Financial Accounting Chapters 1, 2, 3

what are 3 questions that allow yourself to view the effect of each transaction (analyzing the effect of transactions)

1. "What is one account in the accounting equation affected by the transaction? Does that account increase or decrease?" 2. "What is a second account in the accounting equation affected by the transaction? Does that account increase or decrease?" (After noting the effects of the transaction on the accounting equation, ask yourself this:) 3. "Do assets equal liabilities plus stockholders' equity?" (The answer to the third question must be "yes.")

What are the steps for measuring transactions

1. Use a source document to identify accounts affected 2. Analyze the impact of the transaction results in a debit or credit to account balances 3. Assess whether the transaction results in a debit or credit to account balances 4. Record the transaction in a journal 5. Post the transaction to the general ledger

A transaction will always affect at least ____ accounts

2

The journal entry always has ___ columns; titled what?

2; debit & credit

SEC requires that companies with publicly traded stock must have their financial statements verified by an independent auditor. What type of designation or degree is required to issue an independent audit opinion

A Certified public accountant license

when supplies are purchased on account, which of the following occurs

A liability increases

What does a journal provide

A single location chronological record/listing of all transactions affecting a firm/company

Define general Ledger

A single location the list of transactions affecting each account and the account's balance

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

Cash and common stock

Shriver Corp. borrows $25,000 from a bank and signs a 2-year promissory note. What accounts will be affected by this transaction and what is the effect

Cash increases, notes payable increases

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

Equipment and notes payable

True or false: Adjustments ensure that assets in the balance sheet are reported at the amounts that have been used up or expired during the period

False

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

February 15, February 27

Where is the deferred Revenue account reported on financial statements

On the balance sheet as a liability

Ryan Corporation declares and pays a dividend. How will the dividend affect the financial statements

Stockholders' equity in the balance sheet decreases

Accounts receivable are assets which represent

The amounts owned by customers

what is the accounting cycle

The full set of procedures used to accomplish this two-step measurement/communication process. Utilized to measure and communicate business transactions to external decision makers

what are the two functions of financial accounting

To measure business activities of the company and to communicate those measurements to external parties for decision-making purposes

true or false: the accounting equation must always remain in balance

True

when should revenue be recorded

When the work is performed

If debits do not equal credits on a trail balance, a possible error could be

a debit was posted to the credit column for a journal entry

what is a chart of accounts

a list of all account names used to record transactions of a company

A(n) ______ is maintained for each financial statement item, whereas a(n) ________ contains all of the accounts of the company

account, general ledger

how must accounting information be useful In making decisions

accountants must measure and report revenues and expenses in a way that clearly reflects the ability of the company to create value for its owners and stockholders

Elements of the accounting equation are represented by ______, which are contained in the general ledger

accounts

when a company performs services for a customer, and the customer agrees to pay for the services at a later date, the transaction is recorded in which account

accounts receivable

Consistent with the ________-basis of accounting, we record revenue when we provide goods and services to customers, and we record expenses with the related _____

accrual, revenue

Revenue in the income statement for the year ended December 31, 2018 equals the ________

amount earned by selling goods or services to customers during 2018

what is included In a general ledger

an account title, transaction date, transaction description, the cumulative account balance, and the column for debits and credits.

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

another asset is increased and a liability is decreased

supplies that are not used immediately are recorded as a(n) ______ when purchased

asset

prepaid insurance is a(n) _______

asset in the balance sheet

The cost of equipment is typically recorded as an __________, while the cost of repairs is typically recorded as a(n) _______

asset, expense

What accounts are included on the balance sheet

assets, liabilities, and stockholders' equity

Smith Company's journal shows a debit to cash and a credit to notes payable, both for $15,000. This indicates that Smith Company

borrowed $15,000 cash and signed a note

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

Slim purchases equipment with cash. The accounts affected are

cash and equipment

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

cash is increased and common stock is increased

what two components can we divide stockholder's equity into

common stock and retained earnings

Both _____________ __________ and___________ ____________ represent stockholders' claims to the company's resources.

common stock, retained earnings

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

credit

In a journal entry the right-hand column is for _______

credits

what is included on an journal entry that records a transaction

date, relevant account names, debit amounts, credit amounts, and a description of the transaction.

