Accounting 2100 Chapters 1 & 2
The accounts that represent the resources of the company are called
Assets
Financial accounting deals with what/who?
1. Measuring a company's economic activity 2. Preparing financial reports 3. Communicating financial results to investors
What account represents a resource of the company?
Accounts receivable
Amounts owed to suppliers for supplies purchased on account are defined as
A liability
A _______________ summarizes all transactions related to a particular item over a period of time.
Account
The full set of procedures used to accomplish the measurement/communication process of financial accounting is referred to as the
Accounting Cycle
The accounting process begins with
Analysis of business transactions and events
When a payment is made on an account payable, what happens?
Assets and liabilities decrease
On Sept. 30 MFP paid employees salaries of $7000 including $1000 it owed to its employees last month, What are the effects of this transaction on the accounting equation?
Assets decreased, liabilities decreased, and expenses increased
Investments by stockholders have what effect on the accounting equation?
Assets increase and stockholders' equity increases
When a company issues common stock for cash, what is the effect on the accounting equation for the company?
Assets increase and stockholders' equity increases
When a company provides services on account, the accounting equation would be affected as follows:
Assets increase and stockholders' equity increases
Accounting Equation
Assets=Liabilities + Stockholders Equity
A company receives a $500,000 cash deposit from a customer on Oct. 15 but will not provide services until Nov 20. Which of the follow statements is true? A. The company records service revenue on Oct. 15 B. The company records cash collection on Nov 20 C. The company records deferred rev on Oct 15 D. The company records nothing
C
External events include all of the following except: A. Paying Rent B. Purchasing Equipment C. Using office equipment D. Collecting an account receivable
C
When cash payments are made to stockholders, what is the effect on the company's accounts?
Cash decreases, dividends increase
A list of all account names used to record transactions of a company is referred to as the:
Chart of Accounts
Primary purpose of financial accounting
Communicate financial results to investors and creditors
The form of business organization that is legally separate from its owners
Corporation
Which business form has the advantage of limited liability?
Corporation
Liabilities are best defined as
Debts or obligations the company owes resulting from past transactions
When the company pays stockholders a dividend, what is the effect on the accounting equation for that company?
Decrease assets and decrease stockholders equity
An expense has what effect on the account equation?
Decrease stockholders' equity
Receiving cash from customers before services are performed results in
Deferred Revenues
A disadvantage of the corporate form of business
Double taxation
Transactions of a company involving external sources of funding are referred to as
Financing activities
What are source documents? List examples.
Identify the date and nature of a transaction. Examples; sales tickets, checks, purchase orders, and bank statements
Purchasing office supplies on account will
Increase assets and increase liabilities
Providing services and receiving cash will
Increase assets and increase stockholders' equity
Receiving cash from an account receivable
Increases one asset and decreases another asset
Revenues have what effect on the accounting equation?
Increases stockholders' equity
Financial accounting provides what?
Information for external decision makers
Transactions of a company that include the purchase and sale of long-term assets are referred to as
Investing Activities
McGill purchases additional office equipment to better services to customers. This purchase is classified as what type of activity?
Investing activity
Creditors claims to a corporations resources are referred to as
Liabilities
Purchasing office equipment on account has what impact on the accounting equation?
Liabilities increase and assets increase
What is the primary purpose of financial accounting?
Measure business activities and communicate those measures to eternal users to make decisions
Purchasing supplies for cash has what effect on the accounting equation?
No effect
Pumpkin Inc. sold $500 in pumpkins to a customer on account on Jan 1. On Jan 11 Pumpkin collected the cash from that customer. What is the impact on Pumpkin's accounting equation from the collection of cash?
No net effect to the accounting equation
Transactions related to the primary business of the company such as selling goods and services to customers, are referred to as
Operating Activities
Which step in the process of measuring external transactions involves assessing the equality of total debits and total credits for the period?
Prepare a trial balance
Describe the accounting equation
Resources of the company equal creditors and owners claim to those resources
The assets of a company represent:
Resources that will be used to benefit the company
The stockholders interest in a corporation is called
Stockholder's Equity
Stockholders claims to the company's resources are referred to as:
Stockholder's equity
Limited Liability means
Stockholders of a corporation are not obligated to pay the corporation's debts out of their own pocket
When a company pays employees' salaries for the current period, how will the basic accounting equation be affected?
Stockholders' equity decreases
If a company provides services on account, which of the following is true?
Stockholders' equity increases
Financing activities include
Transactions involving external sources of funding, issuing common stock to stockholders