Test One

Journal Entries: Paid a 3000 cash dividends to shareholder

"Dividends Debit Cash Credit

Name the 3 important Adjusting Entry Rules

1. No Cash 2. Always Debit Expenses 3. Always Credit Revenues

A classified balance sheet differs from an unclassified balance sheet in that:

A classified balance sheet classifies assets and liabilities as current (short-term) and noncurrent (long-term).

Unearned revenue is reported in the financial statements as:

A liability on the balance sheet.

Cost principle

Accounting principle that prescribes financial statement information be based on actual costs incurred in business transactions.

Double-entry accounting

Accounting system in which each transaction affects at least two accounts and has at least one debit and one credit.

Accrual basis accounting

Accounting system that recognizes revenues when goods or services are provided and expenses when incurred; the basis for GAAP.

Which of the following accounts is a permanent account?

Accounts payable.

Adjusting entries:

Affect both income statement and balance sheet accounts.

Net income

Amount earned after subtracting all expenses necessary for and matched with sales for a period; also called income, profit, or earnings.

A trial balance prepared before any adjustments have been recorded is:

An unadjusted trial balance.

Corporation

Business that is a separate legal entity under state or federal laws; its owners are referred to as shareholders or stockholders.

Which of the following items does not require an adjusting entry?

Cash

Palmer Company is at the end of its annual accounting period. The accountant has journalized and posted all external transactions and all adjusting entries, has prepared an adjusted trial balance, and prepared the financial statements. The next step in the accounting cycle is:

Close temporary accounts.

Common stock

Corporation's basic ownership share; also generically called capital stock.

Accrued expenses

Costs incurred in a period that are both unpaid and unrecorded; adjusting entries for recording accrued expenses involve increasing expenses and increasing liabilities.

Liabilities

Creditors' claims on an organization's assets; involves a probable future payment of assets, products, or services that a company is obligated to make due to past transactions or events.

Two common subgroups for liabilities on a classified balance sheet are:

Current liabilities and long-term liabilities.

The adjusting entry at the end of an accounting period to record the unpaid salaries of employees for work provided is:

Debit Salaries Expense and credit Salaries Payable.

Journal Entries: "Paid employees 1,200"

Debit: Salaries Expense Credit: Cash

Securities and Exchange Commission (SEC

Federal agency Congress has charged to set reporting rules for organizations that sell ownership shares to the public.

Balance sheet

Financial statement that lists types and dollar amounts of assets, liabilities, and equity at a specific date

Income statement

Financial statement that subtracts expenses from revenues to yield a net income or loss over a specified period of time; also includes any gains or losses.

The rule that requires financial statements to assume that the business will continue operating instead of being closed or sold is the:

Going-concern assumption.

Financial Accounting Standards Board (FASB)

Independent group of full-time members responsible for setting accounting rules.

Creditors

Individuals or organizations entitled to receive payments.

Accounting

Information and measurement system that identifies, records, and communicates relevant information about a company's business activities.

Compound journal entry

Journal entry that affects at least three accounts.

External User of accounting information

Leaners, Shareholders, Politicians, and Customers

Chart of accounts

List of accounts used by a company; includes an identification number for each account.

Trial balance

List of ledger accounts and their balances (either debit or credit) at a point in time; total debit balances equal total credit balances.

what does "in advance" indicate?

Means Unearned Revenue

If a company uses $1,610 of its cash to purchase supplies, the effect on the accounting equation would be:

One asset increases $1,610 and another asset decreases $1,610, causing no effect.

A classified balance sheet:

Organizes assets and liabilities into subgroups.

Equity

Owner's claim on the assets of a business; equals the residual interest in an entity's assets after deducting liabilities; also called net assets or owner's equity.

Internal users

Persons using accounting information who are directly involved in managing the organization.

External users

Persons using accounting information who are not directly involved in running the organization.

Which of the following is the usual final step in the accounting cycle?

Preparing a post-closing trial balance.

Expense recognition (or matching) principle

Prescribes expenses to be reported in the same period as the revenues that were earned as a result of the expenses

Expense recognition (or matching) principle

Prescribes expenses to be reported in the same period as the revenues that were earned as a result of the expenses.

Monetary unit assumption

Principle that assumes transactions and events can be expressed in money units.

Going-concern assumption

Principle that prescribes financial statements to reflect the assumption that the business will continue operating.

Business entity assumption

Principle that requires a business to be accounted for separately from its owner(s) and from any other entity.

Journalizing

Process of recording transactions in a journal.

Posting

Process of transferring journal entry information to the ledger; computerized systems automate this process.

Ledger

Record containing all accounts (with amounts) for a business; also called general ledger.

General ledger

Record containing all accounts (with amounts) for a business; also called ledger.

Journal

Record in which transactions are entered before they are posted to ledger accounts; also called book of original entry.

Account

Record within an accounting system in which increases and decreases are entered and stored in a specific asset, liability, equity, revenue, or expense.

Debit

Recorded on the left side; an entry that increases an asset or expense account, or decreases a liability, revenue, or equity account; abbreviated Dr.

Credit

Recorded on the right side; an entry that decreases an asset or expense account, or increases a liability, revenue, or equity account; abbreviated Cr.

Accounting cycle

Recurring steps performed each accounting period, starting with analyzing transactions and continuing through the post-closing trial balance (or optional reversing entries).

Statement of retained earnings

Report of changes in retained earnings over a period; adjusted for increases (net income), for decreases (dividends and net loss), and for any prior period adjustment.

Assets

Resources a business owns or controls that are expected to provide current and future benefits to the business.

The rule that requires revenue to be recognized when (1) goods or services are provided to customers and (2) at the amount expected to be received from the customer is called the:

Revenue recognition principle.

Generally accepted accounting principles (GAAP)

Rules that specify acceptable accounting practices.

if its Preforms Service what does it go under?

Service Revenue

Revenue recognition principle

The principle prescribing that revenue is recognized when goods or services are delivered to customers.

T-account

Tool used to show the effects of transactions and events on individual accounts; shaped in the form of a T.

"on account" on a journal entries means it will be what?

account payable, credit