Intermediate Accounting

Which of the following accounting entries would you MOST expect to accompany a $9,000 decrease in cash, and why?

$9,000 increase in Equipment, because cash is an asset, so an equal but opposite change to another asset account such as Equipment will offset the decrease to the Cash account.

Which of the following activities is most important for determining the nature of a transaction's effects on specific accounts?

analyzing source documents

Stockholders' equity accounts

Include revenues, Common Stock, and Retained Earnings with normal credit balances, but expenses and Dividends have normal debit balances.

An investment by the stockholders in a business causes an increase in which of the following?

assets and stock holder equity

________ that require recording in the financial statements are called accounting transactions.

assets increase

Which of the following occurs when a business makes a purchase of inventory on account?

both inventory and accounts payable increase

On June 16 th , Sanderson, Inc. declared and paid a cash dividend in the amount of $5,000. Which account name should be entered in the second row of the journal entry form shown here?

cash

You are working on an account that has more total credits than total debits. Which of the following accounts could you be working on?

common stock

The normal balances in stockholders' equity accounts are

credits for Common Stock and Retained Earnings and revenues, but debits for expenses and dividends.

Assets, expenses, and dividends normally have a ________balance.

debit

Because dividends reduce stockholders' equity, the normal balance of the Dividends account is a ____________balance.

debit

Which of the following would be listed first when preparing a journal entry?

decrease in accounts payable

________ that require recording in the financial statements are called accounting transactions.

economic events

Because dividends reduce stockholders' equity, the normal balance of the Dividends account is a credit balance.

examination of the source document

You are the accountant responsible for creating financial documents and recording transactions. In which order will you perform the following actions related to these tasks?

examine business documents record transactions in the journal record transactions in the ledger create financial statements

How are dividends treated in a double-entry system?

hey are debited to increase them, despite being a part of stockholders' equity.

There must be a corresponding increase in liabilities or an increase in stockholders' equity if total assets are

increased

The Dividends account

is a stockholders' equity account, but is debited to increase it.

Of the following transactions, which would lead to the largest decrease in a firm's retained earnings?

issuance of $18,000 of common stock receipt of $20,000 for services performed X payment of $20,000 in employee salaries payment of an $18,000 dividend on common stock

A company recorded its monthly transactions in the _______, it transferred each amount to the _______, which then became part of ________.

journal; ledger; financial statements

Assets and liabilities increase when a business

receives cash in advance from a customer.

The usual sequence of steps in ________ is analyze, journalize, transfer to the ledger.

recording transactions

Receipts of cash in advance from customers are not treated as revenue at the time of receipt because

revenue is not recognized until the work is performed.

________ will increase when services are performed on account.

stockholder equity

What happens when dividends are paid?

stockholder equity decreases

How will Nantucket Law Firm record the following transaction on July 8 th ? Paid $320 for supplies that were purchased on June 12 th . The correct account name that should be entered in the second row of the journal entry form in order to correctly record this transaction is

Cash

Which of the following represents the characteristics of every accounting information system? Select all that apply.

It processes transaction data. It communicates financial information to decision-makers. It collects transaction data.

On September 30, Jordan Consulting received $12,000 from Hank's Hardware in exchange for services performed. Upon receipt of this payment, Jordan recorded a $12,000 reduction in unearned service revenue and a $12,000 increase in cash. Did Jordan make the proper accounting entries? Why or why not?

No, Jordan did not make the proper accounting entries. Although the firm was correct to increase cash by $12,000, it should have recorded a $12,000 increase in revenue rather than a $12,000 decrease in unearned service revenue.

On February 2, Miles Inc. pays $800 to purchase a one-year insurance policy that will expire next year on January 31. Miles indicates this transaction in its books by recording an $800 reduction in cash and an $800 increase in expenses. Did Miles make the proper accounting entries? Why or why not?

No, Miles did not make the proper accounting entries. Prepaid insurance is an asset, not an expense. Thus, the firm should have offset the $800 decrease in cash (an asset account) with an $800 increase in prepaid insurance (also an asset account).

What will happen if expenses are paid in cash?

Stockholders' equity will increase. X Assets will decrease. Assets will increase. Liabilities will decrease.

The Stockholders' Equity portion of the accounting equation is divided into multiple types of accounts. How does this affect the debit/credit rules for Stockholders' Equity accounts?

The debit/credit rules are more complex than for assets and liabilities because some Stockholders' Equity accounts use debits to increase the balance and some use credits to increase the balance.

Stockholders' equity and liabilities both have normal credit balances. Why are the stockholders' equity debit/credit rules more complex than liabilities?

The elements of Stockholders' Equity are broken into different types of accounts; some are increased with debits and some with credits.

During the month of June, Arlen Inc. incurred $2,500 in expenses. What effect will these expenses have on the firm's accounts for the month if the expenses were paid with cash?

These expenses will necessitate that Arlen records a $2,500 debit to an expense account and an offsetting $2,500 credit to an asset account.

During the month of May, Apex Industries recorded a $3,000 debit to its Expenses account. Which of the following explanations of this transaction is the MOST accurate?

This entry indicates that Apex incurred $3,000 in expenses. It also suggests that the firm may have recorded a $3,000 credit to an asset account in order to offset the corresponding decrease in stockholders' equity.

During October, Blue Sky Inc. correctly enters a $10,000 credit to its Revenues account. What conclusions can be made based on this accounting entry?

This entry indicates that Blue Sky recognized $10,000 in revenue in October, which likely means that the firm's net income, ending retained earnings, and stockholders' equity all increased.

During the month of August, Jackson Products recognizes $15,000 in revenues. Jackson's accounting staff records these revenues by entering a $15,000 debit in the firm's Revenues account and a $15,000 credit in the Accounts Receivable account. What, if any, effect will this entry have on Jackson's financial statements?

This entry will inappropriately decrease Jackson's revenues, thus making the firm's net income too low on its income statement, ending retained earnings too low on its retained earnings statement, and both its assets and its stockholders' equity too low on its balance sheet.

________ has no effect on retained earnings.

X Hiring a new employee revenue paying a dividend an expense

When calculating the balance of the Sales Revenue account, you find that the balance is lower than expected. However, according to your Balance Sheet and your analysis of the accounting equation, all of your debits and credits are equal across accounts. What is the most likely explanation for this?

You failed to record a sales transaction in the journal, so it never got transferred to the ledger or financial documents.

What could happen when an individual asset is increased?

there could be an equal decrease in another asset

A book designer purchased a new computer monitor for $1,200 cash. As a result of this purchase,

total assets remain unchanged