Accounting Chapter 3SB

Which activities are part of the operating cycle? (Check all that apply.)

Buying goods and services Paying cash to suppliers Collecting cash from customers

Reporting revenues only when cash is received and expenses only when cash is paid is called the __________ basis accounting. (Enter one word per blank.)

cash

In June, Jackson Programming Company paid its June rent of $500. This transaction causes a decrease in (Expenses/Cash/Revenue) ________ and an increase in (Expenses/Cash/Revenue) ________ .

cash expenses

Identify the main sections on a statement of cash flows. (Check all that apply.)

cash flows from operating activities cash flows from investing activities cash flows from financing activities

When accrual basis accounting is used and an expense is debited, then ____________ was credited.

cash, a payable and/or a prepaid expense

The entry to record the payment of wages that were incurred in the prior quarter is ______.

debit Wages Payable and credit Cash

The correct journal entry to record a transaction that involves paying cash for an expense incurred in the same period is ______.

debit an expense and credit cash

Pizza Company sold pizzas on account. The journal entry to record the sales will include a ______. (Check all that apply.)

debit to Accounts Receivable credit to Sales Revenue

The journal entry a law firm records when it provides legal services for a client who will pay in a later period includes a ______. (Check all that apply.)

debit to Accounts Receivable credit to Service Revenue

The gain from the sale of investments are ______ on the income statement.

not included as operating income but are included in net income

debit wages expense and credit cash debit wages expense and credit wages payable debit wages payable and credit cash

pay for wages incurred during the period adjusted for wages owed during the period paid for wages incurred in the prior period

Under the accrual basis of accounting, the expense ________ principle requires that expenses be deducted on the income statement in the same period as the related revenues.

recognition

The two basic accounting principles that determine when revenues and expenses are recorded under accrual accounting are ______ principles.

revenue and expense recognition

Ace Electronics paid $4,000 of the $5,000 its employees had earned during the period. Ace Electronics should report Wages Expense of $5,000 on the income statement and Wages Payable of ______ on the balance sheet prepared in accordance with generally accepted accounting principles.

$1,000

Monster Music Company provided music lessons to customers and earned $10,000, receiving $6,000 in cash and earning the rest on account. What is Monster Music Company's revenue under the accrual basis of accounting?

$10,000

Accruix, Inc. uses accrual basis accounting. Its balance sheets reported Accounts Receivable of $5,000 at the end of its first year of business. Its income statement reported Sales Revenue of $100,000 for its first year. What would Accruix's revenues have been if it had used cash basis accounting?

$100,000 - $5,000 = $95,000

On May 1, Cut Above, Inc. collected $3,000 in advance from customers to mow their lawns in June. Under cash basis accounting, revenues in May will equal ______.

$3,000

On December 1, ABC Apartment Company received $4,800 from a tenant for 3 months' rent in advance. The entry on December 1, includes a ______. (Check all that apply.)

$4,800 debit to cash $4,800 credit to unearned rent revenue

Monster Music Company provided music lessons for customers and earned $10,000, receiving $6,000 in cash and recording an accounts receivable for the remainder. What is Monster Music Company's revenue under the cash basis accounting?

$6,000

When Pizza Company delivers pizza to customers for $100 cash, it should record a $100 debit to ______ and a $100 credit to ______.

Accounts Payable; Cash

When Pizza Company delivers pizza to customers and bills its customer accounts, it should record a debit to ______ and a credit to ______.

Accounts Receivable; Revenue

What type of an account is Accounts Receivable?

Asset

Which of the following are the five elements of the accounting equation?

Assets, Liabilities, Stockholders' Equity, Revenues, Expenses

Under which of the following circumstances would cash basis accounting report higher expenses than accrual basis accounting in the current accounting period?

Cash is paid in advance of services being provided

When Pizza Company sells three $100 gift cards at the beginning of the month, it should record a $300 debit to ______ and a $300 credit to ______.

Cash; Unearned Revenue

After increases and decreases in an account are recorded, the amount remaining in the account is its ending ________ (Enter one word per blank.)

balance

True or false: All expenditures are expenses.

False

Which of the following are subtotals on the income statement? (Check all that apply.)

Income from operations Income before income taxes

In its 1st year of operation, Jetway Airlines paid Salaries Expense of $40 million. On December 31, it recorded an entry for additional Salaries Expense of $2 million that will be paid at the beginning of the 2nd year. What should Jetway report in the income statement and balance sheet for its first year ended December 31?

Income statement: Salaries Expense $42 million; Balance sheet: Salaries Payable $2 million

Identify which line items are a result of peripheral transactions (i.e., those not central to on-going operations) and, thus, are listed below operating income on a multiple step income statement. (Check all that apply.)