In a double entry accounting system, the left side of the account is referred to as a ______

debit

The adjusting entry for prepaid _____ requires a(n) debit to Rent Expense and a(n) ______ to prepaid rent

debit, credit

in a journal entry the left-hand column is for _______

debits

for each journal entry, total _____ must always ______ total credits

debits, equal

What is the effect of expenses on stockholder's equity

decrease

expenses ______ net income and retained earnings, so expenses are recorded with a debit

decrease

what is the effect of dividends on retained earnings

decrease

When a company pays salary expense, the balance sheet effects are to

decrease assets and decrease stockholders' equity

the adjusting entry to record the supplies used during the period will result in a(n) ______

decrease to supplies and an increase to supplies expense

An increase in dividends results in a _________ of retained earnings

decreased

supplies should be _____ and supplies expenses should be ______ for the cost of supplies used up during the period

decreased; increased

what are dividends

distributions of part of the company's net income to the owners, reducing the amount of earnings that have been retained In the business.

Adjusting entries are made at the _____ of the accounting period, while daily transactions are made throughout the accounting period

end

which of the following accounts would normally have a debit balance on the trial balance

equipment, accounts receivable, and dividends

what are internal transactions

events that affect the financial position of the company but that do not include an exchange with a separate company or individual

A(n) ________ is a cost of doing business during the period, whereas a(n) ______ is a distribution of cash to stockholders

expense, dividend

the adjusting entry for a prepaid expense includes a debit to a(n) _______ account and a credit to a(n) ______ account

expense; asset

the primary components of net income are

expenses and revenues

what is accrual-basis accounting

helps measure and report revenues sand expenses in a way that clearly reflects the ability of a company to create value for its stockholders

Cray purchases equipment for cash. Total assets will _______

increase

Revenues cause retained earnings to ____________

increase

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

increase assets and increase liabilities

Buying equipment from a supplier causes one asset (equipment) to_________ and another _______ (cash) to decrease:

increase, asset

Net income ______ retained earnings

increases

transactions are classified as

internal or external transactions

Which of the following accounts would normally have a debit balance on the trial balance

inventory, cash, and utility expense

what does common stock represent

investment by stock holders

What is a common advantage of a computerized accounting system

journal entries are instantly posted to the ledger

A transaction is initially recorded in the general _____, and then subsequently posted to the general ________

journal, ledger

An increase in revenues increases ______ ______, which increases the retained earnings, which increases stockholders'' equity

net income

what does retained earnings represent

net income reported over the life of the company that has not been distributed to stockholders as dividends

A trial balance may not be free of errors because the trial balance

only determines that debits equals credits

Indigo Company's journal reveals that equipment was debited and notes payable was credited, both for $10,000. Indigo Company must have

purchased equipment and signed a note for the purchase price

define matching principle

recognize expenses in the same period as the revenues they help to generate

define revenue recognition principle

record revenue In the period in which it's earned

define cash-basis accounting

record revenues at the same time cash is received and expenses at the time cash is paid

What is accrual-basis accounting

record revenues when goods and services are provided to customers, and record expenses with related revenues

which accounts would normally have a credit balance on the trial balance

retained earnings and unearned revenue

consistent with the _______ recognition principle, companies record revenue at the time goods are provided to customers

revenue

what do you add to calculate retailed earnings & why

revenue, bc revenues increase net income, and net income increases stockholders' claims to resources

Given the importance of net income to investors, standard setters have devoted considerable attention to the proper measurement of the two primary components of net income, which are:

revenues and expenses

what are 3 components retained earnings can be split up into

revenues, expenses, and dividends

examples of external transactions

selling products to a customer, purchasing supplies from a vendor, paying salaries to an employee, and borrowing money from a bank

an increase in revenues has the effect of increasing _________ equity in the basic accounting equation.

stockholders'

what is an account

summarizes all transactions related to a particular item over a period of time

what are examples of internal transactions

supplies already purchased and earning revenues after received cash in advanced from a customer.

define accounts receivable

the account is a record of specific people and companies from whom we expect to receive cash in the future

The balance in retained earnings represents

the accumulated net amount minus expenses and dividends over the company's lifetime

what do the amounts on a journal entry always represent

the dollar amount

define posting

the process of transferring the debit and credit information from the journal to individual accounts in the general ledger

what does receivable mean

to be received in the future

Roy purchases supplies for cash. Which of the following occurs

total assets remain the same

what are external transactions

transactions the firm conducts with a separate economic entity

A list of all accounts and their balances at a particular date showing that debits equal credits is referred to as a(n)

trial balance

true or false: A trial balance is used for internal purpose to check that debits equal credits

true

Which accounts would normally have a credit balance on the trial balance

unearned revenue, notes payable, and common stock

Adjusting entries:

update the accounts to their proper balances. are needed in order to measure the period's net income or loss