Module 2: Ch.1 Accounting in Business (Smart Book) Accounting 1

False

True or False. Assets are claims (by creditors) against the company.

True

True or False: At the end of the period, the assets will still equal the liabilities + equity:

general journal

A journal is a complete record of each transaction in one place and includes the debit and credit of each transaction.

list, credit

A trial balance is a(n) (list/balance/chart) _____ of accounts ad their balances at a point in time and is used to confirm that the sum of debit account balances equals the sum of _____ account balances. Use one word for each blank.

by, liability

Accounts payable refer to obligations owed __ (by/to) the business and are classified as a(n) ______ asset/liability/expense) account.

decreases

An account is a record of increase and _______ in a specific asset, liability, equity, revenue or expense.

a, b, c

Analyzing the accounting equation at the end of the month will reveal the following: select all that apply a. increases and decreases in cash will be reported on the balance sheet. b. assets = liabilities + equity c. revenues and expenses will change the equity account. d. assets and liabilities will be reported on the income statements.

assets = liabilities + common stock + revenue - expenses - dividends

Enter one word for each blank. The expanded accounting is: ______ = _________ + common stock + _______ - _______ - dividends. Do not include the work "account(s)" in your answers. Note: order of the equation is important.

c

Identify which of the following lists include only examples of assets. a. equipment, dividends, land (Reason: dividends is an equity account). b. unearned revenue, accounts payable, cash (Reason: cash is the only asset in this list). c. building, cash, account receivable d. cash, accounts payable, supplies (Reason: accounts payable is a liability).

general ledger

It is a collection of all accounts with their activity and balances that exist in a business.

asset

Notes receivable is considered a(n) ______ (asset/liability).

b, c, d, e

On Jan. 2, Callie Taylor invested $40,000 into the business in exchange for common stock. She journalized the transaction as follows but something is wrong with the journal entry. Use your knowledge of what a correct journal entry should look like to identify everything that is wrong. Select all answers which apply. Date Accounts PR Debit Credit Jan 2 Common stock 40,000 Cash 4,000 (Owner invested in business) a. $ signs should be included in the debit and credit columns. b. the common stock account should be indented as credited. c. the cash account should be listed first. d. the dollar amount is wrong in the credit column e. common stock should be listed second, below cash

b, e

On March 3, Lyons company received $100 cash in advance of providing catering services to a customer. Use your knowledge of what a correct journal entry should look like to identify what would be included in the correct journal entry. a. cash would be credited and listed second (Reason: it is debited). b. unearned revenue would be credited and listed second. c. unearned revenue would be debited and listed first (Reason: unearned revenue is credited). d. accounts receivable would be debited and listed first (Reason: accounts receivable is not effected as the business has not earned the revenue). e. cash would be debited and listed first

assets, debit

Prepaid accounts are _____ (assets/liabilities) that represent prepayments of future expenses and are increased with a _____ (debit/credit).

1. name of business, 2. name of financial statement, 3. period of time in the financial statement covers

Recall the required information in a financial statement heading. Rearrange the following line items as they would appear in a heading.

assets, expenses

Supplies are _____ (assets/expenses/liabilities) until they are used. When they are used up, their costs are reported as _______ (assets/expenses/liabilities).

a, d, e, f

Which of the following accounts would be considered an asset? (Check all that apply.) a. building b. accounts payable (Reason: this is a liability) c. common stock (Reason: this is an equity account) d. cash e. supplies f. accounts receivable

a

Which of the following is the best definition of a source document in the accounting process? a. a source document identifies & describes transactions & is the basis for entering an event into the accounting system. b. a source document is used to determine who hired an employee that is assigned the duty of entering transactions into the accounting process. c. a source document shows all the information about the legal rights a company has in relation to when it should pay a bill.

a, b, d, f

Which of the following statements are accurate regarding supplies? (check all that apply) a. when supplies are purchased, they are added to the supplies account. b. supplies are assets until they are used. c. supplies is considered a liability account (Reason: supplies are an asset account). d. unused supplies can be recorded as store supplies, office supplies, or supplies. e. unused supplies are treated as expenses (Reason: they are treated as assets). f. unused supplies are treated as assets.

