Accounting 230 - CHPT 2

DEALOR - What does DEA stand for?

-Dividends -Expenses -Assets All which increase with debit

DEALOR - What does LOR stand for?

-Liabilities -Owners Equity -Revenues All which increase with credit

The steps in the measurement process of external transactions

1. Use source documents to identify accounts affected by an external transaction. 2. Analyze the impact of the transaction on the accounting equation. 3. Assess whether the transaction results in a debit or credit to account balances. 4. Record the transaction in a journal using debits and credits. 5. Post transactions to the general ledger 6. Prepare a trial balance.

Deferred Revenue

A liability created when a business collects cash from customers in advance of completing a service or delivering a product.

Account

A record of the business activities related to a particular item.

Indicate which accounts should be debited and which should be credited for the following transactions Pay for office supplies purchased originally on account

Account Debited: Accounts Payable Account Credited: Cash

Provide construction services for $18,000 on account.

Account Debited: Accounts Receivable Account Credited: Service Revenue

Indicate which accounts should be debited and which should be credited for the following transactions Provide services to customers on account.

Account Debited: Accounts Receivable Account Credited: Service Revenue

Purchase advertising for the current month for $1,100 cash.

Account Debited: Advertising Expense Account Credited: Cash

Indicate which accounts should be debited and which should be credited for the following transactions Collect cash from customers for services provided previously "on-account"

Account Debited: Cash Account Credited: Accounts receivable

Indicate which accounts should be debited and which should be credited for the following transactions Issue common stock in exchange for cash.

Account Debited: Cash Account Credited: Common Stock

Issue common stock for $21,000.

Account Debited: Cash Account Credited: Common Stock

Indicate which accounts should be debited and which should be credited for the following transactions Borrow cash from the bank and sign a note.

Account Debited: Cash Account Credited: Notes Payable

Obtain $9,000 loan from the bank by signing a note.

Account Debited: Cash Account Credited: Notes Payable

Provide services to customers and receive cash of $6,800.

Account Debited: Cash Account Credited: Service Revenue

Receive $13,000 cash on account from March 22 services.

Account Debited: Cash Account Credited: Accounts Receivable

Indicate which accounts should be debited and which should be credited for the following transactions Pay a cash dividend.

Account Debited: Dividends Account Credited: Cash

Indicate which accounts should be debited and which should be credited for the following transactions Purchase equipment in exchange for cash.

Account Debited: Equipment Account Credited: Cash

Purchase construction equipment for $25,000 cash.

Account Debited: Equipment Account Credited: Cash

Purchase equipment in exchange for cash of $23,400.

Account Debited: Equipment Account Credited: Cash

Indicate which accounts should be debited and which should be credited for the following transactions Pay rent in advance for the next three months.

Account Debited: Prepaid Rent Account Credited: Cash

Pay the current month's rent of $1,300.

Account Debited: Rent Expense Account Credited: Cash

Indicate which accounts should be debited and which should be credited for the following transactions Pay salaries for the current month.

Account Debited: Salaries Expense Account Credited: Cash

Pay employee salaries of $2,100 for the current month.

Account Debited: Salaries Expense Account Credited: Cash

Pay salaries for the current month of $6,000.

Account Debited: Salaries Expense Account Credited: Cash

Indicate which accounts should be debited and which should be credited for the following transactions Purchase office supplies on account.

Account Debited: Supplies Account Credited: Accounts Payable

Purchase office supplies on account for $1,000.

Account Debited: Supplies Account Credited: Accounts Payable

Indicate which accounts should be debited and which should be credited for the following transactions Pay for the current month's utilities.

Account Debited: Utilities Expense Account Credited: Cash

Describe the dual effect on the accounting equation. Pay employee salaries of $3,200 for the current month.

Assets decrease and stockholders' equity decreases.

Describe the dual effect on the accounting equation. Pay office rent of $4,400 for the current month.

Assets decrease and stockholders' equity decreases.

Describe the dual effect on the accounting equation. Purchase advertising to appear in the current month, $1,200.

Assets decrease and stockholders' equity decreases.