Investment Expense Investment Income (revenue, dividend revenue)

Morris Lest, Inc. received and paid a $500 electric bill in June for services received in May. In which month should Morris Lest record the expense?

May

Which of the following increases Retained Earnings?

Net Income

Which of the following statements about net income are correct? (Select all that apply.)

Net income on the income statement rarely equals cash flows from operating activities on the statement of cash flows. Net income equals revenues earned minus expenses incurred, regardless of whether cash was collected or paid.

If a company incorrectly records a payment as an asset instead of an expense, how will this error affect net income in the current period?

Net income will be too high.

When a company pays cash in advance for rent that is to be used over the next 2 years, the company records a debit to ______ and a credit to ______.

Prepaid Rent; Cash

Which of the following accounts are examples of operating expenses? (Check all that apply.)

Rent Expense Supplies Expense

The business earns $2,800 cash for services performed. How would this receipt affect the total stockholders' equity of a business?

Revenue is increased which causes stockholders' equity to increase.

Which of the following are operating expenses on the income statement of a merchandising company? (Check all that apply.)

Salaries Expense Supplies Expense

Which one of these activities is part of the operating cycle?

Selling goods and services

Amounts used to produce and sell products An asset with future benefit Amount employees worked to generate sales/revenues during the period Amount owed for services received Cost of long term assets used during the period

Supplies Expense Equipment Salaries and Wage Expense Accrued Expenses Payable Depreciation Expense

True or false: A company generates Retained Earnings by operating profitably.

True

True or false: A multiple step income statement displays subtotals that indicate multiple steps before reaching net income at the bottom.

True

True or false: Expenses are the costs of operating a business that are incurred to generate revenues and are reported in the income statement.

True

Which of the following statements are correct regarding Unearned Revenue? (Check all that apply.)

Unearned Revenue is a liability account which is set up when a customer pays in advance for a product or service. Unearned Revenue refers to a liability that is settled when a company delivers a product or performs a service.

On May 30, The Merchant of Tennis, Inc. collected $1,000 from customers in advance. In June, it earned $600 of the amounts collected in advance. What is the effect of these events on The Merchant of Tennis in May and June? (Select all that apply.)

Unearned Revenue is decreased in June Revenue is increased in June Cash is increased in May Unearned Revenue is increased in May

On May 30, The Merchant of Tennis, Inc. collected $1,000 from customers in advance. In June, it earned $600 of the amounts collected in advance. What is the effect of these events on The Merchant of Tennis in May and June? (Select all that apply.)

Unearned revenue decreased in June Cash Increased in May Revenue is increased in June Unearned Revenue is increased in May

On May 30, Blade for Blade, Inc. collected $10,000 from customers in advance. In June, it earned $2,000 of the amounts collected in advance. In June, ______. (Select all that apply.)

Unearned revenue is decreased Revenue is increased

Which of the following would appear only on accrual-based, and not on cash-based, financial statements? (Check all that apply.)

Unearned revenue on the balance sheet Accounts receivable on the balance sheet

Which of the following events would result in an increase in Accounts Payable on X Company's balance sheet? (Check all that apply.)

X Company purchased $5,000 of chairs on credit. X Company purchased $5,000 of supplies on account.

When supplies are purchased on credit it means that ______. (Check all that apply.)

a liability has been incurred the business will pay for the supplies at a later time the Accounts Payable account will be increased

When payments are made for amounts owed for purchases made or expenses incurred in the prior period, the entry recorded is debit to _____

a payable account and credit to Cash

When payments are made for amounts owed for purchases made or expenses incurred in the prior period, the entry recorded is debit to _____.

a payable account and credit to Cash

________ is the account debited when a service is provided to a customer on account.

accounts receivable

Reporting revenues when they are earned and expenses when they are incurred is called ________ basis accounting. (Enter only one word per blank.)

accrual

Although the unadjusted trial balance's debits equal credits, some balances are not properly stated because ______ have not yet been recorded. (Check all that apply.)

adjusting entries some expenses incurred some revenues earned

Adjusting entries are required before financial statements are prepared to ensure that ______. (Select all that apply.)

all expense incurred during the period are recorded all revenues earned during the period are recorded

Adjusting entries ______. (Check all that apply.)

are needed in order to measure the period's net income or loss update the accounts to their proper balances

economic resources financing provided by creditors financing provided by owners and reinvested earnings resources generated by the delivery of goods or services resources used

assets liabilities stockholders' equity revenues expenses

If a real estate company fails to record the amount of commission revenue it has earned but not yet collected, then ______.

assets are understated and net income is understated

Paying cash for an expense incurred in the same period has what affect on the accounting equation? (Select all that apply.)

assets decrease stockholders' equity decreases

The journal entry to record the purchase of $400 of supplies paying $100 and owing the rest on account includes a ______. (Select all that apply.)

