Study.com Financial Accounting Chapter 3

Liability

The type of account that 'shows what a company owes' is a(n) _____ account.

T-accounts

The visuals that are used to help accounting professionals see the effects of transactions on accounts are called _____. a. Journals b. T-accounts c. Debits d. Credits

0.66

Calculate this company's quick ratio using the balance sheet image. a. 0.66 b. 0.54 c. 1.48 d. 1.86 image: https://study.com/cimages/multimages/16/4e8dfda6-b0e7-4c02-8310-2d781a8bee46_balance_sheet.jpg

It ensures the accounts are balanced.

Why must the amount debited and the amount credited in each transaction be equal? a. It ensures the accounts are balanced. b. It guarantees there is always money in the accounts. c. This is a tax requirement of the Internal Revenue Service. d. It makes it easier to reconcile the books.

Journal entries

Source documents give the information needed to complete _____. a. Transactions b. Statement of Cash Flows c. Retained Earnings Statement d. Journal entries

debit and a credit

A complete journal entry will always have both a _____.

revenue

Return on Assets measures how well a company uses its assets to generate _____.

$2300

Symus decides to open a shop to repair mobile phones. He contributes $1000 from his savings to the business and receives a soft loan of $2000 from a credit union to purchase store supplies. He is then billed $300 to insure his shop. What is the total value of Symus' liabilities? a. $3000 b. $3300 c. $2700 d. $2300

Assets

The account category that shows what a company owns is called _____.

6.6 cents, which is the net income per dollar of sales

This year your company had a net income of $165,000 and net sales of $2,500,000. What is your net profit margin? What does it mean? a. 6.6 cents, which is the net income per dollar of sales b. 66 cents, which is the net income per dollar of sales c. 0.006 cents, which the net income per dollar of sales d. 0.066 cents, which is the net income per dollar of sales

1.46

Using the image of the balance sheet, what is this company's current ratio? a. .49 b. 1.49 c. 1.48 d. 1.46 image: https://study.com/cimages/multimages/16/75642e69-672b-4463-98d0-510851410a19_balance_sheet.jpg

Double-entry accounting

_____ states that for every one transaction that occurs, at least two accounts will be affected. a. Double-entry accounting b. Double-item accounting c. Double-expense transactions d. Double-entry analysis

account

A place to record transactions that occur within a business is called a(n) _____.

trial balance

A(n) _____ is a listing of all the accounts of a business and their balances and is created after all transactions for a period have been journalized and posted.

at least 1

As a general rule, companies are able to meet their short-term liabilities if they have a quick ratio of _____. a. at least 1 b. lower than 1 c. at least 5 d. lower than 0

1st

Examining the source documents is the _____ step in the accounting cycle. a. 4th b. 1st c. 2nd d. 3rd

At least 2

How many accounts are to be recorded by a business transaction with a double-entry accounting?

$47,500

Jones Engineering has $60,000 in assets. They also have $25,000 in liabilities, $5,000 in expenses, and they paid out $7,500 in dividends this year. The extended accounting equation is assets = liabilities + (revenue - (expenses + dividends)). What would their revenue need to be for their accounts to be in balance?

Ledger

The book or computer printout that contains the accounts is called the:

5

The chart of accounts is broken down into _____ types of accounts.

Maintain balance

Why are debits and credits used in accounting? a. Report where money is spent b. Maintain balance c. Decrease net income d. Increase total revenue

2

Double entry accounting requires that for every one transaction there will be at least _____ accounts affected.

Source Documents

In accounting, pieces of paper that prove that a transaction occurred are called _____. a. Balance Sheets b. Journals c. Source Documents d. Ledgers

Revenue

Rachel's Interior Design Firm has several different accounts used to track their finances, which is common in business. Rachel's Interior Design Firm receives a check from Susie Johnson for interior design work the company performed at Susie's home. In which of the accounts listed should this money be recorded? a. Expense b. Revenue c. Services Rendered d. Asset

0.48

Rinate Company Ltd has the following details available: Net Income is $123,200 Total asset valued at $258,600 Total Liabilities valued at $25300 Total Equity valued at $40000 Calculate the Return on Assets.

journal

The book that contains every single transaction that has occurred in a business and is recorded in chronological order is called a _____.

