AC test 1

What are the main groups of external users for financial statements

1. Creditors 2. Investors 3. Government

Place the steps taken at the end of an accounting period to complete the financial Statement preparation process in correct order.

1. Prepare the adjusting entries 2. Prepare an adjusted trial balance 3. Prepare the financial statements

A credit is used to record

A decrease in an asset account

___ adjustments involve adjusting entries where the revenue has been earned or the expense has been incurred, and the cash will be collected or paid in the future.

Accrual

A prepayment that is originally recorded as an asset will be _____.

Allocated to future accounting periods based on the values of the benefit used during the period.

Revenues

Amounts earned by selling goods

Expenses

Amounts used to generate profits

Liabilities

Creditors' claim to economic resources

The deferral adjustment to record the amount of unearned service revenue that is now earned includes a ______.

Debit to Unearned Revenue Credit to Service Revenue

Assets

Economic resources that will provide future benefit

True/false: Net income equals the net amount of cash collected during the accounting period.

False.

True or False: Revenues equal cash collections during the accounting period.

False. Revenues are recorded when the goods or services are provided even if cash isn't collected until later period.

Borrowing from a bank is a _____.

Financing Activity

Which line items appear on the statement of retained earnings?

Net Income Dividends Ending balance of Retained earnings

The statement of cash flow shows cash flows from what activities:

Operating Activities Investing Activities Financing Activities

Stockholders' Equity

Owners' claim to economic resources

The line item net income appears on the _____.

Statement of retained earnings income statement

The adjusting entry to record service earned but not yet billed requires _______.

a debit to Accounts Receivable and credit to Service Revenue.

Individual expenses are accumulated in separate ____.

accounts.

Adjustment ensure that ___ balances are reported at amounts representing the economic benefits that remain at the end of the period and will be used-up in future periods

asset

Debit financing is obtained from _____ whereas equity financing is obtained from _____.

creditors; stockholders

Balance sheet accounts such as supplies or prepaid rent, _____ (increase/decrease) as a result of deferral adjustments.

decrease

The order in which assets are reported on the balance sheet is based on when the asset is _____.

expected to be used or turned into cash.

A deferral adjusting entry that adjusts the assets (such as Prepaid Insurance)_____.

expenses the amount used during the period.

Net Profit Margin

indicates how much profit is earned from each dollar of revenue.

The accrual adjustment recorded to adjust for expenses incurred but not yet paid will cause ____.

liabilities to increase

Amortization is the expensing of _____.

long-term assets that lack physical substance.

Adjustments ensure that liabilities are reported as all amounts ____ at the end of an accounting period.

owed

The main reason companies exist is to maximize their:

profits & owners wealth

The unit-of-measure assumption states that:

results of business activities should be reported in an appropriate monetary unit.

What appears on both statement of retained earnings and balance sheet?

retained earnings

A ____-_____ income statement reports a single measure of income. It reports the difference b/w total revenues and total expenses.

single-step

Contributed capital represents:

the amount invested in the business by stockholders when shares of stock were initially issued by a corporation.

When accounts receivable are collected

the amount of total assets is unchanged.

The balance in retained earnings prior to the closing process equals _____.

the balance at the end of the previous accounting period.

An income statement is referred to as a single-step income statement because

the format separates total revenues from expenses and reports a single measure of income.

The ending Retained Earnings balance appears on the _____.

the statement of retained earnings the balance sheet

Which action will be taken in the adjusting entry to record rent expense that has expired during the month? (Assume that the rent was paid in advance and previously recorded as an asset.)

Debit Rent Expense

Cash flows provided by ___ activities on the statement of cash flow reports the cash activities with stockholders and creditors such as banks

Financing Activities

Paying a cash dividend to stockholder is what kind of activity?

Financing Activity

Which account balances will typically be increased as a result of adjusting entries? -Unearned Revenue -Prepaid Rent -Interest Payable -Supplies Expense -Supplies -Cash

Interest Payable & Supplies Expense

The ___ principle requires that the assets and liabilities be recorded at the amounts that were measurable at the time of the transaction.

cost principle

The line item, common stock on the balance sheet, results from a(n) _____ activity.

financing

Adjustments to revenue accounts at the end of the accounting period are made to dear to accrual accounting principles, specifically the _____ principle.

revenue-recognition

According to the revenue recognition principle _____.

revenues should be recognized when they're earned.