ABUS 261
5. stable moretary unit concept
"dollar" purchasing power is stable
Assets; debit
+
capital; credit
+
expense; debit
+
liabilities; credit
+
liabilities; debit
+
revenue; credit
+
revenue; debit
+
withdrawals; debit
+
Assets; credit
-
capital; debit
-
expense; credit
-
withdrawals; credit
-
increase asset and increase liability
-"purchase on account" -"borrow from bank"
"on account"
-purchased -sale
Accrual basis
-report revenues when they are earned, but not collected -report expenses when they are incurred, not when they are paid
closing entries
1) close revenue accounts to"income summary" (account) 2) close expense accounts to income summary 3) close income summary to capital 4) close withdrawals to capital account -on trial balance an imaginary line above sales revenue
Financial Reports
1) income statement 2) Statement of owner's equity 3) balance sheet
3. Cost principle
Acquired assets and services should be reported at actual cost (historical cost)
Accounting equation
Assets= Liabilities + Owner's Equity
GAAP
Generally Accepted Accounting Principles
prepaid expense is always a (an) a. asset b. revenue c. liability d. owner's equity
a. asset
cash account is a(n) a. asset account b. liability account c. expense account d. revenue account
a. asset account
John sold vegetables on account. How does this transaction affect the accounting? a. assets increase; owner's equity increases b. assets decrease; owner's equity decrease c. assets increase; owner's equity decreases d. liabilities increase; owner's equity decreases
a. assets increase; owner's equity increases
Which of the following financial statements lists the entity's assets, liabilities, and owner's equity as of a specific date? a. balance sheet b. statement of owner's equity c. income statement d. statement of cash flows
a. balance sheet
which of the following accounts is NOT an example of owner's equity? a. cash b. capital c. withdrawals d. revenue
a. cash
An liability is paid with cash. How does paying this liability affect the accounting equation? a. there is an equal decrease in another b. there is an equal decrease in owner's equity c. there is an equal decrease in a liability account d. none of these is possible
a. there is an equal decrease in another
2. reliability principle
accounting information must be verifiable, free from bias
Assets
all resources useful for the business -cash -supplies -machines -buildings -land
equity
amount invested in the business by its owner -purchased with own money -cash -supplies -machines -buildings -land expenses: - revenues: + capital: + withdrawals: -
accrued expnases
are expenses already incurred, but not paid yet
prepaid expense
asset
permanent accounts
assets liabilities capital -ending balance will be earned forward to next year
Which item is a liability? a. Utility expense b. accounts payable c. accounts receivable d. owner withdrawals
b. accounts payable
the adjusted trial balance shows a. amounts that may be out of balance b. amounts ready for the financial statements c. revenues and expenses only d. assets, liabilities and owners equity only
b. amounts ready for the financial statements
Owner's equity is $210,000 and total liabilities are $90,000. What would total assets be? a. liabilities decrease; owner's equity increases b. assets decrease; liabilities decrease c. assets increase; liabilities increase d. assets increase; liabilities decrease
b. assets decrease; liabilities decrease
adjusting entries never involve a. assets b. cash c. liabilities d. revenues
b. cash
what type of account is accumulated depreciation- building and what is its normal balance? a. expense, debit b. contra asset, credit c. revenue, credit d. asset, debit
b. contra asset
a capital account a. is increased by debits b. is increased by credits c. is a debit normal balance account d. is decreased by credits
b. is increased by credits
which sequence correctly summarizes the accounting process? a. journalize transactions, post to the accounts, prepare a trial balance b. journalize transactions, prepare a trial balance, post to the accounts c. post to the accounts, journalize transactions, prepare a trial balance d. prepare a trial balance, journalize transactions, post to the accounts
b. journalize transactions, prepare a trial balance, post to the accounts
which of the following is the book (or printout) holding all the accounts? a. account b. ledger c. journal d. trial balance
b. ledger
Trial balance doesn't =
balance sheet
all of a company's accounts and their balances appear on which of the following? a. statement of owner's equity b. balance sheet c. adjusted trial balance d. income statement
c. adjustment trial balance
in accounting, the matching principle means to match which of the following? a. revenues to liabilities b. expenses to assets c. expenses to revenues d. expenses to liabilities
c. expenses to revenues
The balance sheet reports? a. financial position for a specific period b. results of operations on a specific date c. financial position on a specific date d. results of operations fora specific period
c. financial position on a specific date
which of the following is the chronological record of transactions? a. account b. ledger c. journal d. trial balance
c. journal
unearned revenue is always a (an) a. asset b. revenue c. liability d. owner's equity
c. liability
which of the following accounts is NOT an example of an asset? a. cash b. accounts receivable c. notes payable d. supplies
c. notes payable
an accrued expense is an expense that a. a business has paid, but not yet incurred b. will be incurred and paid in the future c. the business has incurred, but not yet paid d. has been paid and incurred
c. the business has incurred, but not yet paid
which of thefollowing statements correctly describes a trial balance? a. trial balance is the first step in the accounting cycle b. trial balance is also known as the chart of accounts c. trial balance is a list of all accounts with their balance d. trial balance is also known as a balance sheet
c. trial balance is a list of all accounts with their balance
journal
chronological record of transactions
Accounting is the information system that provides information to various users. What process(es) does this include? a. measuring business activity b. processing the data into reports c. communicating the results to decisions makers d. all of the above
d. all of the above
Adjusting entries are made to ensure that a. expense are recognize in the period in which they are incurred b. revenues are recorded in the period in which service are performed or goods are delivered c. balance sheet and income statement accounts have correct balances at the end of an accounting period d. all the above
d. all the above
which of the following groups of accounts have a normal debit balance? a. liabilities and owner's equity b. assets and liabilities c. revenues and expenses d. assets and expenses
d. assets and expenses
an individual asset (a truck for example) is increased. Which of the following is possible? a. There is an equal decrease in another asset b. There is an equal decrease in owner's equity c. there is an equal decrease in a liability account d. assets increase; liabilities decrease
d. assets increase; liabilities decrease
the left side of an account is used to record which of the following? a. decrease b. increase c. credit d. debit
d. debit
John paid wages expenses totaling $15,000. How does this transaction affect the accounting equation? a. increases assets and decreases liabilities b. increases both assets and owner's equity c. decreases assets and increases liabilities d. decreases both assets and owner'sequity
d. decreases both assets and owner'sequity
accrued everyone is which of the following? a) revenue that has been collected and earned b) revenue that the business has collected but not yet earned c) revenue that will be collected and in earned in the future d. revenue that the business has earned but not collected
d. revenue that the business has earned but not collected
which of the following accounts is increased with credit? a. withdrawals b. supplies expense c. accounts receivable d. sales revenue
d. sales revenue
Liabilities
debts payable to outsiders (creditors) payables
account
detailed record of the changes in a particular asset, liability, or owner's equity
matching principle
expresses to be recorded when they are incured
external- investors, creditor, tax authorities
financial accounting
unearned revenue
liabilities account
trial balance
list of all the accounts with their balances
internal- managers
management accounting
normal balance
on increase side balance
1. Entity
organization that pays stands apart as a separate economic unit
cash basis
report cash receipt as revenue and cash payment as expense -no receivables -no payable -no adjustment
temporary accounts
revenues (all) expenses (all) withdrawals -ending balance need to be closed (zero out)
accrued revenue
revenues already earned, but not yet collected
revenue principle
revenues to be recorded when they are earned at the actual account
depreciation
the allocation of a long-term asset -contra asset
ledger
the book holding of all accounts
4. Going- Concern Concept
the entity will remain in business for foreseeable future
trial balance -------> adjusted trial balance
worksheet