Accounting 221 Chapter 1+2 quiz

When cash is received from a stockholder in exchange for common stock, the transaction is recorded by debiting Cash and crediting a(n):

Equity account - Common Stock

If our company uses cash to purchase equipment, the affect on the accounting equation is that:

Assets are unchanged, liabilities are unchanged, equity is unchanged

Dividends are subtracted on the income statement as a business expense.

False

A credit to an account in the general ledger:

Is the right-hand side of a T-account

Which of the following accounts is NOT in the asset category:

Services Revenue

Equity is defined as the net worth or net book value of a company. It is the company's assets minus its liabilities. The two general ledger accounts noted for corporations are Retained Earnings and Common Stock. Common Stock represents the investors initial investment into the corporation, and Retained Earnings represents:

The beginning balance of the account + net income - dividends = ending balance

Accounts Receivable represent credit sales made by our company

True

An account in the general ledger, or books, of a company is a record of increases and decreases in a specific asset, liability, equity, revenue, or expense item.

True

If our business makes a daily operational purchase on credit or on account (such as the purchase of inventory and our vendor later sends us a bill), it creates a liability for our company typically accounted for in an account in our general ledger called accounts payable.

True

Inventory is considered an asset to a grocery store

True