ACG CHAP 1-2 Study Guide

Match each of the descriptions with the term or phrase it best reflects. 1) An assessment of whether financial statements follow GAAP 2) Amount a business earns in excess of all expenses and costs associated with its sales and revenues 3) A group that sets accounting principles in the United States 4) Accounting professionals who provide services to many clients 5) Principles that determine whether an action is right or wrong.

1) Audit 2) Net income 3) FASB 4) Public Accounting 5) Ethics

On April 1, a company paid the $1,350 premium on a three-year insurance policy with benefits beginning on that date. What amount of the insurance expense will be reported on the annual income statement for the first year ended December 31?

1350 x (9 Months that have passed)/36 (Months in the three year contract). = 337.50

On July 1, a company paid the $2,400 premium on a one-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the first year ended December 31?

2400 x (6 months that have passed)/12 (months in a year)= 1200.

Savvy Sightseeing had beginning equity of $72,000; revenues of $90,000, expenses of $65,000, and dividends to stockholders of $9,000; there were no stock issuances. Calculate the ending equity.

72,000 (Equity) + 90,000 (Revenue) - 65,000 (expenses) - 9000 (Dividends) = 88,000.

A company's ledger is:

A record containing all accounts and their balances used by the company.

On September 30, Valerian Co. had a $102,500 balance in Accounts Receivable. During October, the company collected $102,890 from its credit customers. The October 31 balance in Accounts Receivable was $89,000. Determine the amount of sales on account that occurred in October.

Accounts Receivable Beginning balance (Debit): 102,500 Cash receipts on account (credit): 102,890 X = 102,890 - 102,500 + 89,000 = 89,390 Sales on the account = 89,930 Know that the ending balance is 89,000

Calculating total assets

Add all assets together.

Using the information in the table, calculate the company's reported net income for the period.

All revenues - all expenses.

The accounting process begins with:

Analysis of business transactions and source documents.

Langley has a debt ratio of 0.3 and its competitor, Appleton, has a debt ratio equal to 0.7. Determine the statement below that is

Appleton's financial leverage is greater than Langley's financial leverage. If a company has a high debt ratio (above . 5 or 50%) then it is often considered to be "highly leveraged" (which means that most of its assets are financed through debt, not equity).

A company's balance sheet shows: cash $24,000, accounts receivable $30,000, equipment $50,000, and equity $72,000. What is the amount of liabilities?

Assets − Equity = Liabilities Cash + Accounts Receivable + Equipment − Equity = Liabilities $24,000 + $30,000 + $50,000 − $72,000 = $32,000

Marsha Bogswell is the sole stockholder of Bogswell Legal Services. Which accounting principle requires Marsha to keep her personal financial information separate from the financial information of Bogswell Legal Services?

Business entity assumption. A business is accounted for separately from other business entities, including its owner..

During October, Alameda Company had $102,500 of cash receipts and $103,150 of cash disbursements. The October 31 Cash balance was $18,600. Determine how much cash the company had at the close of business on September 30.

Cash Cash receipts (debit): 102,500 Beginning balance: ? Cash disbursements (credit): 103,150 Ending balance: 18,600 103,150 - 102,500 + 18600 = 19250 = Beginning balance Ending balance: 18,600

A company's list of accounts and the identification numbers assigned to each account is called a:

Chart of accounts

GreenLawn Co. provides landscaping services to clients. On May 1, a customer paid GreenLawn $60,000 for 6-months services in advance. GreenLawn's general journal entry to record this transaction will include a:

Credit to unearned revenue for $60,000.

Alejandro Consulting paid $2,500 cash for a 5-month insurance policy that begins on March 1. Given the choices below, determine the general journal entry that Alejandro Consulting will make to record the cash payment. Assume the company's policy is to initially record prepaid and unearned items in balance sheet accounts.

Debit to prepaid insurance for 2500. Credit to cash for 2500.

Edison Consulting received a $300 utilities bill and immediately paid it. Edison's general journal entry to record this transaction will include a:

Debit to utilities expense for $300

Identify the statement below that is incorrect. The normal balance of accounts receivable is a debit. The normal balance of dividends is a debit. The normal balance of unearned revenues is a credit. The normal balance of an expense account is a credit. The normal balance of the common stock account is a credit.

Expense account is not calculated with credit.

Which of the following accounting principles prescribes that a company record its expenses incurred to generate the revenue reported?

Expense recognition (Matching) principle.

