Read and DO LS Chapter 3: The Income Statement

Assets, on the balance sheet, provide future benefits for a company, while ________ , on the income statement, are used-up benefits. (Enter one word per blank.)

expenses

After increases and decreases in an account are recorded, the amount remaining in the account is its ending ________ . (Enter one word per blank,)

balance

Reporting revenues only when cash is received and expenses only when cash is paid is called the ________ basis of accounting. (Enter one word per blank.)

cash

If a company records a debit to Cash and a credit to Deferred Revenue, it must be recording the ______. Multiple choice question. collection of cash from customers in advance of the revenue being generated generating revenue that was collected in advance collection of sales made on account sale of goods on account

collection of cash from customers in advance of the revenue being generated

Revenues increase net income and retained earnings, so revenues are recorded with a _______ , just like all increases in stockholders' equity. (Enter one word per blank.)

credit

If a company debits Advertising Expense and credits Cash, it must have ______. Multiple choice question. collected in advance for advertising that will be run in the future paid for advertising run in the same accounting period provided advertising services for cash paid for advertising in advance

paid for advertising run in the same accounting period

Select all that apply Revenues are recognized when ______, even when the cash is collected in a different accounting period than the obligation to the customer has been performed. Multiple select question. cash is collected goods are delivered services are performed customers prepay for goods/services bills are paid

- goods are delivered - services are performed

Total Revenues equals $80,000 and Net Income equals $20,000, then Total Expenses equals $_______

60,000

When a company makes a payment for amounts owed from prior purchases, it will record a debit to ______ and a credit to ______. Multiple choice question. Accounts Payable; Cash Expenses; Cash Accounts Payable; Retained Earnings

Accounts Payable; Cash

A seller records an increase to the asset account called ______ ________when it sells to a customer on credit. (Enter one word per blank.)

Accounts Receivable

When AppGame Company delivers pizza to customers on account and bills its customer accounts, it should record a debit to ______ and a credit to ______. Multiple choice question. Accounts Receivable; Sales Revenue Accounts Payable; Sales Revenue Accounts Receivable; Deferred Revenue

Accounts Receivable; Sales Revenue

______basis accounting is the only acceptable method for external reporting of net income.

Accrual

Utilities ______ is on the income statement and reports the amount of services provided during the period. Utilities ______ is on the balance sheet and reports the amount owed for the services provided. Multiple choice question. Payable; Expense Receivable; Payable Expense; Payable Expense; Receivable

Expense; Payable

are the costs of operating a business that are incurred to generate revenues in the period covered by the income statement. (Enter one word per blank)

Expenses

True or false: In accordance with generally accepted accounting principles, the timing of cash receipts dictates when revenues are recognized. True false question. True False

False Reason: The key factor is whether the seller has provided the goods or services to the customer, not whether the cash has been received.

The financial statement that reports revenues and expenses is the ______. Multiple choice question. balance sheet statement of cash flows income statement statement of retained earnings

Income Statement

True or False. Operating activities are the primary source of revenues and expenses.

True, Operating activities are indeed the primary source of revenues and expenses.

If the purchase of supplies on account is not recorded then ______. Multiple choice question. liabilities will be understated the accounting equation will be correct since no entry should be recorded given no cash changed hands

liabilities will be understated

Identifying the performance obligation is an important step in determining whether to recognize revenue especially when the contract involves ______. Multiple choice question. multiple obligations the collection of cash in advance of satisfying the obligation the sale of goods or services on account the accrual and deferral of revenue

multiple obligations

The totals on a trial balance reveal whether the total ______ equal the total _______ . (Enter one word per blank.)

