Accounting Chapter 2

Quiz: Little Company had a beginning cash balance of $10,000, received cash of $8,000 and ended the month with a cash balance of $6,000. Cash payments for the month were:

$12,000 10,000 (beginning balance) + 8,000 (receipts) - 6,000 (ending balance) = 12,000

Quiz: Consider transactions I. Owners invested $8,000 cash to begin the business II. Provided services for cash $6,000 III. Provided services on account $4,000 IV. Paid cash for expenses $7,500 How much net income did the business earn?

$2,500 6,000 (service rev) + 4,000 (service rev) - 7,500 (cash expense) = 2,500

Consider the following transactions: I. Owners invested $8,000 cash to begin the business II. Provided services for cash $6,000 III. Provided services on account $4,000 IV. Paid cash for expenses $7,500 How much cash does the business have?

$6,500 8,000 (owners investment) + 6,000 (services for cash) - 7,500 (cash payment for expenses)

Quiz: I. Borrowed cash on a note payable $80,000 II. Provided services on account $10,000 III. Received cash from a customer as payment on account $8,000 IV. Received utility bill $1,200 What are total liabilities?

$81,200 80,000 (note payable) + 1,200 (accounts payable) = 81,200

Joe Donaldson deposited $80,000 in a bank account, purchased a company for $60,000 cash (Building $40,000 and Inventory $20,000), performed services for clients for $10,000 cash, purchased supplies for $5,000 cash, and paid utilities of $2,000 cash. The amount of stockholders' equity at the end of the period is:

$88,000 80,000 (owners equity) + 10,000 (services provided) - 2,000 (utility expense)

Quiz: The accounts receivable account for Moon Rivers had a beginning balance of $6,000. During August, the company received payments of $8,000 and added new accounts receivable of $11,000. At the end of August the balance in accounts receivable is _____ and is a ______.

$9,000 6,000 (beginning balance) - 8,000 (collections) + 11,000 (new a/r charges) = 9,000

Quiz: Consider the following transactions: I. Borrowed ash on a note payable $80,000 II. Provided services on account, $10,000 III. Received cash from a customer as payment on account, $8,000 IV. Received utility bill, $1,200 Total assets would be

$90,000 80,000 (cash) + 10,000 (A/R) + 8,000 (cash) - 8,000 (A/R)

Three steps of The Journal

1. Identify: accounts impacted by transaction 2. Apply: debit/credit rules to increase or decrease accounts-- remember have at least one debit and one credit 3. Record: transaction in the journal

Flow of accounting data

1. Transaction occurs 2. Transaction analyzed: impact organization and reliably measured, accounts identifies, debit/credit rules applied 3. Transaction recorded in the journal- journalizing 4. Amounts posted to the ledger- posting

Liabilities

A debt; a payable is always a liability. Accounts payable, Notes payable, and accrued liabilities

Quiz: The chart of accounts is

A listing of all accounts used to record the business transactions

Determining the account balance

After transactions are posted, the amount in each ledger account is computed. The debit side and credit sides are totaled Whichever side is larger, that's the type of balance it is.

Quiz:A business transaction has occurred when

An event affects the entity's financial position and the event can be reliably measured.

Transaction

Any event that has a financial impact on the business and can be measured reliably

Quiz: An owner makes an investment of cash into the business, this transaction includes a: debit to..

Cash and a credit to common stock

The Journal

Chronological record of transactions that impact the financial position of a business

Posting

Data being copied from the journal to the ledger, collection of accounts and their balances.

