Financial Accounting I Final

increase assets and increase owner's equity

Falana received $7,000 in cash from a client for professional services rendered. This transaction would

increase assets and increase liabilities

Stephen purchased office supplies for $800 on account. This transaction would

Supplies consumed

An example of an expense is

Assets = Liabilities + Owner’s Equity

The accounting equation may be expressed as

merchandising business

A business that purchases a product from another business to sell to customers is called a

true

Generally accepted accounting principles are procedures and guidelines to be followed in the accounting/reporting process.

false

If the revenue of a period exceeds the expenses, the excess represents a net loss.

increase assets and increase owner’s equity

Meghan started her business by investing $30,000 in cash. This transaction would

decrease assets and decrease owner's equity.

Sue Lee paid $1,200 for her employees' salaries. This transaction would

balance sheet

The financial statement that shows the state of the firm's assets, liabilities, and owner's equity on a specific date is called a(n)

true

A business that makes a product to sell is called a manufacturing business.

fiscal year

Any accounting period of twelve months' duration is usually referred to as a(n)

true

Revenues received during an accounting period increase owner's equity.

true

The purpose of accounting is to provide financial information about the current operations and financial conditions of a business to individuals and organizations.

increase one asset and decrease another asset.

Jason purchased office equipment for $4,800 in cash. This transaction would

asset

Prepaid rent is an

credit

The drawing account is decreased by entering a

right side

A credit is on the ___ ___

double-entry accounting

The fact that each transaction has a dual effect on the accounting elements provides the basis for what is called

balance

The difference between the total debits and credits to an account is called a

increases when the owner invests money in the business

The capital account

cash and notes payable

A cash payment on a loan affects which of the following accounts?

current date

The standard T account includes all of the following EXCEPT

true

When debits equal credits for a transaction, the accounting equation is in balance.

expenses, capital, and revenue

Accounts that affect owner's equity are

true

Owner's equity includes four types of accounts: Owner's Capital, Revenues, Expenses, and Owner's Drawing.

true

Copies of sales tickets or sales invoices issued to customers or clients provide information about sales of goods or services.

receiving payment for all accounts receivable

The flow of financial data through the accounting information system does NOT include

true

Information about cash disbursements can be obtained from check stubs and carbon copies of checks.

debiting Cash and crediting Sales Revenue

Sales revenue received in cash is entered by

cash receipts

Receipt stubs, carbon copies of receipts, cash register tapes, or memos of cash register totals provide information about

false

Entering transactions in a journal is called posting.

debiting Delivery Equipment and crediting Accounts Payable

When delivery equipment is purchased on account, the transaction to be entered by the purchaser includes

numerical order

The accounts in the chart of accounts are arranged in

false

When the trial balance indicates that the ledger is in balance, you can assume there are no errors in the ledger.

names of suppliers

A chart of accounts does NOT include

true

The purpose of a trial balance is to prove that the totals of the debit and credit balances in the ledger accounts are equal.

sole proprietorship

A business owned and operated by a single individual, where the owner has complete control and is personally liable for all debts.

Balance Sheet

Reports assets, liabilities, and owner’s equity on a specific date

Income statement

Reports profitability of business operations for a specific period of time (shows revenues, expenses, and net income or loss)

Statement of Owner’s Equity

Reports beginning capital and net income less withdrawals to compute ending capital for a specific period.

Assets

are owned by the business and will provide future benefits (includes cash, accounts receivables, supplies, equipment, prepaid insurance)

Trial Balance

List of all accounts showing the title and balance of each account, used to prove equality of debits and credits

Posting

Copying debits/credits from the journal to the ledger accounts

Debit wages expense and credit wages payable

What is the adjustment for unpaid wages?

Debit insurance expense and credit prepaid insurance

Adjusting entry for insurance that has expired

Income Summary

Temporary account used to summarize effects of all revenue, expense, and drawing accounts in the closing process (AKA expense and revenue summary)

Permanent accounts

All assets, liabilities, and capital on the balance sheet that carry over from one accounting period to the next, remaining open until the entity is dissolved.

Outstanding checks

Checks that have been written and recorded but not yet cleared by the bank.

Depreciable cost; Estimated useful life

Subtract the salvage value from the original cost to get the ____ ____, then divide the answer by the ___ ____ ____ to get the depreciation expense

true

estimated useful life can be in months or years

Debit revenue and credit income summary

First step of the 4 closing entries

Debit income summary and credit expenses

Second step of the 4 closing entries

debit income summary and credit owner’s capital

(If net income) Third step of the 4 closing entries

debit owner’s capital and credit income summary

(If net loss) Third step of the 4 closing entries.

Debit owner’s capital and credit drawing account

Fourth step of the four closing entries

Deposit in transit

Deposits entered in the books but not on the statement

debit petty cash and credit cash

this entry records the establishment or increase of a petty cash fund, transferring cash from the general cash account.

2/10 n 30

A trade discount term indicating a 2% discount if paid within 10 days; otherwise, the net amount is due in 30 days.

2/eom n 60

2% discount if paid before end of month; total amount due in 60 days

trade discounts

A reduction from the list or catalog price offered to different classes of customers

Beginning Inventory + Net Purchases

Equation for goods available for sale

Goods available for sale - ending inventory

Equation for cost of goods sold

merchandise inventory

with the perpetual method, you debit ____ _____ instead of purchases when inventory is purchased for a merchandising business

Debit bad debt expense and credit allowance for doubtful accounts

Percentage of sales method adjusting entry (estimates that a certain percentage of money will not be made)

debit income summary and credit merchandise inventory (beginning balance)

First step of the merchandise inventory adjusting entry

debit merchandise inventory and credit income summary (ending balance)

second step of the merchandise inventory adjusting entry

debit bad debt expense and credit accounts receivable

direct write off method

Cash Short and Over Account

debited for shortages and credited for overages; can be an expense or revenue

deposits in transit; outstanding checks

When reconciling the bank statement, add ____ ___ ____ and subtract ____ _____ from the bank account

bank fees; NSF checks; unrecorded ATM/debit withdrawals; other errors

Adjust the book balance by subtracting ____ ____, _____ ____, ____ ___ ____, or ___ ____

bank collections; errors

Adjust the book balance by adding ___ ____, ______

debit accounts payable and credit purchase discounts and cash

Entry for the business paying the invoice within the discount period

Debit accounts receivable, credit sales and sales tax payable

Sales on Account Entry

True

Once the petty cash fund is established, an entry is made to Petty Cash only if the amount of the fund is being changed.

true

you debit expenses and credit cash to replenish fund, just like a regular transaction