credit to Accounts Payable for $300 credit to Cash for $100 debit to Supplies for $400

Pastabilities, Inc. paid $5,000 for advertising expenses incurred during the month. The journal entry to record this transaction includes the following ______. (Select all that apply.)

credit to Cash debit to Advertising Expense

Bank 'n' Roll, Inc. paid $55,000 to employees who worked this month for $30,000 and last month for $25,000 (recorded last month as a liability in Accrued Expenses Payable). The entry to record the payment includes a ______. (Check all that apply.)

credit to Cash for $55,000 debit to Accrued Expenses Payable for $25,000 debit to Wages Expense for $30,000

On May 10, BC Company ordered $500 of supplies, promising to pay for them in June. The supplies were received and recorded on May 15. BC paid the $500 on June 1. The journal entry that BC makes on June 1 would include a ______. (Check all that apply.)

credit to Cash of $500 debit to Accounts Payable of $500

Pizza Company sold pizzas on account. The journal entry to record the sales will include a ______. (Check all that apply.)

credit to Sales Revenue debit to Accounts Receivable

Florist Gump, Inc. sold 1,000 vases of flowers for $50 each for cash. The entry to record the sale includes a ______. (Select all that apply.)

credit to Sales Revenue for $50,000 debit to Cash for $50,000

The entry to record cash received in advance of earning the revenue includes a ______. (Check all that apply.)

credit to Unearned Revenue debit to Cash

To enter transactions on the right side of a T-account means you are _______ (debiting/crediting) the account and will cause a(n) ________ (decrease/increase) in a revenue account.

crediting increase

On May 29, Lox, Stock & Bagel, Inc. received a $100 invoice for advertising run in May. The bill will be paid in June. The entry to record in May includes a $100 _____. (Select all that apply.)

debit to Advertising Expense credit to Accounts Payable

The entry to record the sale of services for cash includes a ______. (Check all that apply.)

debit to Cash credit to Service Revenue

On February 28, AppGame Company paid for a one-year insurance policy that begins March 1. AppGame's entry to record this transaction includes a ______. (Check all that apply.)

debit to Prepaid Insurance credit to Cash

Pizza Company prepaid 3 months' store rent. The journal entry to record this transaction includes a ______. (Check all that apply.)

debit to Prepaid Rent credit to Cash

Income distributed to stockholders are ______ and ______ Retained Earnings

dividends; decrease

A business pays $500 for rent. How would this payment affect the stockholders' equity of a business?

expenses increase stockholders' equity decrease

Accrual basis accounting records ______. (Check all that apply.)

expenses when incurred to generate revenue expenses even when cash has not yet been paid revenue even when cash has not been collected revenue when earned

Debits ______. (Check all that apply.)

increase expense accounts increase asset accounts are entered on the left side of a T-account

On June 1, Pizza Company paid $100 for advertisements to be run on June 1. Pizza Company's entry to record this payment will include a $100 ______. (Check all that apply.)

increase in Advertising Expense decrease in Cash

Morsels Company provided catering services at a wedding. The bride is billed $4,000 and will pay during the following month. Record this transaction in Morsels' accounting equation by:

increasing Accounts Receivable and increasing Revenue

Jackson's Catering provided $3,000 worth of cookies to the local college. The college paid immediately. This transaction is recorded by ______.

increasing Cash and Revenue

Russell's Consulting Services provided $1,000 of services to the local college and immediately collected $700, but the college wants to pay the rest next month. Record this transaction in the accounting equation of Russell by ______.

increasing both Cash and Accounts Receivable; and increasing Revenues

The Accounts Payable account is a(n) ______ account.

liability

Wages Payable is a(n) ______.

liability on the balance sheet

Unearned Revenue is a(n) ______ and is _____ when cash is collected in advance of being earned.

liability; credited

Accrual basis accounting differs from cash basis accounting in that accrual basis accounting records ______. (Check all that apply.)

revenues in the period when the revenue is earned, even though the cash has not yet been collected expenses in the period incurred, even though cash has not yet been paid

To see the detail of increases and decreases in a company's Cash account, you should look at ______.

the company's general ledger

The trial balance at year end shows ______.

the ending balance in each T-account

When expenses are recognized in the same period as the related cash is paid, the expense amount will be ______ accrual versus cash basis accounting.

the same under both

Performing services on account will increase ______. (Check all that apply.)

total assets stockholder's equity

Performing services on account will increase ______. (Check all that apply.)

total assets stockholders' equity

Lord of the Fries, Inc. purchased $1,000 of supplies paying $400 and owing the rest on account. Show the effect of this transaction on the accounting equation. (Select all that apply.)

total assets increase by $600 total liabilities increase by $600