Accounting Ch 3

Front 1

Expenses decrease retained earnings.

Back 1

True; The costs that a firm incurs when operating its business cause retained earnings to decrease.

Front 2

The effect on the basic accounting equation of performing services for cash are to

Back 2

increase assets and increase stockholders’ equity
When services are performed for cash, assets are increased and stockholders’ equity is increased.

Front 3

Genesis Company buys equipment for $900 machine on credit. This transaction will immediately affect the

Back 3

balance sheet only.

When equipment is purchased on credit, assets are increased and liabilities are increased. Neither the income statement nor the retained earnings statement is affected.
Determine the accounts impacted by the transaction and which statements these accounts would appear on.

Front 4

Which of the following events is not recorded in the accounting records?

Back 4

An employee is terminated.

Equipment purchased on account is recorded.

Front 5

During 2014, Gibson Company assets decreased $50,000 and its liabilities decreased $90,000. Its stockholders’ equity

Back 5

increased $40,000.
Since assets only decreased $50,000, and liabilities decreased by $90,000, stockholders’ equity has to increase by $40,000 to keep the accounting equation balanced.
Recall the accounting equation to answer this question.

Front 6

Retained earnings is decreased by

Back 6

expenses.
Owner's investments are additions to the common stock account and also increase an asset such as cash, inventory, or equipment
Recall the type of transactions that reduces retained earnings.

Front 7

If an expense is paid with cash

Back 7

assets will decrease.
When an expense is paid with cash, liabilities are not affected.

Front 8

If cash is received in advance from a customer

Back 8

liabilities will increase.

Stockholders' equity will increase when the event for which the prepayment is received is completed.

Front 9

Receipt of an unearned revenue

Back 9

increases an asset; increases a liability.
Note that unearned revenue is considered a liability even though the word liability is not used in its title.
The revenue will increase when the service or product is provided and stockholders' equity will increase through net income into retained earnings.

Front 10

Payment of a dividend

Back 10

decreases cash; decreases retained earnings.p
payment of dividends reduces both cash and retained earnings.

Front 11

If a company receives cash from a customer before performing services for the customer, then

Back 11

assets increase and liabilities increase.
When cash is received from a customer, the asset Cash increases, and a liability such as Unearned Revenues increases.

Front 12

If total liabilities increase by $5,000 then

Back 12

assets increase by $5,000, or stockholders’ equity decrease

The accounting equation of Assets = Liabilities + Stockholders’ Equity can be used to solve this problem. If assets increase on the left side of the equation and liabilities increase by the same amount on the right side of the equation, the equation will balance. Likewise, if stockholders’ equity decreases on the right side of the equation and liabilities increase by the same amount on the right side of the equation, the equation will balance.

Front 13

Every account has a left or credit side and a right or debit side.

Back 13

false. The left side is the debit side while the right side is the credit side.

Front 14

Every transaction affects at least two accounts.

Back 14

True; There must be at least one debit, and one credit account.

Front 15

An account is a part of the financial information system and is described by all except which one of the following?

Back 15

An account is a source document.
An account has three basic parts – a title, a debit side, and a credit side, but it is not a source document.

Front 16

Which statement about an account is true?

Back 16

An account is an individual accounting record of increases and decreases in specific asset, liability, and stockholders’ equity items.

An account is an individual record of specific account detail

Front 17

Assets are increased by credits.

Back 17

false. Assets are increased by debits, which are additions to the left side of the T-account.

Front 18

Debits

Back 18

increase assets and decrease liabilities.
Debits increase assets and decrease liabilities.
Recall the summary of debit/credit rules to answer this question.

Front 19

A revenue account

Back 19

is increased by credits.
Revenues are increased by credits.
Apply the debit/credit rules in text.

Front 20

Which accounts normally have debit balances?

Back 20

Assets, dividends, and expenses
The normal balance is the side where increases in the account are recorded.
Assets and expenses have normal debit balances, but revenues have a normal credit balance.

Front 21

What effects occur when an account payable is paid with cash?

Back 21

Decreases assets and decreases liabilities
Cash, an asset, will decrease. Accounts payable, a liability, will decrease.

Front 22

Accounts with normal debit balances include

Back 22

expenses and assets.
Expenses and assets both have normal debit balances
the normal balance is the side where increases in the account are recorded.

Front 23

Accounts with normal credit balances include

Back 23

liabilities and stockholders' equity.
Revenue accounts have normal credit balances while asset accounts have normal debit balances.
The normal balance is the side where increases in the account are recorded.

Front 24

An account has $300 on the debit side and $900 on the credit side. How much is the account balance?

Back 24

Credit of $600
When credits are greater than debits, credits minus debits results in a credit balance of $600. The debit of $300 is subtracted from the credit of $900, which results in a credit of $600.

Front 25

At September 1, 2014, Five-O Inc. reported retained earnings of $136,000. During the month, Five-O generated revenues of $20,000, incurred expenses of $12,000, purchased equipment for $5,000 and paid dividends of $2,000. What is the balance in retained earnings at September 30, 2014?

