Chapter 2; FA

T or F: Borrowing cash from the bank causes assets to increase and liabilities to increase.

13. True the accounts are Cash (A+) and Notes payable (L+)

What accounts have the normal balance, Debit?

Dividends Expenses Assets

T or F: If at the end of the accounting period the total of all the asset accounts is $450,000 and the total of all stockholder equity accounts is $300,000, then the total of all the liability accounts must be $750,000.

False, Liabilities would be $150,000 (A = L + SE; $450,000 = $150,000 + $300,000)

T or F: Most companies list assets on the balance sheet in order of the size of the dollar amount of each asset.

False, assets are listed in order of liquidity (nearness to cash or being used up). Cash is always the first asset shown on a balance sheet (assuming the company has cash).

T or F: Receiving cash in advance from a customer for services to be provided in the future causes assets to increase and stockholders' equity to increase.

False, assets increase (CASH) and liabilities increase (DEFERRED REVENUE).

What kind of journal entries: are listed in Chronological order, simple or compound, and debits are listed first?

Journal Entries

What accounts have the normal balance, Credit?

Liabilities Owners equity Revenue

Using the notion that the accounting equation (Assets = Liabilities + Stockholders' Equity) must remain in balance, indicate whether each of the following transactions is possible: Salaries expense increases; Salaries Payable decreases.

No, salaries expense (E+SE-) and salaries payable (L-) is not possible as the accounting equation does not balance.

T or F: The Cash at end of month shown on the statement of cash flows must agree with the balance of Cash shown on the end of month balance sheet.

True

T or F: External transactions are transactions the firm conducts with a separate economic entity, such as selling products to a customer, purchasing supplies from a vendor, paying salaries to an employee, and borrowing money from a bank.

True

Below are the steps in the measurement process of external transactions. Arrange them from first (1) to last (6) (a) Post the transaction to the T-accounts in the general ledger. (b) Assess whether the impact of the transaction results in a debit or credit to the account balance. (c) Use source documents to identify accounts affected by external transactions. (d) Analyze the impact of the transaction on the accounting equation.(e) Prepare a trial balance. (f) Record transactions using debits and credits.

C D B F A E

T or F: Investing activities are needed to provide the funds to start a business.

False, financing activities are needed to provide the funds to start a business. Financing activities at start-up include cash provided by owners (stockholders) and cash provided by creditors (borrowings).

T or F: An asset with a market value of $21,000 that is purchased for cash of $19,000 should be listed on the balance sheet at $21,000.

False, it should be recorded at the cash equivalent amount ($19,000)

T or F: Liabilities are probable debts or obligations that result from current and future transactions that will be paid for with assets or services.

False, liabilities are based on PAST transactions" not current and future."

T or F: The two components of stockholders' equity are debits and credits.

False, the two components of stockholders' equity are Common Stock and Retained Earnings.

T or F: Purchasing equipment using cash causes assets to increase.

False, there is no change to total assets; assets increase and decrease by the same amount: Equipment (A+) and Cash (A-)

True or false: An independent auditor's (CPA's) report is a guarantee that the financial statements are free from fraud or material error.

False. The independent auditor's (CPA's) report does not provide a guarantee that the financial statements are free from fraud. The audit is designed to provide assurance that the financial statements represent (in all material respects) what the company has done over the reporting period according to GAAP. There is no guarantee that all fraud will be detected. The auditors will do their best to find fraud and misstatements, but there is no guarantee.

What two forms have: Individual account balances, listing of all accounts with balances, source+ General Ledger, and the rule is Debits must equal credits?

General Ledger and Trial Balance

Using the notion that the accounting equation (Assets = Liabilities + Stockholders' Equity) must remain in balance, indicate whether each of the following transactions is possible: Cash decreases; Accounts Payable decreases.

Yes