to as a(n)

journal entry.

A debit is on the ______ side of the account.

left

The term debit means to place the entry on the _______ hand side of the account, and the term credit means to place the entry on the ___________m hand side of the account.

left : right

The term debit means to place the entry on the ________ hand side of the account, and the term credit means to place the entry on the ___________ hand side of the account.

left : right

The term debit means to place the entry on the hand side of the account, and the term credit means to place the entry on the hand side of the account.

left : right

The accounting equation is: Assets = ____________ + Stockholders' Equity.

liabilities

The acronym DEALOR can be used to remember how debits and credits affect different accounts. The three types of accounts that are increased with credits (represented by the LOR in the acronym) are

liabilities. revenues. owners' equity.

A chart of accounts is a

list of all account names and numbers used by a company.

The two roles of financial accounting are to:

measure business activities of the company., communicate information to external parties for decision making purposes

An increase in revenues increases ____________, __________which increases retained earnings, which increases stockholders' equity.

net : income

Stockholders' equity is increased by revenues because revenues increase

net income.

Rent paid in advance and classified as an asset is referred to as

prepaid rent.

Ursula Company's bookkeeper records revenue relating to a customer transaction. This indicates that the company

provided goods or services to a customer.

The purpose of a journal is to

record a chronological listing of every transaction for a company

Prepaid rent is

rent paid in advance.

An increase in revenues increases net income, which results in an increase to:

retained earnings

Consistent with the ____________ recognition principle, companies record revenue at the time goods are provided to customers.

revenue

Consistent with the ________________ recognition principle, companies record revenue at the time goods are provided to customers.

revenue

The two basic components for calculating net income are _________ and ______________. .

revenue and expense

Which of the following are components of calculating net income?

revenues, expenses

Claire purchases equipment for $10,000 by paying $3,000 in cash and borrowing $7,000 from the bank. The number of accounts affected by this transaction is

three.

Lim Corporation purchases $10,000 of equipment for cash. The effect of this transaction is

total assets will remain the same.

Which of the following are external transactions?

Borrowing money from the bank Purchasing inventory from suppliers Paying salaries to employees

Lexington Company borrows $10,000 from a bank by signing a promissory note. What are the effects of this transaction on the accounting equation?

Increase liabilities Increase assets

Price Company provides cleaning services to customers for $10,000 cash. What are the effects of this transaction on the accounting equation?

Increase retained earnings. Increase assets

What type(s) of transactions are typically measured only at the end of the accounting period?

Internal transactions

The types of accounts which affect retained earnings are

revenues. expenses. dividends.

The purpose of an account is to

summarize all transactions for that item.

True or false: Revenue is recorded when services are performed, whereas deferred revenue is recorded when cash is received from customers in advance before services are performed.

true

A transaction will always affect at least ______ accounts.

two