set 1

example of assets

Supplies Cash Land Building Accounts Receivable

revenues

cause equity to increase

liability

A liability is an amount owed to a creditor

the accounts payable account is a

liability account

when preparing a trail balance

!) List each account title and its amount from the general ledger 2) Compute the total of debit balances and the total of credit balances 3)Verify that total debit balances equal total credit balances 4)Locate & resolve

you are entering a transaction in the journal. place the following steps in the order that they would be entered in the journal

1) enter date of transaction in date column 2)Enter name of accounts debited and their amounts 3)Enter name of accounts credited and their amounts 4)Enter explanation

debiting and crediting

A debit can increase an expenses account a debit or credit can increase or decrease an account, depending on the account A credit will always decrease an asset account For an account where a debit is an increase the credit is a decrease

a general ledger definition

A journal is a complete record of each transaction in one place and includes the debit and credit of each transaction

statement regarding journal

A journal is used to record business transactions Transactions are generally entered in chronological order In a journal, both the debit and credit side of the transaction can be seen

liability

A liability is a claim by creditors against the assets of a business A liability is a debit owed by the business A liability can be settled by transferring assets or providing products or services to others

ABC Co. performs $200 of services for a customer, but does not get paid right away. Demonstrate how ABC Co. would record this transaction in the accounting equation by completling the following sentence

ABC Co. would increase the accounts RECEIVABLE account and increase the REVENUE account in the accounting equation.

Importance of accounting

Accounting information helps users make business and financial decisions Accounting is a system that identifies, records and communicates financial information

why does a business need accounting information

Accounting records business transactions and communicates financial information.

Both public and private accounting

Accounting specialists in this area of area of accounting are highly regarded

normal credit balance

Accounts Payable unearned earnings revenue common stock

Accounts Paybale

Accounts Payable refer to oral or implied promises to pay later, which may arise from the purchase of supplies or services

R&R Programming pays $900 supply bill that it had received earlier in the month. Illustrate how to record the transaction to the T-accounts by completing the following sentence.

Accounts Payable would be DEBITED on the LEFT side of the T-account, and cash would be CREDITED on the right side of the T-account. *When the bill is paid, the Accounts payable account will be debited to reduce it. Accounts payable is increased with a credit(right side) and decreased with a debit (left side). Cash is reduced with a credit. Cash is reduced with a credit, which is entered on the right side of the account*

when a business provides a service to a customer *on credit* it means that

Accounts Receivable will be increased an asset has been created or increased the business will receive payment for its services at a later time

R&R Programming pays a $900 supply bill that it had received earlier in the month. Illustrate how to record the transaction to the T-accounts by completing the following sentence.

Accounts payable would be DEBITED on the LEFT side of the T-account, and cash would be CREDITED on the RIGHT side of the T-account.

accounts receivables

Accounts receivable is increased with a debit accounts receivable is increased when credit sale are made accounts receivable reflects the amount of money still owed by customers accounts receivable is decreased when payments are received from credit customers

In defining an accounting period, which of the following statements are correct?

An accounting period is determined by the business An accounting period can be one moth, one quarter or one year A one-year reporting period is known as the fiscal year

assets

An amount Owned, Resources with future benefits, Controlled by the business

Which of the following financial statements represents the financial position of a business at a point in time

Balance Sheet

when recording transactions into the accounting equation

At least two accounts will be affected when recording a transaction After recording the transaction, total assets will always equal total liabilities plus equity The accounting equation must always remain in balance

examples of assets

Building, cash, accounts receivable

has normal debit balance

Cash, Supplies, Accounts receivable, Buildings

considered to be *cash* and reflected in a company's cash account

Coin Checks Money orders

Simon invests $10000 in his new business, Simon's Sports. How would this affect the equity of a business?

