ACC Chapter 2

Recall the required information in a financial statement heading. Rearrange the following line items as they would appear in a heading.

1. Name of business 2. Name of financial statement 3. Period of time the financial statement covers

Prepaid accounts are _______ that represent prepayments of future expenses and are increased with a ______

1. assets 2. debit

Supplies are _______ until they are used. When they are used up, their costs are reported as _______

1. assets 2. expenses

The Dividends account is used to record ____ by the owner and has a impact on equity.

1. dividends 2. negative

Which of the following statements is (are) correct regarding the definition of a liability?

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

The correct definition of an "account" includes which of the following?

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

Which of the following is the best definition of a source document in the accounting process?

A source document identifies and describes transactions and is the basis for entering an event into the accounting system.

Which of the following accounts would be considered an asset?

Accounts receivable Supplies Cash Building

When the stockholders receive a dividend, how would this affect the equity of a business?

Assets are decreased and equity is decreased.

Which of the following statements is the best definition of an asset?

Assets are resources owned or controlled by a company and that have expected future benefits.

Which of the following items would be considered "cash" and reflected in a company's Cash account?

Checks Coin Money orders

Cash can take many forms. From the lists of items below, choose the one which includes only items that would be defined as cash.

Coins, checks, money orders

Which of the following accounts impact equity?

Common Stock Dividends Expenses Revenue

There are several types of accounts that impact equity. Which of the accounts below cause equity to increase?

Common stock and revenues

Which of the following statements about the Dividends account is (are) correct?

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

Which of the following statements is the correct definition of equity?

Equity is the owner's claim on a company's assets.

True or false: The cost of land owned by a business is recorded in the Land account and this account is classified as an expense.

False

Which of the following accounts are examples of revenues?

Fees earned Service revenue Sales

From the lists of accounts below, which one contains only revenue accounts?

Interest revenue, Professional fees earned, Sales

Which of the following items is (are) required in the heading of every financial statement?

Name of the financial statement. Date or period of time covered. Name of the business.

Which of the following would be considered a source document in an accounting system?

Payroll records Purchase order Checks Sales receipt

Which of the following is correct regarding posting a transaction?

Posting means to transfer journal information to a ledger.

Select the statement below that best defines prepaid accounts.

Prepaid accounts are assets that represent prepayments of future expenses.

Which of the following statements are accurate regarding supplies?

Supplies are assets until they are used. Unused supplies are treated as assets. Unused supplies can be recorded as Store Supplies, Office Supplies or Supplies. When supplies are purchased, they are added to the Supplies account.

Which of the following statements is accurate about the Land account?

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

Which of the following describes a general ledger?

The general ledger is a record containing all accounts used by a company.

Equity

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

Which of the following would be included on an income statement?

Total expenses. Net income. Total revenues.

Normal balance debit or credit

debit: office supplies, dividends, wages expenses, accounts receivable, prepaid rent, building credit: fees earned (revenues), wages payable, common stock

True or false: Assets are claims (by creditors) against the company.

false

Transferring entries from the journal to the ledger is called

posting

Analyzing the accounting equation at the end of the month will reveal the following.

revenues and expenses will change the equity account. assets = liabilities + equity.

Transactions and events are the

starting points in the accounting process

revenues

the dollars earned because of the services performed or products sold

liabilities

the obligations owed by the business to creditors

An income statement reports:

the revenues less the expenses incurred by a business

Assets

things of value owned by a business

The general ledger can be used to determine which of the following:

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

Accounts receivable are _____ by credit sales and are ____ by customer payments.

1. increased 2. decreased

A trial balance is a(n) (list/balance/chart) ___ 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 ___ account balances. Use one word for each blank.

1. list 2. credit

Indicate the order the financial statements are prepared:

1: income statement 2: statement of retained earnings 3: balance sheet 4: statement of cashflows

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 Journal

Which of the following statements is (are) correct regarding a T-account?

A T-account may be used as a tool to visualize the effects of a transaction. A T-account will show the debit and credit effects of transactions. A T-account represents a ledger account.

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

A chart of accounts

Which of the following statements is the correct definition of a creditor?

A creditor is an individual or organization that has a right to receive payments from a business.

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

A general ledger

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

A trial balance

Which of the following statements explains what a trial balance is?

A trial balance confirms that the sum of debit account balances equals the sum of credit account balances.

Which of the following statements is accurate regarding Accounts payable?

Accounts payable refer to promises to pay later, which may arise from the purchase of supplies or services.

Which of the following accounts has a normal debit balance?

Accounts receivable Supplies Cash Buildings

Which of the following statements is (are) true about accounts receivables?

Accounts receivable are increased when credit sales are made. Accounts receivable reflects the amount owed by customers.

Given the descriptions below, which is (are) true regarding notes receivable?

Another name for a note receivable is a promissory note. It is the promise of another entity to pay a specific sum of money on a specified future date. Notes receivable is classified as an asset.

The stockholders of a business received a $1000 dividend. How would this affect the total equity of the business?

Assets would be decreased and total equity would decrease as well.

Examples of Assets, Liabilities, and Equity:

Assets: cash, prepaid rent, office supplies, prepaid insurance, office equipment. Liabilities: accounts payable, unearned rent revenue Equity: common stock and dividends

Identify which of the following lists include only examples of assets.

Building, cash, accounts receivable

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

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

Which of the following accounts has a normal credit balance?

Unearned consulting revenue. Accounts payable. Common stock.