MGMT 200 Purdue Chapter 2
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74 Terms
6 steps in measuring external transactions
1. Use source documents to identify accounts affected by an external transaction
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 using debits and credits
5. Post the transaction to the general ledger
6. Prepare a trial balance
Journal
A form for recording ALL transactions in chronological order
External Transactions
conducted between the company and a separate economic entity
Examples of External Transactions
Answer:
-selling products to a customer
-purchasing supplies from a vendor
-paying salaries to an employee
-borrowing money from a bank
Account
provides a record of the business activities related to a particular item.
-If total assets increase, then liabilities or stockholders' equity what by the same amount.
-If total assets decrease, then liabilities or stockholders' equity what by the same amount.
Answer:
-increase
-decrease
In The basic accounting equation Each transaction will have a what effect?
ANswer:
-dual
What 3 components make way to balance sheet through retained earnings?
Answer:
-Revenue - expenses - dividends
Common stock represents investments by ?
Answer:
-stockholders
We what revenues to calculate retained earnings?
Answer:
-add
An increase in revenues has the effect of what stockholders' equity in the basic accounting equation.
Answer:
-increasing
We what expenses and dividends to calculate retained earnings?
Answer:
-subtract
An increase in expenses or dividends has the effect of what stockholders' equity in the basic accounting equation?
Answer:
-decreasing
Retained earnings is a component of what?
Answer:
-stockholders' equity
Debit
left
Credit
right
We refer to increases in liabilities and stockholders' equity (right-hand side accounts) as credits, and decreases in those accounts as what?
Answer:
-debits
Revenues increase retained earnings. Retained Earnings is a what account, so we what revenues with a credit?
Answer:
-credit
-increase
Expenses, on the other hand, decrease retained earnings. Thus, we do the opposite of what we do with revenues: we increase expenses with a what?
Answer:
-debit
A debit to an expense is essentially a what to Retained Earnings, decreasing the account? Bc Retained earnings act like revenues
Answer:
-debit
Dividends decrease retained earnings (revenue) , so we also record a what in dividends with a debit
Answer:
-increase
Journal Entry
records a transaction has a place for the date of the transaction, the relevant account names, debit amounts, credit amounts, and a description of the transaction
If you wanted to know all the company's transactions for March 2, you would access the ?
Answer:
-journal
The date is really important
If you wanted to know all the company's transactions for cash, you would access the cash ?
Answer:
-account
For each transaction, the total debits must ? total credits.
Answer:
-equal
Posting
is the process of transferring the debit and credit information from the journal to individual general ledger accounts.
General Ledger
-provides, in a single collection, each / ALL account with its individual transactions and resulting account balance.
-contains all asset, liability, stockholders' equity, revenue, and expense accounts.
What systems automatically and instantly post information from the journal to the general ledger accounts and calculate account balances?
Answer:
-computerized
Notes are indications of ?
Answer:
-liabilities
Trial Balance
is a list of all accounts and their balances at a particular date, showing that total debits equal total credits.
Purposes of the trial balance...
- is to assist us in preparing what for internal transactions?
- To ensure all debits ? credits
- used for ? purposes
Answer:
-adjusting entries
-equal
-internal
After we've posted journal entries to the general ledger accounts, the sum of the accounts with debit balances should ? the sum of the accounts with credit balances.
Answer:
-equal
The two roles of financial accounting are to:
Answer:
-measure business activities of the company.
-communicate information to external parties for decision making purposes.
If a transaction decreases cash by $100, the balance sheet will balance if which of the following occurs? (Select all that apply)
Answer:
-Another asset is increased
-A liability is decreased
True or false: The two functions of financial accounting are to measure business activities and prepare tax returns.
Answer:
-True
Which of the following are stockholder equity accounts?
Answer:
-Common stock
-Retained earnings
The first step for analyzing the effect of transactions is:
Answer:
-Determine one account in the accounting equation that will increase or decrease
Identify the three components of retained earnings.
Answer:
-Dividends
-Expenses
-Revenues
What effect does revenue have on retained earnings?
