Accounting Chapter 2 Exercise Q's

True or false: The purchase of supplies on account impacts both the balance sheet and income statement.

False bc

True or false: The balance sheet must be prepared before the statement of changes in stockholders' equity.

False bc The balance sheet is prepared using ending balances from the statement of changes in stockholders' equity

On September 1 of Year 1, a law firm collected cash for services to be provided in Year 2. Based on this information, how would the recognition of earned revenue affect the Year 2 income statement and statement of cash flows?

Net income will increase and cash flows will not be affected.

balance sheet

The balance sheet shows the financial position at a point in time, not the benefits.

Expenses that are recognized before cash is paid are called

accrued

The entry to recognize accrued salary expense is called a(n)

adjusting entry

Which of the following are reported on the income statement?

advertising expense, consulting expense

Accounts receivable is a(n)

asset

Cash payment for salary expense is a(n)

asset use

Assets, liabilities and stockholders' equity at a particular point in time are reported on the

balance sheet

Incurring a cash expense affects

balance sheet, statement of cash flows only/ changes in stockholders equity, income statement

Which of the following are found on the statement of changes in stockholders' equity?

beginning retained earnings, dividends

When an employee works in Year 1 but is paid in Year 2, ______.

both an expense and liability are recorded in Year 1, there is no income statement affect in Year 2, there is no cash flow affect in Year 1

When a company collects an account receivable, ______.

cash increases, revenue is not affected, accounts receivable decreases

Recognizing a cash expense will ______.

cause a decrease in the net cash flow from operations shown on the statement of cash flows cause the amount of assets shown on the balance sheet to decrease

Issuing stock for cash increases ______.

common stock, stockholders equity, assets, cash flow from financing activities

Net income and cash flow from operating activities will ______.

differ due to accrual accounting used on the income statement

Acquiring cash from the issue of common stock ______.

doesn't affect the income statement

Recognizing accrued expense is a claims___ transaction

exchanged

An economic sacrifice resulting from operating activities undertaken to generate revenue is a(n)

expense

Signing a contract to provide future services

has no effect on the financial statements

The total benefits, both cash and other items, received from operating the business are shown on the ______.

income statement

Recording accrued salary expense impacts the

income statement, balance sheet

Acquiring cash by issuing common stock _

increases common stock increases cash

The cash payment of salary expense:

is a cash outflow from operating activities decreases Retained Earnings by the payment amount

Salaries payable represents an ______ in the future.

obligation to pay employees cash in the future

Adjusting journal entries

only update accounting records

When an accrued expense is recognized, total claims ______.

remain unchanged

When the Accrued Salaries Expense account is closed,

retained earnings decreases salaries expense decreases

A company recognized an accrued salary expense in Year 1 and paid its employees in Year 2. In Year 2 ______.

salaries expense will not be affected salaries payable will decrease cash will decrease

An obligation to pay cash to employees in the future is normally called

salaries payable

When a company recognizes an accrued salary expense, ______.

salaries payable increases expenses increase cash is not affected

Which of the following accounts is closed at the end of the accounting cycle?

salary expense

A company recognized an accrued salary expense in Year 1 and paid its employees in Year 2. The financial statements affected in Year 2 are the

statement of cash flows balance sheet

statement of cash flows

this only shows cash benefits

Earning service revenue on account means cash

will be collected in the future, even though the related service has been performed

When an employee works in Year 1 but is paid in Year 2, the company must recognize an expense in Year(s)

1 only

Recognizing revenue on account will

-cause an increase in the amount of net income shown on the income statement -not affect the statement of cash flows

Closing entries are examples of ______ transactions.

Claims exchange

Recognizing revenue on account affects the financial statements by increasing:

Retained earnings, accounts receivable, revenue, net income

income statement

The total benefits, both cash and other items, received from operating the business are shown on the ______.

statement of changes in stockholder's equity

This shows only the "net" benefits (i.e. net income), not the total benefits (i.e. revenue)

Accrued salary expense occurs when an employee ______.

Works year 1, but is paid year 2