Common Stock would be increased, so equity is increased

meaning of the cost principle

Cost is measured on a cash or equal-to-cash basis Accounting information is based on actual cost Cost of services received is measured as the amount of cash paid

Crediting

Crediting a liability account will increase it Crediting means to enter transactions on the right side of a T-account Crediting can be abbreviated "Cr" Crediting the common stock account means to increase it.

required info to be entered in a journal

Date of transaction, explanation of transaction, debited and credited accounts, dollars amounts of debits and credits

J. Jackson invested $1000 in his business, Jackson Company. Show how to use T-accounts to record this transaction in Jackson Company's books by selecting the correct answer below.

Debit cash; credit common stock

Debiting

Debiting means to enter transactions on the left side of a T-account

smiths company purchased $100 of supplies and paid immediately. show how to record this transaction in the accounting equation

Decrease Cash; increase supplies

Expenses

Decrease equity and are the cost of assets or services used to earn revenue

Dividends

Decrease equity and payments from the company to the owners

Dividends account

Dividends decrease equity Dividends is used to record distributions of assets to the stockholders of a business Dividends is increased on the left side of the T-account

Brown company paid $40 to its stockholders. Show how to record the transaction to the T-accounts by completing the following sentence.

Dividends would be DEBITED on the left side of the T-account, and Cash would be CREDITED on the right side of the T-account

Dividends of $100 are paid to the shareholders. How would this affect the total equity of his business?

Dividends would be increased and total equity would decrease as well

smith company purchased $8000 of supplies on account. Show how to record this transaction to the T-accounts by selecting the correct answer below

Enter $8000 on left side of the Supplies account; enter $8000 on the right side of the Accounts Payable account

Stan Programming Services provided $8000 of services and received payment immediately. Show how to record this transaction to the T-accounts by selecting the correct answer below

Enter $8000 on left side of the cash account; enter $8000 on the right side of the Service revenue account

posting process

Entries must be posted to the ledger before financial statements are prepared.

Which of the following statements is are accurate regarding equipment purchased within a business?

Equipment cost is initially recorded as an asset and as it is used and gets worn down, the cost is gradually expensed Equipment purchases are reported on the balance sheet Equipment is reported on the left side of the accounting equation Equipment is an asset

Equipment

Equipment is an ASSET account. It is reported on the LEFT side of the accounting equation and is INCREASED when equipement is purchased

accounts that impact equity

Expenses Common Stock Revenue Dividends

A business pays $500 for rent. How would this payment affect the equity of business

Expenses are increased, so equity is decrease

the business receives and immediately pays a $300 advertising bill. How would this payment affect the total equity of business?

Expenses would be increased, so equity is decreased

Normal debit balance

Expenses, Dividends, Cash

The cost of land owned by a business is recorded in the land account and this account is classified as an expenses

False

accounting equation

If the total of the right side of the accounting equation increased, then the total of the left side of the accounting equation must also increase

a customer of landen consulting company makes a $400 payment of cash on a bill for services provided last month. Record this transaction into the accounting equation of landen consulting by

Increasing Cash, $400 decreasing accounts receivable, $400

Jackson's Catering provided $3000 worth of cookies to the local college. The college paid immediately. Record this transaction for Jackson's Catering in the accounting equation by:

Increasing Cash; increasing revenues

the T-account for cash had 3 transactions entered into it. It was increased by $400 and decreased by $100 and by $30, respectively.

Its balance at the end of the period would be a DEBIT balance of $270 *Cash has a normal Debit balance. Cash Balance = $400-($100+$30) = $270*

jackson programming company paid its june rent of $500. demonstrate how to use the accounting equation to record the transaction by completing the following sentence.

Jackson company would decrease CASH and increase EXPENSES in the accounting equation.

Which of the following statements are correct regarding the Note Payable account

Notes payable is liability account Notes Payable is increased on the right side of the T-account Notes payable is recorded on the balance sheet Note payable is formal promise to pay a certain sum of money on a specified future date

investments

Owners Investments cause an INCREASE in equity and are entered directly in the COMMON STOCK account

Gunner company received $300 cash from a client that had been billed earlier in the month. Show how to record this transaction into T-accounts by selecting the correct answer below.