- debits - credits

If Sales Revenue is credited, then which of the following would be the corresponding debit? Multiple choice question. Retained Earnings Inventory Accounts Payable Cash

Cash

In January, Pizza Company bought pizza ingredients on account for $100, with payment due to the supplier in March. The pizza ingredients were used for pizzas made in January. In which month should Pizza Company record the cost of the pizza ingredients as an expense? Multiple choice question. April January March February

January

Morris Lest, Inc. received and paid a $500 electric bill in June for electricity used in May. In which month should Morris Lest record the expense in accordance with Generally Accepted Accounting Principles? Multiple choice question. May June Half in May and half in June

May

On October 31, Pizza Company sold pumpkin spice pizzas for Halloween parties on account. The customers have 30 days to pay for the pizzas. In which month should Pizza Company record the revenue under accrual accounting? Multiple choice question. At the end of the financial year November October

October

________ activities are the primary source of revenues and expenses and affect whether a company earns a profit or incurs a loss. (Enter one word per blank.)

Operating

Select all that apply Debits will increase which of the following T-accounts? (Select all that apply.) Multiple select question. Deferred Revenues Prepaid Rent Utilities Expense Accounts Receivable

Prepaid Rent Utilities Expense Accounts Receivable

The journal entry to record the purchase of supplies on account is debit ______. Multiple choice question. Supplies and credit Accounts Payable Supplies and credit Cash

Supplies and credit Accounts Payable

Reporting revenues when the goods or services are provided and expenses when they are incurred is called _____ basis accounting. (Enter one word per blank.)

accrual

Revenues are increased with ______. Multiple choice question. credits because they decrease stockholders' equity debits because they decrease stockholders' equity debits because they increase stockholders' equity credits because they increase stockholders' equity

credits because they increase stockholders' equity

Select all that apply Pizza Company sold pizzas on account. The journal entry to record the sales will include a ______. (Check all that apply.) Multiple select question. debit to Cash credit to Sales Revenue credit to Deferred Revenue debit to Accounts Payable debit to Accounts Receivable debit to Sales Revenue

- credit to Sales Revenue - debit to Accounts Receivable

Assets are increased with ______ and liabilities and stockholders' equity are increased with ________. (Enter one word per blank.)

- debit - credit

Select all that apply On June 1, Pizza Company paid $100 for advertisements to be run on June 1. Pizza Company's entry to record this payment will include a $100 ______. (Check all that apply.) Multiple select question. debit to Cash credit to Prepaid Advertising credit to Advertising Expense debit to Advertising Expense credit to Cash debit to Accounts Receivable credit to Deferred Advertising

- debit to Advertising Expense - credit to Cash

Select all that apply The entry to record cash collected from customers in advance includes a ______. (Select all that apply.) Multiple select question. debit to Cash debit to Deferred Revenue credit to Cash credit to Accounts Receivable credit to Service Revenue credit to Deferred Revenue

- debit to Cash - credit to Deferred Revenue

Select all that apply Retained Earnings represents ______. (Check all that apply.) Multiple select question. amounts earned (revenues minus expenses) that have been kept by the company amounts given to the company by its stockholders in exchange for stock net income generated by the company through profitable operations that has not been distributed to its stockholders

- net income generated by the company through profitable operations that has not been distributed to its stockholders - amounts earned (revenues minus expenses) that have been kept by the company

Select all that apply Accrual basis accounting differs from cash basis accounting in that accrual basis accounting records ______. (Check all that apply.) Multiple select question. revenues in the period when the services are performed or goods are delivered, even though the cash has not yet been collected expenses in the period incurred, even though cash has not yet been paid expenses only in the period when cash is paid revenues in the period when the cash was collected, even if the service was performed in a prior period

- revenues in the period when the services are performed or goods are delivered, even though the cash has not yet been collected - expenses in the period incurred, even though cash has not yet been paid

Which ratio change provides good news about a company? Multiple choice question. An increase in debt-to-equity ratio A decrease in the net profit margin ratio An increase in the net profit margin ratio A decrease in assets-to-equity ratio

An increase in the net profit margin ratio

When Pizza Company sells three $100 gift cards at the beginning of the month, it should record a debit to ______ and credit to ______ for $300. Multiple choice question. Cash; Sales Revenue Deferred Revenue; Cash Accounts Receivable; Sales Revenue Cash; Deferred Revenue

