Accounting 101 (Chapter 2 Smartbook)

are dividends an expense

no

GAAP rule on valuation

original cost is the proper value to assign to all business transactions

Why are transactions recorded at cost?

- Cost is easily measurable - So transactions shouldn't be measured in terms of worth (that can change over time - think about market values for properties) but instead should be measured in terms of cost at the time of the transaction - The exchange price, or cost of a transaction is measurable and doesn't change

five components of stockholders' equity

1. common stock 2. retained earnings 3. revenues 4. expenses 5. dividends

before recording a business transaction, these three questions must be answered

1. when did the transaction occur? 2. what value to place on the transaction 3. how to categorize the components of the transaction

credit and debit definition

A debit is an entry that represents an increase in assets or expenses and a decrease in liabilities or equity in accounting, while a credit is an entry that represents a decrease in assets or expenses and an increase in liabilities or equity.

cost principle

A principle that states that acquired assets and services should be recorded at their actual cost.

left side

Debit

The payment for utilities of the current month would be recorded as Multiple Choice Debit Cash; Credit Utilities Payable. Debit Utilities Expense; Credit Utilities Payable. Debit Utilities Expense; Credit Cash. Debit Utilities Payable; Credit Cash.

Debit Utilities Payable; Credit Cash.

A credit to Cash will: Multiple Choice Decrease stockholders' equity. Decrease liabilities. Decrease assets. Increase assets.

Decrease assets

a debit to salaries will

Decrease stockholders' equity.

Transactions are recorded using debits and credits in a(n): Multiple Choice Journal. Financial statement. Annual report. Chart of accounts.

Journal

In the language of accounting, the term "debit" always means Multiple Choice Increase. Decrease. Left-hand side. Right-hand side.

Left-hand side

Which of the following transactions decreases total assets? Multiple Choice Purchase supplies on account. Receive a utility bill but do not pay it. Pay dividends to stockholders. Receive cash from customers for sales in the current period.

Pay dividends to stockholders.

Which of the following transactions causes a decrease in stockholders' equity? Multiple Choice Providing services to customers on account. Providing services to customers for cash. Paying advertising expense for the current month. Repaying amount borrowed from the bank.

Paying advertising expense for the current month.

normal balance of an account

The side of an account (debit or credit) in which the balance normally appears based on the type of account and whether it is increased by debits or credits.

A debit is used to increase which of the following accounts? Utilities Expense. Service Revenue. Accounts Payable. Common Stock.

Utilities expense

Purchasing office supplies on account for $100 is recorded as: Multiple Choice Option c Option b Option d Option a

a) debit: supplies credit: accounts payable

Accounts

are basic storage units for accounting data

a credit is used to decrease which of the following accounts?

cash

right side

credit

in accounting terms, the duality of the accounting system is represented by the terms

debit and credit

every transaction that is recorded in an accounting system has at least one

debit and one credit

Paying dividends to stockholders would be recorded with a: Multiple Choice Credit to Dividends. Credit to Common Stock. Debit to Dividends. Debit to Salaries Expense

debit to dividends

dividends and expenses _________ stockholders' equity

decrease

each business transaction will have a

dual effect on the accounting equation The accounting equation must always remain in balance.

two types of business transcations

external and internal

After transactions are recorded in the journal, they are posted to the: Multiple Choice Financial statements. General ledger. Trial balance. Chart of accounts.

general ledger

If the cost principle is employed, what value is used to record a transaction?

historical cost, or the exchange price

any affect that does not affect the accounting equation

is not a business transaction

Classification

is the process of assigning transactions to the appropriate accounts

for a transaction involving services

recognize the transaction when the services are performed

So the balance sheet does NOT

represent the "fair market value" of a company

A credit is used to increase which of the following accounts? Multiple Choice Service Revenue. Cash. Insurance Expense. Dividends.

service revenue

which of the following shows a chronological record of all transactions?

the general journal

accounting tradition says to recgonize

the transaction when the title of the property TRANSFERS

If a debit increases assets by $100 and the asset was purchased with a loan

then a credit must increase liabilities by $100 for the accounting equation to stay in balance.

if an economic event increases one side of the equation

then it also either increases the other side of the equation by the same amount or decreases the same side of the equation by the same amount

Deferred Revenue

unearned revenue