Accounting Chapter 2

What are the effects of providing services on account to customers?

Increase retained earnings Increase assets

What are the three components of retained earnings?

Revenues, expenses, and dividends

Dividends paid to stockholders will cause retained earnings to

decrease

The two roles of financial accounting are to: Multiple select question. -report cost accounting information for internal decisions. -measure business activities of the company. -communicate information to external parties for decision making purposes. -measure and report results to taxing authorities.

- measure business activities of the company. -communicate information to external parties for decision making purposes.

Place the three steps for analyzing the effect of transactions in the correct order.

1. Determine one account in the accounting equation that will increase or decrease 2. determine a second account in the accounting equation that will increase or decrease 3. confirm that assets are equal to liabilities plus stockholders equity

If a transaction decreases cash by $100, the balance sheet will balance if which of the following occurs? (Select all that apply) Multiple select question. A liability is decreased Another asset is increased Stockholders' equity is increased Revenue is increased

A liability is decreased Another asset is increased

Jeremy issues 5,000 shares of common stock for $10 per share. Which of the following accounts are affected? (Select all that apply.) Multiple select question. Revenue Notes payable Cash Common stock

Cash Common stock

Which of the following are stockholder equity accounts?

Common stock Retained earnings

London Corp. issues 1,000 shares of stock for $20 per share. What are the effects of this transaction?

Common stock is increased. Cash is increased.

The first step for analyzing the effect of transactions is:

Determine one account in the accounting equation that will increase or decrease

True or false: The two functions of financial accounting are to measure business activities and prepare tax returns.

False

On February 1, Domino Corporation ordered inventory. The inventory was received on February 15. Domino paid for the inventory on February 27. On which of the following dates will Domino record a transaction? (Select all that apply)

February 15 February 27

On February 1, Domino Corporation ordered inventory. The inventory was received on February 15. Domino paid for the inventory on February 27. On which of the following dates will Domino record a transaction? (Select all that apply)

February 27 February 15

Net income ______ retained earnings.

Increases

What effect does revenue have on retained earnings?

Increases

On May 1, Ace Electronics ordered office equipment. The equipment was delivered to Ace on May 15, and Ace agreed to pay for it by the end of the month. Ace paid for the equipment on May 31. When will Ace make the first entry in its accounting system for this purchase?

May 15

Shriver Corp. borrows $25,000 from a bank and signs a two-year promissory note. What accounts will be affected by this transaction and what is the effect?

Notes payable increases Cash increases

Consistent with the income ________ recognition principle, companies record revenue at the time goods are provided to customers

Revenue

The accounting equation is: Assets = Liabilities +

Stockholders' Equity

True or false: An external transaction is a transaction the firm conducts with a separate economic entity.

True

True or false: The accounting equation must always remain in balance.

True

Indicate which situations would require Zenda Company to record revenue in the current period. (Select all that apply.)

Zenda performs services on account. Zenda performs services for cash.

When cash is received in advance for services to be performed at a later date, an asset is increased and

a liability is increased.

The two components of stockholders' equity are

common stock and retained earnings.

Credits increase revenues, whereas debits increase

expenses and dividends.

A(n) _______ transaction involves an exchange between the company and a separate economic entity. (Enter one word per blank)

external

An increase in revenues increases _____ _____which increases retained earnings, which increases stockholders

net income

The two basic components for calculating net income are

revenues and expenses