Cash; Deferred Revenue

When Pizza Company delivers pizza to customers for $100 cash, it should record a $100 debit to ______ and a $100 credit to ______. Multiple choice question. Sales Revenue; Accounts Receivable Accounts Receivable; Sales Revenue Cash; Sales Revenue

Cash; Sales Revenue

Stockholders' equity consists of ______, which is the amount contributed, and ______, which is generated from profitable operations (i.e., from revenues being greater than expenses). Multiple choice question. Assets; Common Stock Liabilities; Retained Earnings Assets; Liabilities Liabilities; Common Stock Common Stock; Retained Earnings

Common Stock; Retained Earnings

Under which of the following circumstances would cash basis accounting report lower revenue than accrual basis accounting in a company's 1st year of business? Multiple choice question. When it collects cash in advance of providing the goods or services When it makes sales on account When it makes cash sales

When it makes sales on account

If a company collected $1,000 from its customers in advance and then fulfilled $800 of its obligation and incurred expenses of $700 of which it paid $300, using accrual basis accounting, it would report net income equal to ____. Multiple choice question. $700 $800 $300 $100

$100

When a company receives cash from a customer in advance of performing the service, the company will debit _______and credit ________ _________ . (Enter one word per blank.)

Blank 1: Cash Blank 2: Deferred or Unearned Blank 3: Revenue

When Revenue is credited, the possible three debits are ______, Accounts ______, and/or _______ Revenue. (Enter only one word per blank.)

Blank 1: Cash Blank 2: Receivable Blank 3: Deferred or Unearned

Match the description with each of the accounts that may be debited when Service Revenue is credited.

Cash - Collections occur in the same period as the services Collections occur in the same period as the services Accounts Receivable - the service is performed prior to the collections The service is performed prior to the collections Deferred Revenue - Collections occur in advance of the performance of the service Collections occur in advance of the performance of the service

The trial balance is an internal report used to determine whether total debits ______ total credits. (Enter only one word per blank.)

equal

The net profit margin ratio is calculated by dividing net income by ______. Multiple choice question. average total assets total liabilities revenue total assets

revenue

If a company has no Wages Payable on its balance sheet, then one may conclude ______. Multiple choice question. the wages expensed in the period were paid that Wages Expense is $0 on the income statement Wages Expense was greater than the cash paid for wages during the period

the wages expensed in the period were paid

In May, Sea the World Cruises, Inc. collected $1,000 cash from a customer for services to be performed in June. Which of the following is true assuming accrual accounting? Multiple choice question. $500 of revenue should be recorded in May and $500 in June. $1,000 of revenue should be recorded in May. $1,000 of revenue should be recorded in June.

$1,000 of revenue should be recorded in June.

In its 1st year of operation, City Perk paid Salaries Expense of $1.1 million. On December 31, it recorded an entry for additional Salaries Expense of $100,000 that will be paid at the beginning of the 2nd year. How much will Salaries Expense for the 1st year ended equal? Multiple choice question. $1.2 million $900,000 $1.1 million $1,110,000

$1.2 million

Total Expenses equals $80,000 and Net Income equals $20,000, then Total Revenues equals

$100,000

Quartz Instruments had Retained Earnings of $145,000 at December 31, 2020. Net Income for 2021 was $90,000, and Dividends for 2021 were $30,000. What amount of Retained Earnings should be reported at December 31, 2021? Multiple choice question. $235,000 $140,000 $205,000 $175,000

$205,000

If beginning Accounts Payable is $10,000 and the purchases on account are $100,000 and payments made were $80,000 during the period, then the ending Accounts Payable balance equals a ______ balance. Multiple choice question. $30,000 credit $10,000 credit $20,000 credit $20,000 debit $10,000 debit $30,000 debit