DADE

Debit to increase, Assets, Dividends, Expenses

Quiz: Joe Donaldson deposited $80,000 in a bank account, purchased a company for $60,000 cash (Building $40,000 and Inventory $20,000), performed services for clients for $10,000 cash, purchased supplies for $5,000 cash, and paid utilities of $2,000 cash. The journal entry to record the purchase of the company includes a:

Debit to inventory for $20,000

Quiz: A company purchased office supplies for cash. This transaction increased assets and

Decreased assets

Assets

Economic resources that provide a future benefit for a for a business. Cash, accounts receivable (promise for future collection of cash), notes receivable (more binding but like accounts receivable), inventory, prepaid expenses, land, buildings, equipment, furniture, and fixtures

Quiz: What has a normal debit balance?: Equipment, Accounts payable, Retained earnings, service revenue

Equipment

Normal balances

Every account has a normal balance, what increases the account (debit or credit) is its normal balance.

Example that has the described effect on the accounting equation: Decrease one asset, decrease equity

Expense transaction, payment of dividends to owners

The Ledger

Grouping of all the T-accounts, with their balances

Quiz: Which of the following transactions increase total assets? I. Borrowed cash on a note payable, $80,0000 II. Provided services on account, $10,000 III. Received cash from a customer as payment on account $8,000 IV. Received a utility bill, $1,200

I and II

Quiz: A company received cash in exchange for issuing stock. This transaction increased assets and

Increased equity

T-account liabilities and stockholders' equity

Increases are recorded by credits, decreases are recorded by debits

T-account assets

Increases recorded on the left side (debit), decreases are recorded on the right side (credit). You receive cash and debit the cash account, you pay cash and credit the cash account

An account

Is the record of all the changes in a particular asset, liability, or stockholders' equity during a period

Quiz: Accounting transactions are initially recorded in the

Journal

Quiz: which element(s) of an accounting system provide(s) information about the balance in each account?

Ledgers

Credits to increase

Liabilities, Revenue, Common Stock, Retained Earnings

Quiz: Which type of account is increased when a company records an increase in debt?

Liability

Chart of accounts

Listing of all the accounts and account numbers. Asset account numbers: 1, Liabilities: 2, Stockholders' Equity: 3, Revenues: 4, Expenses: 5.

Trial balance

Lists all accounts with their balances -debit amounts: in the left column -credit amounts: in the right column Begins with assets, then liabilities and stockholders' equity Left and right columns are totaled and MUST equal each other

Revenues-Expenses=

Net Income

Quiz: When a company performs a service and immediately collects the cash from the customer, what occurs?

Net Income increases

Stockholders' (Owners') Equity

Owners' claims to the assets of a corporation. Common stock, Retained earnings, Dividends, Revenues, Expenses

Example that has the described effect on the accounting equation: Decrease asset and decrease liability

Pay a liability, return of asset purchased on account

Example that has the described effect on the accounting equation: Increase asset and increase liability

Purchase of asset on account, borrow money

Example that has the described effect on the accounting equation: Increase asset and increase equity

Revenue transaction, issuance of stock

Two categories of income statement accounts of stockholders' equity

Revenues: increases in stockholders' equity that result from delivering goods to customers. Expenses: decreases in equity due to the cost of operating the business

Example that has the described effect on the accounting equation: Increasing one asset, decreasing on asset

Sale of asset for cash, purchase of asset for cash, collection of account receivable

Quiz: A person starting a business bought a building for $300,000. She paid for it with an $180,000 outstanding mortgage and by issuing stock for the balance. What is following is true?

Stockholders' equity increased by $120,000

Quiz: The XYZ company purchased supplies for $5,000 on account. The entry to record this transaction is:

Supplies 5,000 Accounts payable 5,000

Quiz: Revenues are recorded when:

The work is completed on the job, whether or not the cash is received

Quiz: The proper order for the accounting process is:

Transaction occurs, transaction analyzed, journalizing, and posting

The T-account

Vertical line in the letter divides the account into two sides. Left: Debit, Right: Credit.

Journalizing

Write the account debited first and the amount in the left column, write (and indent) the account credited next and the amount in the right column. Can have multiples.

Quiz: Borrowing money from the bank by signing a note payable: Increases stockholders' equity, has not effect on stockholders' equity, decreases liabilities, increases net income

has no effect on stockholders' equity

Quiz: The payment of salaries to employees decreases:

net income and decrease assets