a, b, d, e

Which of the following would be considered a source document in an accounting system? (check all that apply) a. payroll records b. checks c. employee speeding ticket (Reason: this is a personal expense of the employee, not a business expense). d. purchase order e. sales receipt

journal

it is a book of original entry that includes a chronological record of all transactions that have occurred within a business during a period occurred.

chart of accounts

it is a list of all ledge accounts which exists in a business and includes an identification number assigned to each account.

trial balance

it is a list of each account and its balance at any given time and is used to verify that debits = credits

unearned consulting revenue, common stock, accounts payable

which accounts has a normal credit balance?

a

which statement best describes a T-account? a. a T-account represents a ledger account and is a tool used to understand the effects of one or more transactions. b. a T-account is a formal financial statement which reports whether debits = credits at any given time (Reason: it represents a ledger account). c. a T-account is used in a business to accurately report the financial status of its operations to the owners (Reason: a T-account represents a leger account). d. a T-account is used to record transactions in a chorological order and serves as a book of original entry. (Reason: this would be a journal).

posting

Transferring entries from the journal to the ledger is called (posting/preparing/journalizing) ________.

a, b, c

Given the description below, which is (are) true regarding notes receivable? (check all that apply). a. another name for a note receivable is a promissory note. b. notes receivable is classified as an asset c. it is the promise of another entity to pay a specific sum of money on a specified future date. d. notes receivable is classified as a liability (Reason: it is an asset)

a

Identify which of the following formulas correctly defines how to calculate the debit ratio. a. total liabilities/total assets b. total liabilities/total equity c. total assets/total liabilities d. total assets/net income

d

J. Jackson invested $1,000 in his business in exchange for common stock. Show how to use T-accounts to record this transaction by selecting the correct answer below. a. debit investments; credit cash (Reason: cash is coming into the business so it should be debited. The credit will be to the common stock account). b. debit cash; credited revenue (Reason: the credit will be to the owner, capital account). c. credit cash; debit common stock (Reason: cash is coming into the business so it should be debited. The credit will be to the common stock account). d. debit cash; credit common stock

b, c, d

Review each of the following statements to determine which is correct regarding the importance of assessing a company's risk of paying debit. (Check all that apply) a. assessing a company's risk of paying off debt is not required when the company is highly leveraged. b. s company's required debt payments may be greater than its ability to generate money to make those payments. c. if a company has a lot of debt, they may not be able to afford to take on new debt. d. a company that finances their assets by borrowing will need to make enough money to pay off the debt.

a, b, d, e

Select the statements that are true regarding debiting and crediting. (Check all that apply). a. a credit will always decrease and asset account. b. for an account where a debit is an increase, the credit is a decrease. c. crediting an account that exists on the right side of the accounting equation will reduce it (Reason: crediting revenue, equity or a liability will increase it). d. a debit can increase an expense account e. a debit or credit can increase or decrease an account, depending on the account.

d

The correct definition of an "account" includes which of the following? a. a cashier's tape register receipt showing total dollars of sales made (Reason: this is a source document for recording a transaction). b. a customer's purchase order for buying merchandise (Reason: this is a source document for recording a transaction). c. a bank report listing checks written & deposits made during a month (Reason: this is a part of a bank's records). d. a record of increases and decreases in a specific asset, liability, equity, revenue, or expense item.

a, b, c

The general ledger can be used to determine which of the following (select all answers which apply). a. increase & decrease in all accounts in a business. b. common & unique accounts used by a business. c. which accounts are being used by a company & their balances at any given time. d. a complete record of each transaction in one account. (Reason: The journal will show both the debited account & the the credited account of a business transaction. Each account in the general ledger will show either the debited portion of the transactions or the credited portion.)

a

There are several types of accounts that impact equity. Which of the accounts below cause equity to increase? a. common stock and revenue b. dividends and assets (Reason: revenues and common stock cause equity to increase). c. common stock and expenses (Reason: expenses cause equity to decrease). d. revenue and assets (Reason: assets do not impact owner's equity).

a, b, d, e

Which of the following accounts has a normal debit balance? (Check all that apply). a. accounts receivable b. supplies c. unearned revenue (Reason: unearned revenue is a liability and therefore, has a normal credit balance). d. cash e. buildings f. accounts payable (Reason: accounts payable is a liability which has a normal credit balance).