Describe the dual effect on the accounting equation. Purchase office supplies on account for $2,500.

Assets increase and liabilities increase.

Describe the dual effect on the accounting equation. Receive cash of $5,000 in advance from a customer who plans to have his house painted in the following month.

Assets increase and liabilities increase.

Describe the dual effect on the accounting equation. Paint houses in the current month for $15,000 on account.

Assets increase and stockholders' equity increases.

Beta Company paid utilities expense of $2,000 for the current month. What is the effect of this transaction on the accounting equation?

Assets will decrease by $2,000, liabilities will remain unchanged, and stockholders' equity will decrease by $2,000

Sampson Corporation pays dividends of $9,000 to shareholders. What is the effect of this transaction on the accounting equation?

Assets will decrease by $9,000, liabilities will remain unchanged, and stockholders' equity will decrease by $9,000

Microlith received $20,000 cash in advance from customers. What is the effect of this transaction on the accounting equation?

Assets will increase by $20,000, liabilities will increase by $20,000, and stockholders' equity will remain unchanged

Amber Corporation provided services to customers on account for $26,000. What is the effect of this transaction on the accounting equation?

Assets will increase by $26,000, liabilities will remain unchanged, and stockholders' equity will increase by $26,000

Palmer Corporation borrows $40,000 cash by signing a note with the bank. What is the effect of this transaction on the accounting equation?

Assets will increase by $40,000, liabilities will increase by $40,000, and stockholders' equity will remain unchanged

Bell Company purchased supplies for $700 cash. What is the effect of this transaction on the accounting equation?

Assets will remain unchanged, liabilities will remain unchanged, and stockholders' equity will remain unchanged

Revenue Recognition Principle

Companies recognize revenue in the accounting period in which the performance obligation is satisfied.

Common Stock increases with a

Credit

Liabilities increase with

Credit

Retained Earnings increases with

Credit

Revenues increase with

Credit

Stockholders' Equity increases with

Credit

A company pays cash for utilities. The company records this transaction with a:

Credit to Cash

A company bills customers for services provided. The company records this transaction with a:

Credit to Service Revenue

Dividends increase with

Debit

Expenses increase with

Debit

Callahan Corporation provides services to customers on account, $900. How would this transaction be recorded?

Debit Accounts Receivable $900, credit Service Revenue $900

Kelly Corporation borrows $120,000 from First Community Bank. How would this transaction be recorded?

Debit Cash $120,000, credit Notes Payable $120,000

Timmons Corporation purchases office supplies for $350 cash. How would this transaction be recorded?

Debit Supplies $350, credit Cash $350

Livingston Company pays utilities of $2,500 in cash. How would this transaction be recorded?

Debit Utilities Expense $2,500, credit Cash $2,500

A company borrows cash from a local bank. The company records this transaction with a:

Debit to Cash

A company purchases supplies for cash. The company records this transaction with a:

Debit to Supplies

Are credits or debits listed first in a journal entry?

Debits

Assets increase with

Debits

In a journal entry, there are two amount columns: the left-hand column is for _________, and the right-hand column is for __________.

Debits; Credits

Analyze transactions

Determine the dual effect of business events on the accounting equation.

True or False. All business events have an immediate and quantifiable effect on the accounting equation.

False

Trial balance

List of accounts and their balances.

Describe the dual effect on the accounting equation. Purchase painting equipment for $16,000 cash.

One asset increases and another asset decreases.

Describe the dual effect on the accounting equation. Receive $10,000 from customers in (1) above.

One asset increases and another asset decreases.

Journal

Record of all transactions affecting a company.

Post

Transfer balances from the journal to the general ledger.

True or False. An increase in revenues increases net income, and net income increases stockholders' equity.

True

Chart of Accounts (COA)

Which term refers to an ordered listing of accounts that comprise a company's general ledger?

T account

a tool for analyzing a business's financial position by showing, in a single table, the business's debits (on the left) and credits (on the right)

Journal Entry

an accounting method for expressing the effects of a transaction on accounts in a debits-equal-credits format

Payables

balances due to a creditor on an account

Receivables

claims held against customers and others for money, goods, or services