Accounting 201 Midterm 1
Property, Plant, & Equipment
Assets that last longer than the year and are used in operations of business (Accumulated depreciation)
Current Liabilities (what we owe within 1 year)
Bank Loan, Wages Payable, Notes Payable, Rent Payable, Accounts Payable, Unearned Revenue
Long-Term Liabilities (Pay longer than 1 year)
Bank loan, Leases payable, pension obligations, mortgage payable, bonds
Current Assets
Cash, Inventory, Supplies, Short-Term Investments, Accounts Receivable, Prepaid Insurance, Notes Receivable
Decrease in Asset
Credit
Decrease in Dividends
Credit
Decrease in Expenses
Credit
Increase in CC / CS
Credit
Increase in Liabilities
Credit
Increase in Retained Earnings
Credit
Increase in Revenue
Credit
Working Capital (equation)
Current Assets - Current Liabilities
Current Ration (equation)
Current Assets / Current Liabilities
Decrease in CC / CS
Debit
Decrease in Liabilities
Debit
Decrease in Retained Earnings
Debit
Decrease in Revenue
Debit
Increase in Dividends
Debit
Increase in Expenses
Debit
Increase in asset
Debit
Rules for Double - Entry Accounting
Debit = Credit, each transaction must have 1 debit and 1 credit
Accounting Equation - Equity
Equity = Contributed Capital + Retained Earnings
A credit to an asset account means that asset account has been increased.
False
A different set of financial statements usually is prepared for each user.
False
A journal entry is a notation that consists of either a single debit or a single credit that is recorded in the general ledger.
False
All expenses incurred by a business are paid immediately in cash.
False
Classified balance sheets list accounts in alphabetical order.
False
Entering transactions into the journal is called posting.
False
For accounting purposes, a business and its owner are considered the same entity.
False
In a journal entry, debits are always indented.
False
In practice, accounting information is quite simple and precise.
False
Net income results when expenses exceed revenues.
False
Profitability means having enough cash on hand to pay bills when they become due.
False
Revenue is produced when accounts receivable are collected.
False
The Retained Earnings portion of a corporation represents the initial contribution of capital to the business.
False
The heading for a balance sheet might include the line "For the Month Ended December 31, 20--."
False
The matching rule is most closely related to the cash basis of accounting.
False
Revenues have the effect of increasing stockholders' equity.
True
The intentional preparation of misleading financial statements is referred to as fraudulent financial reporting.
True
The main difference between intangible assets and property, plant, and equipment is physical substance.
True
The statement of cash flows discloses significant events related to the operating, investing, and financing activities of a business.
True
To understand accounting information, users must be familiar with the accounting conventions, or rules of thumb, used in preparing financial statements.
True
When a company pays an employee for work performed, it is considered an economic event that is recorded as a transaction.
True
When a company receives a product previously ordered, a recordable transaction has occurred.
True
Rules of Adjusted Journal Entry
1) Was the transaction already recorded? 2) Every entry must have 1 balance sheet and 1 income statement, 3) NEVER CASH!!!!
Accounting Equation - Balance Sheet
Assets = Liabilities + Equity
Accounts Receivable
Money that people owe to you (income you receive)
Accounts Payable
Money that you owe to others
Return on Assets (equation)
Net Income / Average Total Assets
Profit Margin (equation)
Net Income / Total Sales
Accounting Equation - Income Statement
Net Income = Revenues - Expenses
Two Financial Goals of Business
Profitability = able to make money in business, and Liquidity = ability to pay off debt
Asset Turnover (equation)
Revenues / Average Total Assets
Debt to Equity Ration (equation)
Total Liabilities / Stockholder's Equity
A corporation is an economic unit that is legally separate from its owners.
True
A journal entry is a notation that records a single transaction in the chronological accounting record known as the book of original entry.
True
A material item is one that is likely to affect a user's decision.
True
A transaction should be recorded when title to merchandise passes from the supplier to the purchaser and creates an obligation to pay.
True
Accountants focus on the needs for financial information by both internal and external decision makers.
True
Accounting information contains numerous estimates, classifications, summarizations, judgments, and allocations.
True
Accrual accounting is an application of the matching rule.
True
Adjusting entries are useful in allocating costs among two or more accounting periods.
True
Almost every revenue or expense account on the income statement has one or more related accounts on the balance sheet.
True
An adjusted trial balance proves the balance of the ledger accounts after the adjusting entries have been posted.
True
An adjusting entry includes at least one balance sheet account and at least one income statement account.
True
Business transactions are economic events that should be recorded in the accounting records.
True
Corporate governance is the oversight of a company's management performance and ethics by its board of directors.
True
Equity is increased when net income exceeds dividend distributions.
True
Even when no errors have been made, accounting is never 100 percent accurate because of the extensive use of estimates.
True
Financial position may be assessed by referring to a balance sheet
True
Investors and creditors use financial statements to evaluate a company's ability to pay dividends and interest.
True
Net assets equal stockholders' equity.
True
Purchasing office supplies on account is an example of one way a company can take advantage of deferring a cash payment.
True
Recording incurred but unpaid expenses is an example of an accrual.
True
Investment
assets that you are holding for sale and are not part of your operations
Accounting Equation - Retained Earnings
eR/E = bR/E/ + Net Income - Dividends
Return on Equity (equation)
net income / average stockholders equity