$30,000 credit

Monster Music Company provided music lessons for customers for $10,000, receiving $6,000 in cash and the rest on account. What is Monster Music Company's revenue if it used the cash basis of accounting instead of accrual basis accounting? Multiple choice question. $10,000 $4,000 $6,000

$6,000

During the year, Pizza Company, Inc. had $100,000 in revenues, $40,000 in expenses, and paid $3,000 in dividends. Net income equals ______. Multiple choice question. $60,000 $100,000 $63,000 $57,000

$60,000

Select all that apply When a company records the payment to its employees for the work performed during the accounting, it records the following. (Select all that apply.) Multiple select question. Credit Salaries and Wages Payable Debit Salaries and Wages Expense Credit Cash Credit Salaries and Wages Expense Debit Cash

- Debit Salaries and Wages Expense - Credit Cash

Select all that apply Which are 3 common misconceptions users of an income statement may have? (Select all that apply.) Multiple select question. Net Income equals Cash. Net Income includes estimates. Net Income does not include estimates. Net Income reports all changes of value that occurred during the accounting period. Net Income does not report all changes of value that occurred during the accounting period. Net Income does not equal Cash.

- Net Income equals Cash. - Net Income does not include estimates. - Net Income reports all changes of value that occurred during the accounting period.

Multiple Select Question Select all that apply Revenue is recognized when ______. (Check all that apply.) Multiple select question. services are provided even if cash has not yet been collected, if using accrual basis accounting borrowing money from a bank, if using accrual basis accounting cash is collected from customers, if using cash basis accounting borrowing money from a bank, if using cash basis accounting

- services are provided even if cash has not yet been collected, if using accrual basis accounting -cash is collected from customers, if using cash basis accounting

During the month of September, AppGame Company wrote checks to employees totaling $8,100 for wages earned in September and not previously expensed. Which of the following is the correct entry? Multiple choice question. Debit Wages Expense and credit Wages Payable for $8,100 Debit Cash and credit Wages Expense for $8,100 Debit Wages Expense and credit Cash for $8,100 Debit Cash and credit Wages Payable for $8,100

Debit Wages Expense and credit Cash for $8,100

Which of the following is not a revenue account that appears on the income statement? Multiple choice question. Deferred Revenue Sales Revenue Service Revenue

Deferred Revenue Reason: Deferred Revenue is a liability. The company has received an advance payment from the customer, but has not yet delivered the goods or services.

Which of the following is correct? Multiple choice question. Net income equals the amount of cash generated by the business during the reporting period. Measurement of net income involves estimations. Net income represents the change in the market value of the company's stock during the period.

Measurement of net income involves estimations.

If a company incorrectly records cash received for services to be provided in the future with a debit to Cash and a credit to Sales Revenue, how will this error affect net income for the current period? Multiple choice question. Net income will be too low. Net income will be too high. Net income will not be affected by this error. Net income will be too high in the following period.

Net income will be too high

If a company incorrectly records a payment as an asset instead of an expense, how will this error affect net income in the current period? Multiple choice question. Net income will be too low. Net income will be too high. Net income will not be affected by this error.

Net income will be too high.

Under the expanded accounting equation, assets equal liabilities plus common stock and _______earnings. (Enter one word per blank.)

retained

If a company records a debit to Accounts Receivable and a credit to Revenue, it must be recording the ______. Multiple choice question. collection of cash from customers in advance of generating the revenue revenue generated that was collected in advance sale of goods on account collection of sales made on account

sale of goods on account

The key factor in determining whether revenue should be recognized is whether the ______. Multiple choice question. seller is assured the customer will not return the goods cash has been received seller has provided the goods or services to the customer

seller has provided the goods or services to the customer

Accounts Receivable arises when a company ______. Multiple choice question. collects cash in advance and is a liability collects cash in advance and is an asset collects cash in advance and is a stockholders' equity account sells on credit and is a stockholders' equity account sells on credit and is an asset sells on credit and is a liability

sells on credit and is an asset