Chapter 2 Accounting 201
The proper journal entry includes
-date -the account and amount debited -the amount and account credited -brief explanation of transaction
analyzing the effect of transaction
1. Determine one account in the accounting equation that will increase or decrease 2.Determine a second account int he accounting equation that will increase or decrease 3.Confirm that assets are equal to liabilities plus stockholders' equity
steps for measuring transactions
1. Use a source document to identify accounts affected 2. Analyze the impact of the transaction on the accounting equation 3. Assess whether the transaction results in a debit or credit to account balances 4.Record the transaction in a journal 5.Post the transaction to the general ledger 6.Prepare a trial balance
Correct order found on balance sheet
1.Asset 2. Liability 3. Stock holder's equity account
Transactions are recorded using debits and credits in a(n):
journal
Debit
left
Chart of accounts
list of all account names used to record transaxtion of a company
trial balance
list of all accounts and their balances at a particular date, showing that total debits equal total credit
Which of the following transactions decreases total assets? Multiple Choice Pay dividends to stockholders. Receive cash from customers for sales in the current period. Receive a utility bill but do not pay it. Purchase supplies on account.
pay dividends to stockholders
Account balances in the general ledger are updated for transactions through the process of: Multiple Choice Analyzing. Balancing. Journalizing. Posting.
posting
The process of transferring debit and credit information from the general journal to the general ledger is known as: Multiple Choice Charting. Posting. Processing. Journalizing.
posting
analyzing a transaction
primary purpose of a source document is to assist in
Posting
process of transferring information from the journal to the ledger
Which of the following transactions causes an increase in stockholders' equity? Multiple Choice Obtain cash by borrowing from a local bank. Purchase advertising on a local radio station. Pay dividends to stockholders. Provide services to customers on account.
provide services to customers on account
Prepaid Rent
record as an asset representing the right to occupy the space in the future -rent that is paid in advance
credit
right
A credit is used to increase which of the following accounts? Multiple Choice Cash. Service Revenue. Insurance Expense. Dividends.
service revenue
Which of the following accounts normally has a credit balance? Multiple Choice Dividends. Cash. Accounts Receivable. Service Revenue.
service revenue
revenue
services performed for customers on account
T-account
simplified form of a general ledger account with space at the top for the account title and with two sides for recording debits and credits and increases and decreases
Account
summarizes transactions related to a particular item over a period of time
accounting cycle
the full set of procedures used to accomplish this two step measurement/ communication process
Measurement process
1. gather infomation about a transaction
-Stockholder equity -Liability
A credit increases
A debit is used to decrease which of the following accounts? Multiple Choice Salaries Expense. Dividends. Supplies. Accounts Payable.
Accounts Payable.
A trial balance can best be explained as a list of Multiple Choice The income statement accounts used to calculate net income. Revenue, expense, and dividend accounts used to show the balances of the components of retained earnings. All accounts and their balances at a particular date. The balance sheet accounts used to show the equality of the accounting equation.
All accounts and their balances at a particular date.
Bell Company purchased supplies for $700 cash. Which of the following statements correctly shows the effect of this transaction on the accounting equation?
Assets remain unchanged because the cash is used to purchase the supplies, resulting in no change. Also the Right side of the equation remains unchanged
The issuance of stock to owners would be recorded with a: Multiple Choice Credit to Investment Revenue. Credit to Common Stock. Debit to Dividends. Credit to Cash.
Credit to Common Stock
The purchase of equipment with cash would be recorded as Multiple Choice Debit Cash; Credit Equipment. Debit Equipment; Credit Cash. Debit Equipment Expense; Credit Cash. Debit Cash; Credit Equipment Expense.
Debit Equipment; Credit Cash.
The payment for utilities of the current month would be recorded as Multiple Choice Debit Cash; Credit Utilities Payable. Debit Utilities Expense; Credit Cash. Debit Utilities Expense; Credit Utilities Payable. Debit Utilities Payable; Credit Cash.
Debit Utilities Expense; Credit Cash.
A debit to Salaries Expense will: Multiple Choice Increase assets. Increase stockholders' equity. Decrease liabilities. Decrease stockholders' equity.
Decrease stockholders' equity.
debt
Dividends are increased with a
All business events have an immediate and quantifiable effect on the accounting equation.
False
If a company has an increase in total revenues of $10,000, which of the following is possible? Total assets increase by $10,000. Total liabilities increase by $10,000. Total stockholders' equity decreases by $10,000. Multiple Choice II only II or III III only I only
I only
-a liability is decreased -another asset is increased
If a transaction decreases cash by $100, the balance sheet will balance if which of the following occur?
Debit Cash 100,000 Credit common Stock 100,000
Joyce Inc. issues 5,000 shares of common stock to investors for $100,000, which of the following is used to record this transaction
Purchasing land with cash would have what effect on the accounting equation? Multiple Choice Total assets increase. Total liabilities increase. No effect. Total assets decrease.
No effect
Which of the following transactions causes a decrease in stockholders' equity? Multiple Choice Repaying amount borrowed from the bank. Providing services to customers on account. Providing services to customers for cash. Paying advertising expense for the current month.
Paying advertising expense for the current month.
Which of the following transactions increases total assets? Multiple Choice Provide services to customers on account. Pay dividends to current stockholders. Purchase supplies for cash. Collect cash from customer for services provided on account last month.
Provide services to customers on account.
Dividends
Reduce retained earnings but dividends are not expenses -distribution of part of the company's net income to the owners, reducing the amount of earnings that have been retained
A debit is used to increase which of the following accounts? Multiple Choice Utilities Expense. Accounts Payable. Common Stock. Service Revenue.
Utilities Expense.
Decrease
What is the effect of expenses on stockholders' equity
journal
a chronological record of all economic events affecting a firm are recorded
An account is defined as
a record of the business activities related to a particular item.
Liability accounts
account payables, salaries payable, utility payable and taxes payable
-Liabilities -owners (stockholders) -revenues
accounts require a credit entry to increase the account
-dividends -expenses -assets
accounts require a debit entry
cash account
all transaction affecting cash are summarized
internal transaction
an event that affects the financial position of a company but does not include an exchange with a separate economic entity
Account Equation
assets= liability+stockholder equity
Deferred revenue
cash received from customers for services to be performed in the future
asset accounts
cash, supplies and equipment
Stockholder equity account
common stock and retained earnings
After transactions are recorded in the journal, they are posted to the:
general ledger
Internal transaction
do not include an exchange with a separate economic entity -using supplies on hand -earning revenues after receiving cash in hand from customer
Internal Transaction
events that affect the financial position of the company but do not include an exchange with a separate economic entity - using supplies on hand and earning revenue after having received cash in advance from a customer
Debit
for every journal entry, what must equal credit
Provide in a single location the list of transactions affecting each account and the account's balance
the purpose of the general ledger
External Transaction
transactions between the company and separate economic entities -Paying salaries to employees -Borrowing money from the bank -Purchasing inventory from suppliers
External Transaction
transactions the firm conducts with a separate economic entity ex: selling products to a customer, purchasing supplies from a vendor