Accounting: Effects on Total Assets
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Accounting: Effects on Total Assets

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Questions and Answers

What effect does issuing capital stock in exchange for cash have on total assets?

  • Decrease
  • Depends on the amount
  • No effect
  • Increase (correct)

    • Paying cash on accounts payable has no effect on total assets.

    True

    How does purchasing office supplies for cash affect total assets?

    Increase

    A loan made to an employee would ______ total assets.

    <p>increase</p> Signup and view all the answers

    Match the types of accounts to their correct classifications:

    <p>Notes payable due in 3 months = Current liabilities Accounts receivable = Current assets Land = Noncurrent assets Income taxes payable = Current liabilities</p> Signup and view all the answers

    What does unearned revenue represent on the balance sheet?

    <p>A liability for future services or goods</p> Signup and view all the answers

    Which of these transactions would decrease total assets?

    <p>Paying cash for office supplies</p> Signup and view all the answers

    Building is classified under stockholders' equity on the balance sheet.

    <p>False</p> Signup and view all the answers

    Financial reporting ignores the impacts of transactions on the financial position of an entity.

    <p>False</p> Signup and view all the answers

    What classification would supplies inventory fall under?

    <p>Current assets</p> Signup and view all the answers

    Define a business transaction in accounting terms.

    <p>An exchange of assets or services for assets, services, or promises to pay between a business and an external party.</p> Signup and view all the answers

    Every accounting transaction has at least two effects on the __________ equation.

    <p>accounting</p> Signup and view all the answers

    Which of the following is NOT a common balance sheet account title?

    <p>Sales Revenue</p> Signup and view all the answers

    Transactions can only occur between a business and customers, but not internally.

    <p>False</p> Signup and view all the answers

    Match the account types with their classifications:

    <p>Accounts Payable = Liability Cash = Asset Common Stock = Equity Unearned Revenue = Liability</p> Signup and view all the answers

    What is the dual effects concept in accounting?

    <p>It implies that every transaction affects at least two accounts in the accounting equation.</p> Signup and view all the answers

    What must be true about the accounting equation after recording each transaction?

    <p>It must remain balanced.</p> Signup and view all the answers

    A company’s assets and stockholders' equity both decrease when it sells additional shares of stock in exchange for cash.

    <p>False</p> Signup and view all the answers

    What is the normal balance for an asset account?

    <p>Debit</p> Signup and view all the answers

    Purchasing stock of another company for cash results in an __________ in total assets for the purchasing company.

    <p>no change</p> Signup and view all the answers

    Match the transaction with its impact on the accounting equation:

    <p>Selling shares = Increases both assets and stockholders' equity Purchasing stock = No change in total assets Liability increase = Increases assets and liabilities Asset purchase = Decrease cash but increase total assets</p> Signup and view all the answers

    Which of the following statements about liabilities is correct?

    <p>Liabilities have a normal credit balance.</p> Signup and view all the answers

    The journal entry for purchasing equipment increases both cash and liabilities.

    <p>False</p> Signup and view all the answers

    What happens to total assets when a company receives cash for services rendered?

    <p>Increases</p> Signup and view all the answers

    Study Notes

    Effects of Transactions on Total Assets

    • Issuing capital stock for cash increases total assets.
    • Paying cash on accounts payable has no effect on total assets.
    • Loaning money to an employee increases total assets.
    • Borrowing money from the bank increases total assets.
    • Collecting cash on accounts receivable has no effect on total assets, assets are simply converted from one form to another.
    • Purchasing a building with cash and a mortgage increases total assets.
    • Purchasing office supplies on credit has no effect on total assets.
    • Purchasing office supplies with cash increases total assets.

    Balance Sheet Account Classifications

    • Notes payable due in 3 months is classified as a current liability.
    • Income taxes payable is classified as a current liability.
    • Prepaid expenses is classified as an asset.
    • Accounts receivable is classified as an asset.
    • Supplies inventory is classified as an asset.
    • Land is classified as an asset.
    • Building is classified as an asset.

    Transactions and the Accounting Equation

    • A transaction is an exchange of assets or services for assets, services, or promises to pay between a business and one or more external parties to a business or a measurable internal event.
    • The dual effects concept states that every transaction has at least two effects on the accounting equation.
    • Every accounting transaction must keep the accounting equation in balance.
    • Selling additional shares of stock for cash increases both assets and stockholders' equity.
    • Purchasing stock of another company for cash has no effect on the total asset amount.

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    Related Documents

    Chapter 02 Answers Only PDF

    Description

    This quiz explores the effects of various transactions on total assets, including issuing capital stock and loaning money. Additionally, it covers classifications on the balance sheet related to assets and liabilities. Test your knowledge on how different actions impact financial statements.

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