Answer:
-increases
Claire purchases equipment for $10,000 by paying $3,000 in cash and borrowing $7,000 from the bank. The number of accounts affected by this transaction is ?
Answer:
-3
Three accounts are affected: equipment, notes payable, and cash.
What is the effect of net income on retained earnings?
Answer:
-Increases retained earnings
Accounts receivable are assets which represent
Answer:
-the amounts owed BY customers.
Revenues cause retained earnings to ?
Answer:
-increase
When a company performs services for a customer, and the customer agrees to pay for the services at a later date, the transaction is recorded in which account?
Answer:
-accounts receivable
Expenses ______ retained earnings; therefore, to increase any expense, one would ______ the expense account.
Answer:
-decrease
-debit
Ledger contains ?
Answer:
-all the individual accounts used by a company
Because expenses reduce retained earnings, a ______ to expense is essentially a(n) ______ to retained earnings.
Answer:
-debit
-debit
The process of transferring information from a journal entry to the specific accounts affected in the general ledger is referred to as
Answer:
-posting
A(n) ______ is maintained for each financial statement item, whereas a(n) ______ contains all of the accounts of the company.
Answer:
-Account
-general ledger
"record all transactions for a particular item"
ANswer:
-this describes an account
The purpose of a general ledger is to ?
Answer:
-provide in a single location the list of transactions affecting each account and the account's balance.
Which of the following contains a list of transactions affecting each account and the account's balance?
ANswer:
-general ledger
Klick's journal shows a debit to cash and a credit to common stock. This journal entry indicates that Klick:
Answer:
-issued shares to stockholders
Tabor Company issues $20,000 of common stock to investors. Recording this transaction will include a credit to
Answer:
-Common stock
Roland Corporation borrows $10,000 from the bank by signing a promissory note. Recording this transaction will include:
Answer:
-debit to cash
-credit to notes payable
An account that is used informally for analysis instead of drawing a formal general ledger account is referred to as a:
Answer:
-T - account
Geo Corporation issues stock to investors for $100,000. Recording this transaction will include which of the following?
Answer:
-Credit common stock
-Debit to cash
Rawlings Corp. borrows $3,000 on a note payable from Third National Bank. Which of the following is used to record this transaction?
ANswer:
-Debit cash $3,000
-credit note payable $3,000.
True or false: A balance sheet is a list of all accounts and their balances showing that debits equals credits.
Answer:
-False
A TRIAL balance is a list of all accounts and their balances showing debits equals credits. A balance sheet presents assets, liabilities, and stockholders' equity.
Smith Company's journal shows a debit to cash and a credit to notes payable, both for $15,000. This indicates that Smith Company:
Answer:
-borrowed $15,000 cash and signed a note
Indigo Company's journal reveals that equipment was debited and notes payable was credited, both for $10,000. Indigo Company must have ?
Answer:
-purchased equipment and signed a note for the purchase price
Which of the following transactions increases total assets?
ANswer:
-Provide services to customers on account.
Which of the following transactions decreases stockholders' equity?
Answer:
-Pay salaries for the current period
Purchasing land with cash would have what effect on the accounting equation?
Answer:
-no effect
Which of the following accounts normally has a credit balance?
Answer:
-service revenue
A credit to Cash will:
Answer:
-decrease in assets
A debit is used to decrease which of the following accounts?
Answer:
-accounts payable
Providing services to customers for cash would be recorded with a:
Answer:
-Credit to Service Revenue.
The process of transferring debit and credit information from the general journal to the general ledger is known as:
Answer:
-posting
Which of the following is true about a trial balance?
Answer:
-Total debit amounts should always equal total credit amounts.
Which of the following transactions causes an increase in stockholders' equity?
Answer:
-Provide services to customers on account.
In the language of accounting, the term "debit" always means
Answer:
-Left-hand side
The purchase of supplies with cash would be recorded as
Answer:
-Debit Supplies
-Credit Cash
A trial balance can best be explained as a list of
Answer:
-All accounts and their balances at a particular date.