a, c, e, f

Which of the following accounts impact equity? (Check all that apply). a. common stock b. liabilities (Reason: liabilities are to the right of creditors, not the owner). c. dividends d. assets (Reason: assets are things of value owned by the business and don't refer to the rights of the owner). e. expenses f. revenue

c

Which of the following describe a general ledger? a. the general ledger combines sales and expenses to determine the net income of a business (Reason: sales and expenses are reported on the income statement). b. the general ledger describes all liability accounts (Reason: a general ledger is a record of all accounts used by a business). c. the general ledger is a record containing all accounts used by a company. d. the general ledger is a record of all transactions in alphabetical order (Reason: a general ledger is a record of all accounts, but they are not necessarily in alphabetical order).

c

Which of the following is correct regarding posting a transaction? a. post takes place once during an accounting period (Reason: posting takes place on a regular basis such as daily, weekly, etc.). b. posting means to enter transactions into a journal (Reason: this is journalizing). c. posting mean to transfer journal information to a ledger.

b

Which of the following statements explains what a trial balance is? a. a trial balance is prepared before posting of any journal entries (Reason: it is prepared at the end of an accounting period). b. a trial balance confirms that the sum of debit account balance = the sum of credit account balances. c. a trial balance confirms that no mistakes were made in recording transactions (Reason: mistakes may not be apparent even if debits = credits). d. a trial balance proves that the debit balance = debit balances within the general ledger (Reason: debits = credits).

a, b, c

Which of the following statements is (are) correct regarding the definition of a liability? (Check all that apply) a. a liability is a debt owed by the business. b. a liability can be settled by transferring assets or providing products or services to others. c. a liability is a claim by creditors against the assets of a business. d. a liability is an asset waiting to be received by a business (Reason: a liability is a debt owned by the business). e. a liability is a thing of value owned by the business and is increased on the left side of a T-account (Reason: it is a debit owned by the business and is increased on the right side of the T-account).

b

Which of the following statements is accurate regarding Accounts payable? a. accounts payable refer to deposits made by the business into their checking account (Reason: Account payable are amounts owned by the business). b. accounts payable refer to promises to pay later, which may arise from the purchase of supplies or services. c. accounts payable refer to amounts owned to the business by customers who purchased products on credit (Reason: accounts receivable is money owned to the business by customers). d. accounts payable are a liability and are increased on the left side of the T-account (Reason: accounts payable are a liability and are increased on the right side of the T-account).

a

Which of the following statements is correct about prepaid accounts? a. prepaid accounts are also called prepaid expenses and are considered assets. b. prepaid accounts are also called prepaid liabilities and are classified as liabilities (Reason: they are as asset and also known as prepaid expenses). c. prepaid accounts are current expense accounts and are reported on the income statement (Reason: prepaid accounts are prepaid asset accounts). d. prepaid accounts are another name for accounts receivable and are reported as an asset (Reason: prepaid accounts are prepaid asset accounts).

a, b

Which of the following statements is correct definition of a liability? a. a liability is a claim by a creditor against the assets of a business. b. a liability is recorded when money is earned by the business. c. a liability is a thing of value owned by a business (Reason: this is an asset). d. a liability is a claim against a customer who is delinquent is paying their bill (Reason: a liability is a debt owned by the business).

b

Which of the following statements is the best definition of an asset? a. Assets represent the owner's claims against a company. (Reason: this is the equity in a business) b. Assets are resources owned or controlled by a company & that have expected future benefits. c. Assets are claims against the company. (Reason: this is the definition of a liability) d. Assets are the distributions to the owners of a company. (Reason: these are dividends of a business)

d

Which of the following statements is the best definition of the Chart of Accounts? a. it is a book of original entity that includes a chronological record of all transactions that have occurred within a business (Reason: this a journal) b. it is a collection of all accounts with their activity and the balances that exist in a business (Reason: this is a general ledger). c. it is a list of each account and its balances at any given time (Reason: this is a trial balance). d. it is a list of all ledger accounts which exist in a business and includes an identification number assigned to each account.

c, e, f

Which of the following would be included on an income statement? (check all that apply) a. total assets (Reason: assets are included on the balance sheet). b. total liabilities (Reason: liabilities are included on the balance sheet). c. total expenses d. total equity (Reason: equity is included on the balance sheet and statement of retained earnings). e. total revenue f. net income