0.87

Using the image of the balance sheet, what is this company's debt-to-assets ratio? a. 0.29 b. 2.03 c. 1.15 d. 0.87 image: https://study.com/cimages/multimages/16/8fad993c-e6f0-4d32-847a-c97d0010b621_balance_sheet.jpg

Debit

What is an entry made on the left side of an account?

Transaction analysis

What is the first step in an accounting cycle called?

Owner's Equity

What is the money that an owner has personally invested in their company called? a. Owner's Equity b. Owner's Liabilities c. Owner's Income d. Owner's Assets

Owner's equity

What part of the basic accounting equation is broken down into three other categories to create the extended accounting equation?

Expense accounts

Which of the following accounts has balance increases when it is debited and balance decreases when it is credited? a. Stockholder equity accounts b. Liability accounts c. Revenue accounts d. Expense accounts

Prepaid insurance

Which of the following is an asset for a company? a. Retain earnings b. Capital stock c. Prepaid insurance d. Bank loan

Assets = liabilities + owner's equity

Which of the following represents the accounting equation? a. Owner's equity = liabilities x assets b. Liabilities = assets + owner's equity c. Owner's equity = liabilities / assets d. Assets = liabilities + owner's equity

Current Liability, because the bill is due within 12 months.

ABC Automotive Corporation purchased a new car lift for their repair center. The payment for their car lift is due within 10 months of purchase. What would this be characterized as, and why? a. Non-Current Liability, because the bill is due within 24 months. b. Current Liability, because any bill that requires payment in under 5 years is a current liability. c. Owner's Equity, because the lift is owned by the company's management. d. Current Liability, because the bill is due within 12 months.

c. A debit of $290 that would increase the balance in the expense account and a credit of $290 that would increase the liability account.

Calvin owns a flower business and has to pay an electricity bill amounting to $290. How will his account officer record the transaction? a. A debit of $290 that would increase the balance in the income account and a credit of $290 that would increase the accounts payable. b. A debit of $200 that would increase the balance in the accounts payable and a credit of $90 that would increase the accounts receivable. c. A debit of $290 that would increase the balance in the expense account and a credit of $290 that would increase the liability account. d. A debit of $290 that would increase the balance in the accounts payable and a credit of $290 that would increase the liability account.

Stockholder's Equity

In which account is equity that comes from the sale of stocks or bonds categorized? a. Liability b. Stockholder's Equity c. Owner's Equity d. Asset

Asset account and accounts payable account

Jarett orders and purchases two laptops for his company usage on account. The ordered laptops amounted to $1,200. Identify the two accounts that are used for this transaction. a. Inventory account and debit account b. Accounts payable account and utilities expense account c. Liability account and accounts receivable account d. Asset account and accounts payable account

Revenue

Money that is brought in as payment for goods or services is called _____.

expenses

Money that is paid out of a company for items necessary for daily operations is called _____.

dividends

Money that is paid to investors as a return on their investments is called _____.

balance sheet

The _____ is the financial statement that lists all of a company's accounts and the balances in them.

income statement

The _____ is the financial statement that tells how much money a company made or lost in a given time period.

general

The _____ ledger contains information on all the accounts.

2

The double-entry accounting system states that for each and every transaction that a company has _____ or more accounts will be affected. a. 2 b. 3 c. 1 d. 4

Operating margin takes into account costs of business activities unrelated to production while gross margin measures costs of all aspects of production

What is the difference between gross margin and operating margin? a. Operating margin takes into account costs of business activities unrelated to production while gross margin measures costs of all aspects of production b. Nothing, just different names for the same calculation c. Gross margin takes into account administrative business expenses while operating margin does not d. Gross margin doesn't take into account any costs of business while operating margin does

Profit is what is left of revenue after all business expenses are paid and profitability is the ability to make a profit

What is the difference between profit and profitability? a. Profit is a measure used internally by a business while profitability is a measure used by investors b. Profit is a measure related to a product while profitability is a measure related to the entire business c. Nothing, they are synonymous d. Profit is what is left of revenue after all business expenses are paid and profitability is the ability to make a profit

Land payment

Which of the following is NOT an asset for a company? a. Land payment b. Equipment c. Cash d. Accounts receivable

Are equal to liabilities plus owner's equity.

According to the accounting equation, accounts are balanced when assets: a. Are equal to liabilities plus owner's equity. b. Are multiplied by liabilities. c.Are divided by owner's equity. d. Are subtracted from liabilities.