The Securities and Exchange Commission (SEC) has given the task of setting GAAP to the:

FASB

The rule that requires financial statements to reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue, is the:

Going-concern assumption.

Many accounting professionals work in one of the following three areas. Financial accounting Managerial accounting Tax accounting

Internal auditing = Managerial accounting External auditing = Financial accounting Cost accounting = Managerial accounting Budgeting = Managerial accounting Enforcing tax laws = tax accounting Planning transactions to minimize taxes = tax accounting Preparing external financial statements = Finan. accoun. Analyzing external financial reports = Financial Accoun.

A business's source documents may include all of the following except:

Ledgers

Unearned revenues are generally:

Liabilities created when a customer pays in advance for products or services before the revenue is earned.

The Superior Company acquired a building for $500,000. The building was appraised at a value of $575,000. The seller had paid $300,000 for the building 6 years ago. Which accounting principle would require Superior to record the building on its records at $500,000?

Measurement (Cost) Principle because accounting is based on actual cost. If you paid 500,000 for the building, then you record on the records for 500,000; Not for its appraised value.

ROA (Return on assets)

Net income/average total assets

The primary objective of financial accounting is to:

Provide accounting information that serves external users.

Corentine Co. had $152,000 of accounts payable on September 30 and $132,500 on October 31. Total purchases on account during October were $281,000. Determine how much cash was paid on accounts payable during October.

Purchase on account: 281,000 (Credit) Beginning Balance 152,000 (Credit) Total of 433,000 in credit - 132,500 in payments from October = 300,500 in payments (debit). Payments (debit): 300,500. 433,000 in (credit) 433,000 - 300,500 = Ending payment of 132,500 reported on (credit) side of T-account.

The question of when revenue should be recognized on the income statement according to GAAP is addressed by the:

Revenue recognition principle.

Identify the statement that is incorrect. Higher financial leverage involves higher risk. Risk is higher if a company has more liabilities. Risk is higher if a company has more assets. The debt ratio is one measure of financial risk. Lower financial leverage involves lower risk.

Risk is higher if a company has more assets.

A $130 credit to Supplies was credited to Fees Earned by mistake. By what amounts are the accounts under- or overstated as a result of this error?

Supplies, overstated $130; Fees Earned, overstated $130. Supplies is overstated because it did not get deducted the proper amount of money, therefore, leaving it with a higher balance than it should be (Overstated). Fees earned increases with credit, therefore, an increase of $130 was gifted to the account (Overstated).

e. If the debit column total of the trial balance is $200,000 before correcting the error, what is the total of the credit column before correction? (Corresponds with previous question)

The credit column is 37,900 less than the debit column, 200,000 - 37,900 = 162,000

While in the process of posting from the journal to the ledger, a company failed to post a $500 debit to the Equipment account. The effect of this error will be that:

The trial balance will not balance.

Jose Consulting paid $500 cash for utilities for the current month. Determine the general journal entry that Jose Consulting will make to record this transaction.

Utilities expense (Debit) for 500. Cash (credit) for 500.

You are told the column totals in a trial balance are not equal. After careful analysis, you discover only one error. Specifically, a correctly journalized credit purchase of an automobile for $18,950 is posted from the journal to the ledger with an $18,950 debit to Automobiles and another $18,950 debit to Accounts Payable. The Automobiles account has a debit balance of $37,100 on the trial balance. Answer each of the following questions and compute the dollar amount of any misstatement.

a. Debit column total of the trail balance is stated correctly because the proper debit to the account was made for the automobile. b. The credit column total of the trial balance was understated because there was supposed to be an additional 18,950 to A/P account, but instead it was debited, making the account balance zero, which understated it. c. Automobiles balance on the trial balance is correct b/c of A. d. A/P account balance is understated by (37,900) because the 18, 950 was debited making the account balance zero, instead of the correct balance of 39,100. If they understated, you must include parentheses.

A record of the increases and decreases in a specific asset, liability, equity, revenue, or expense is known as a(n):

account

Swiss Group reports net income of $40,000 for 2019. At the beginning of 2019, Swiss Group had $200,000 in assets. By the end of 2019, assets had grown to $300,000. What is Swiss Group's 2019 return on assets?

net income/average total assets Net income = 40,000 Average of total assets = 250,000 40,000/250,000 = 16%

Trial Balance is basically

the totals from the T-accounts posted

Debt Ratio

total liabilities/total assets