Place $300 on left side of cash account; place $300 on the right side of accounts receivable account.

examples of prepaid (expense) accounts

Prepaid rent, prepaid insurance

The business earns $2800 cash for services performed. How would this receipt affect the total equity of a business

Revenues would be increased, so equity is increased.

the business earns $2800 cash for services performed. How would this receipt affect the total equity of a business?

Revenues would be increased, so equity is increased.

Brown Company provided services to a customer and immediately collected $1900 cash. Show how to record the transaction to the T-accounts by completing the following sentence.

Service Revenue would be CREDITED on the RIGHT side of the T-account, and Cash would be DEBITED on the LEFT side of the T-Account

affect of expenses on equity

Since expenses are the costs of doing business and cause equity to DECREASE, expenses are increased on the LEFT side of their T-account.

Supplies

Supplies are ASSETS until they are used. When they are used up, their cost are reported as expenses

on 6/25, supplies costing $1000 were purchased, but only $400 of this amount was paid on 6/25. the remainder of the bill went on account. to record this transaction on 6/25:

Supplies would be increased by $1000; Cash would decreased by $400 and Accounts Payable would be increased by $600 *supplies costing $1000 were purchased only $400 was paid out in cash account payable increased by $600 ($1000-400).*

land account

The Land account is used to record the costs of land purchased by the business The Land account is an asset The Land account would be increased on the left side of its T-account

how accounting equation applies to businesses

The equation reflects that the total of what a business owns at any point in time will equal the total of what it owes creditors and owners. The relation of assets, liabilities and equity is reflected in the equation The equation states that Assets=Liabilities + Equity The equation applies to all monetary business transactions and events

Holt computer services purchased $2000 of new equipment and paid immediately. Illustrate how to record the transaction into T-accounts by completing the following sentence

The equipment account would be DEBITED on the LEFT side of the T-account and the cash account would be CREDITED on RIGHT side of the T-account.

revenue recognition principle

The principle guides a business as to when it should recognize revenue Revenue should be recorded when it is earned The earnings process is complete when the services are performed or product is sold

Equity

The residential interest in the assets of a business after deducting the business'a debts

Butter Company purchased $300 of supplies for cash. Illustrate how to record the transaction into T-accounts by completing the following sentence.

The supplies account would be DEBITED on LEFT side of the T-accounts and the cash account would be CREDITED on the RIGHT side of the T-account.

Brown Company paid its only employee his weekly wages of $400, Show how to record the transaction to the T-Accounts by completing the following sentence.

The wages expenses account would be DEBITED on the LEFT side of the T-account, and the cash account would be CREDITED on the RIGHT side of the T-account

Investing activities

These activities are the acquiring and disposing of assets that an organization uses in its business

operating activities

These activities are the every day activities that occur in running a business, selling a product or providing a service

financing activities

These activities provide the monies needed to pay for resources such as land and buildings

Public accounting

This area of accounting includes offering tax advice services and auditing services

Private accounting

This area of accounting is where employees work for businesses

entering transactions on a T-account

To enter transactions on the right side of a T-account means you are CREDITING the account and will cause an INCREASE in a liability account.

Recall that the Balance Sheet reports the equity of the accounting equation and would include which of the following amounts?