Documenting the transaction in a journal

A furniture manufacturing company just bought a new piece of machinery. Shelby, the accountant, considered which accounts the expense will affect. She then determined the specific account that was to be credited and which would be debited. What is Shelby's next step in regard to this expense? a. Documenting the transaction in a journal b. Balancing the ledger c. Moving money into the account that will be debited d. Deferring the expense to the next accounting time period

Liability, because utility expenses are considered a liability in accounting.

ABC Piping Corporation has a warehouse where they store their pipes before they get sold and shipped. Susie is an accountant for ABC, and she recently received a bill from the utility company for the utility expenses of running the warehouse. In which type of account should Susie record this in and why? a. Revenue, because the utility expense is related to the warehouse which is used to store items that generate revenue. b. Owner's Equity, because the warehouse is part of the equity that the owner has in the company. c. Asset, because though there is a cost associated with it, the cost is tied to the warehouse, which is an asset. d. Liability, because utility expenses are considered a liability in accounting.

c. A debit decreases liability and equity account balances while a credit increases liability and owner's equity accounts.

How is a debit different from a credit? a. A debit decreases asset while a credit decreases liability. b. A debit is on the right side of the ledger while credit is on the left side of the ledger. c. A debit decreases liability and equity account balances while a credit increases liability and owner's equity accounts. d. A debit decreases prepared expense balances while credit increases prepaid expense accounts.

No, his personal journal doesn't prove a transaction occurred.

John has a business, and for his own personal record-keeping, he makes notes about payments that he makes to vendors. He has a small journal where he will simply make a personal note that he paid a particular amount to a vendor. Is this a source document? a. No, his personal journal doesn't prove a transaction occurred. b. Yes, personal account-keeping produces source documents. c. Yes, any record of a transaction is a source document. d. No, source documents can only be provided by a bank.

b. The credit, which is $1200.00, will go to the accounts receivable.

Mary ordered a bicycle from Fit Company Ltd and was asked to make a deposit. One month later, when the bicycle was delivered to Mary, she paid an amount of $1200 which was due to Fit Company Ltd. Which of the following is correct if Fit Company Ltd uses a double-entry accounting system? a. For this transaction, only one entry of $1200 was added to the account balance. b. The credit, which is $1200.00, will go to the accounts receivable. c. Mary bought the bicycle for $1500. d. Since the amount was paid out of office, it cannot be recorded into the ledger.

c. Assets = $100,000, liabilities= $0, and equity=$100,000.

On January 1st, 2017, Catherine invested a cash amount of $100,000 to start her beauty parlor. Determine the asset, liability, and equity value of her beauty parlor as of January 1st, 2017. a. Assets = $0, liabilities= $100,000, and equity=$100,000. b. Assets = $100,000, liabilities= $100,000, and equity=$100,000. c. Assets = $100,000, liabilities= $0, and equity=$100,000. d. Assets = $0, liabilities= $0, and equity=$100,000.

Accounting journal

Once source documents are in hand, where is the journal entry recorded?' a. Balance Sheet b. Statement of Retained Earnings c. Income Statement d. Accounting journal

must be equal

The most important thing to remember when analyzing business transactions is that all debits and credits _____. a. vary b. must be equal c. do not have to be equal d. have no bearing on the accounting equation

financial statement ratios

There are five basic _____ which are calculated using information found in the balance sheet and income statement that are measures of the productivity and efficiency of a business.

11% A gross margin of 11% means out of every dollar you make in sales, you spend 89 cents to produce the product you sold

Your company earned a gross profit of $2,000,000 last year and had net sales of $18,000,000. What was your gross margin and what does it mean? a. 9% A gross margin of 9% means out of every dollar you make in sales, you spend 91 cents to produce the product you sold b. 11% A gross margin of 11% means out of every dollar you make in sales, you spend 89 cents to produce the product you sold c. 0.11% A gross margin of 0.11% means out of every dollar you make in sales, you spend almost all of it to produce the product you sold c. There's not enough data to make the calculation

15% The company earned 15 cents of profit from each dollar invested.

Your corporation's balance sheet currently reflects common shareholder equity of $75,000,000 and net income of $11,000,000. Calculate the return on equity. What does it mean? a. .15% The company earned less than a penny of profit from each dollar invested. b. 1.5% The company earned 1.5 cents of profit from each dollar invested. c. 6.82% The company earned about 6.8 cents of profit from each dollar invested. d. 15% The company earned 15 cents of profit from each dollar invested.