Back 25

$142,000 credit

First net income is calculated as revenues of $20,000 (Cr.) less expenses of $12,000, which is $8,000. Then the beginning balance of Retained Earnings, $136,000 (Cr.) plus net income of $8,000 less dividends of $2,000 (Dr.) results in the ending balance of retained earnings of $142,000 (Cr.).

To answer this question, recall the events that impact retained earnings.

Front 26

Which of the following is the correct sequence of events?

Back 26

Analyze a transaction; record it in the journal; post it to the ledger

The sequence is to analyze the event, record it, and then post it to the ledger.

Front 27

What is evidence that a transaction has occurred?

Back 27

Source document
Transactions are initially recorded in chronological order in journals before they are transferred to the accounts. For each transaction, the journal shows the debit and credit effects on specific accounts.

Front 28

Which is not part of the recording process?

Back 28

Analyzing transactions

analyzing transactions is the first step in the recording process.

Front 29

Transactions are recorded in chronological order in the journal.

Back 29

True; the journal is an accounting record in which transactions are initially recorded in chronological order.

Front 30

Which of these statements about a journal is false?

Back 30

It contains only revenue and expense accounts.

A journal contains entries affecting all accounts, not just revenue and expense accounts.

Front 31

Which of the following is not a part of a complete journal entry?

Back 31

The balance of each account affected by the transaction

the date of a journal entry is required to maintain the chronology of the journal and the accounts.

Front 32

Where is the first place every transaction is recorded?

Back 32

In the journal

the basic accounting equation is assets = liabilities + stockholders' equity.

Front 33

What journal entry is recorded as a result of issuing stock to investors for cash?

Back 33

A debit to Cash and a credit to Common Stock
Issuing stock for cash is recorded by debiting Cash and crediting Common Stock.

Front 34

A complete journal entry does not show

Back 34

the new balance in the accounts affected by the transaction.

A journal entry requires a date (for a chronological record), at least one debited account followed by at least one credited account, equal debit and credit values, and a brief explanation.

Front 35

Transactions are initially recorded in chronological order in a __________ before they are transferred to the accounts.

Back 35

journal
The transaction is first recorded in a journal, and then posted to a ledger.

Front 36

The entire group of accounts maintained by a company is referred to collectively as the journal.

Back 36

false. The entire group of accounts maintained by a company is referred to collectively as the ledger.

Front 37

What does a general ledger of a company contain?

Back 37

all the asset, liability, stockholders' equity, revenue, and expense accounts
a general ledger lists all of the accounts of a company.

Front 38

What type of account is unearned revenue?

Back 38

Liability

Unearned revenues are payments for future services to be performed or goods to be delivered. Until a company performs the services or delivers the goods, the amount is owed to the party that made the payment.

Front 39

What is the appropriate order for a company's chart of accounts?

Back 39

Assets, liabilities, stockholders' equity, revenues, expenses

the order of the accounts in the chart of accounts follows the order of the sections of the balance sheet and income statement.

Front 40

Posting

Back 40

transfers journal entries to ledger accounts.
Posting transfers journal entries to ledger accounts.

Front 41

If an account is debited in the journal entry, then

Back 41

that account will be debited in the ledger.
If the account is debited in the journal entry, that account will be debited in the posting process.

Front 42

Which of the following is the correct sequence of events?

Back 42

Journalize; post; prepare a trial balance

The proper sequence of events is to journalize the transaction, post the journal entries to the ledger, and prepare a trial balance.

Front 43

If the sum of the debit column equals the sum of the credit column in a trial balance, it indicates

Back 43

the mathematical equality of the accounting equation

trial balance where debits equal credits simply states the mathematical equality of the accounting equation. Errors can still exist.

Front 44

When a trial balance balances, it is an indication that

Back 44

debits equal credits.

If the wrong account is debited or credited in the original journal entry, the balancing of the trial balance will not verify or identify the error.

Front 45

Accounts are listed on the trial balance in

Back 45

the order that they appear in the ledger.

Accounts will appear in the trial balance in the same order that they appear in the ledger.

Front 46

A trial balance

Back 46

is a list of accounts with their balances at a given time.

A trial balance does not prove that all transactions have been recorded.

Front 47

A trial balance will not balance if

Back 47

a $100 cash dividend is debited to Dividends for $1,000 and credited to Cash for $100.

If a correct journal entry is posted twice, the trial balance will still balance.

Recall that a trial balance simply proves that total debits equal total credits recorded in the ledger.

Front 48

Issuance of stock is an investing activity.

Back 48

false. Issuance of stock is a financing activity.

Front 49

On. Jan. 10, Novis Company purchased manufacturing equipment for $80,000 cash. What kind of activity is this

Back 49

Investing activity
Operating activities involve the generation of profit.

Front 50

In what section of the statement of cash flows would the purchase of office equipment for $10,000 appear?

Back 50

Investing activities

The purchase of long-lived assets is considered an investing activity.

Front 51

Which of the following is not one of the primary types of the financing activities in the statement of cash flows?

Back 51

Buying equipment
Buying equipment is a part of the investing activities of a firm.