Total Liabilities Retained Earnings balance at the end of period Total Assets

a posting reference

a posting reference in a Ledger includes the page number of the account debited or credited on the journal and serves as a link to cross-reference the transaction from one to another

The balance sheet reports

assets, liabilities, and equity

Enter one word each blank. The expanded accounting equation is:

assets=liabilities + common stock + revenues - expenses - dividends

Dividends (Payments to the owner)

cause a DECREASE in equity and are entered directly in the DIVIDENDS account

liabilities

claims against the assets of a business

common stock account

common stock account is used to record investments by owners The common stock account is an equity account The common stock account is increased on the right side of the T-account

Last month, Hair Salon company purchased $900 of supplies on account. Today, Hair Salon wants to make a payment of $200 on this bill. Record this transactions into the accounting equation of Hair Salon Company by

decreasing cash, $200 decreasing Accounts Payable, $200

four major types of transactions that affect equity in a business are

expenses, revenues, dividends, and common stock

how do expenses affect equity

if expenses increase, then total equity decreases higher expenses cause lower total equity

investments

increase equity and are assets an owner puts into the business

revenues

increase equity and are the assets or monies earned from a company's earnings activities

The general Ledger can be used to determine which of the following

increases and decreases in all accounts in a business which accounts are being used by a company and their balances at any given time common and unique accounts used by a business

a customer makes a partial payment of $100 on a service for which you have already billed him, you would record this transaction into the accounting equation by

increasing Cash and decreasing Accounts Receivable

creditors

individuals or organizations that have rights to receive payments from a business

examples of revenue accounts

interest revenue, professional fees earned, sales

a trail balance

is a LIST of accounts and their balances at a point in time and is used to confirm that the sum of debit account balances equals the sum of CREDIT account balances.

Notes receivable

is classified as an asset Another name for note receivable is a promissory note It is the promise of another entity to pay a definite sum of money on a specified future date. Note receivable is decreased with a credit

an account

is record of increases and decreases in a specific asset, liability, equity, revenue or expense item.

Posting

is transferring entries from the journal to the ledger

a journal

it is a book of original entry that includes a chronological record of all transactions that have occurred within a business during a period occurred

a general ledger

it is a collection of all accounts with their activity and balances that exist in a business

a chart of accounts

it is a list of all ledger accounts which exist in a business and includes an identification number assigned to each account

trail balance

it is a list of each account and its balance at any given time and is used to verify that debits=credits

why accounting information is useful

it records, summarizes and reports business transactions it is essential to help make business decisions it is helpful in comparing the performance of one company against a competitor

to enter transactions on the left side of a T-account

means you are DEBITING the account and will cause an INCREASE in an asset account.

prepaid accounts

prepaid accounts are ASSETS that represent prepayments of future expenses and are increased with a DEBIT

using the accounting equation

recording the purchase of equipment for cash would include an increase to the EQUIPMENT account and a decrease to the CASH account

examples of expenses

rent expenses supplies expenses

given the lists of accounts below, identfiy which list contains only acoounts that would appear on a balance sheet

retained earnings, equipment, accounts payable

net income formula

revenues-expenses=net income

Building account

the building asset account is used to record the costs of purchasing a store,office,warehouse or factory

expenses

the costs of doing business

equity

the equity of a corporation consists of retained earnings and contributed capital

On Jan. 2, Taylor company performed $800 worth of services for a client. The Client paid $100 immediately, but promised to pay the balance next month.

the journal entry to record this transaction would include a DEBIT to the Cash account; a DEBIT to the Accounts receivable account and a CREDIT to the Service revenue account.

The notes Payable

the notes payable account is a LIABILITY account and is increased on the RIGHT side of the T-account

T-account has three sides

the top is called the Title the left side is called the DEBIT side the right side is called the CREDIT side

Assets

things of value owned by a business

revenues cause equity

to INCREASE and they are increased on the RIGHT side of the T-accounts

effect of debiting or crediting accounts

to increase the dividends account, you would debit it to increase an expenses account, you would debit it to decrease an asset, you would credit it to reduce cash you would credit it to reduce accounts payable you would debit it

included on income statment

total revenues total expenses net income

when financial statements are prepared

when financial statements are prepared, unexpired prepaid accounts are recorded as ASSETS and the expired portion of the prepaid account is reported as an EXPENSE

Dividends of $60 cash are paid to the corporation's shareholders.

you would record this transaction in the accounting equation by decreasing the CASH account and INCREASING the dividends account