Podcast
Questions and Answers
What is the total increase in assets after the first transaction?
What is the total increase in assets after the first transaction?
- $15,000
- $20,000
- $5,000
- $10,000 (correct)
What effect does borrowing $5,000 from a bank have on Sierra's liabilities?
What effect does borrowing $5,000 from a bank have on Sierra's liabilities?
- Decreases by $5,000
- Lies unchanged
- Increases by $10,000
- Increases by $5,000 (correct)
After purchasing office equipment for $5,000 in cash, what is the change in total assets?
After purchasing office equipment for $5,000 in cash, what is the change in total assets?
- Increases by $10,000
- Remains the same (correct)
- Increases by $5,000
- Decreases by $5,000
How much cash did Sierra receive for advertising services on October 3?
How much cash did Sierra receive for advertising services on October 3?
What was the total cash inflow for Sierra up to October 3 from all transactions listed?
What was the total cash inflow for Sierra up to October 3 from all transactions listed?
What amount did Sierra pay for office rent in October?
What amount did Sierra pay for office rent in October?
What is the total liability for Sierra after the second transaction?
What is the total liability for Sierra after the second transaction?
If Sierra makes the payment for office equipment, what will happen to liabilities?
If Sierra makes the payment for office equipment, what will happen to liabilities?
What is the total effect on the accounting equation after Sierra pays $600 for the insurance policy?
What is the total effect on the accounting equation after Sierra pays $600 for the insurance policy?
How does the purchase of advertising materials on account affect Sierra's assets and liabilities?
How does the purchase of advertising materials on account affect Sierra's assets and liabilities?
What happens to the accounting equation when employees are paid $4,000 in salaries?
What happens to the accounting equation when employees are paid $4,000 in salaries?
What must occur in a double-entry accounting system for every transaction?
What must occur in a double-entry accounting system for every transaction?
What is the impact on Sierra's equity when paying out a $500 dividend?
What is the impact on Sierra's equity when paying out a $500 dividend?
What is the net effect on Sierra's assets after the total series of transactions listed?
What is the net effect on Sierra's assets after the total series of transactions listed?
In an account where debits exceed credits, what is the resulting balance called?
In an account where debits exceed credits, what is the resulting balance called?
How much does Sierra's equity ultimately change after paying $600 for insurance and $500 dividend?
How much does Sierra's equity ultimately change after paying $600 for insurance and $500 dividend?
What is the primary purpose of an account in accounting?
What is the primary purpose of an account in accounting?
What does it indicate if an account shows a credit balance?
What does it indicate if an account shows a credit balance?
What transaction causes an increase in both assets and liabilities?
What transaction causes an increase in both assets and liabilities?
Which of the following statements about Sierra's transactions is true?
Which of the following statements about Sierra's transactions is true?
How are debits and credits recorded in bookkeeping?
How are debits and credits recorded in bookkeeping?
Which transaction describes a decrease in assets?
Which transaction describes a decrease in assets?
If Sierra had not issued the dividend, what would the accounting equation reflect?
If Sierra had not issued the dividend, what would the accounting equation reflect?
Which of the following must always be true in accounting?
Which of the following must always be true in accounting?
What is the effect of a debit on assets?
What is the effect of a debit on assets?
Which accounts typically have a normal debit balance?
Which accounts typically have a normal debit balance?
How is the accounting equation expressed?
How is the accounting equation expressed?
What happens to liabilities when there is a debit entry?
What happens to liabilities when there is a debit entry?
What is required for the accounting equation to remain balanced after each transaction?
What is required for the accounting equation to remain balanced after each transaction?
Which statement describes the effect of credits on expenses?
Which statement describes the effect of credits on expenses?
What is true about the relationship between debits and credits?
What is true about the relationship between debits and credits?
When a business records revenue, which type of account is typically credited?
When a business records revenue, which type of account is typically credited?
What is the main purpose of a trial balance?
What is the main purpose of a trial balance?
What could cause a trial balance to appear balanced even when errors exist?
What could cause a trial balance to appear balanced even when errors exist?
Which of the following situations would definitively cause a trial balance to not balance?
Which of the following situations would definitively cause a trial balance to not balance?
Which statement about posting is correct?
Which statement about posting is correct?
Which of the following limitations is NOT associated with a trial balance?
Which of the following limitations is NOT associated with a trial balance?
What can lead to the trial balance balancing despite having an unrecorded transaction?
What can lead to the trial balance balancing despite having an unrecorded transaction?
When a trial balance is prepared incorrectly, which of the following can be a contributing factor?
When a trial balance is prepared incorrectly, which of the following can be a contributing factor?
What is NOT a reason why a trial balance might balance when it shouldn't?
What is NOT a reason why a trial balance might balance when it shouldn't?
Study Notes
Accounting Transactions Overview
- The basic accounting equation is essential for tracking the financial health of a business: Assets = Liabilities + Equity.
- Each business transaction impacts at least two accounts to maintain balance.
Key Transactions of Sierra Corporation
- October 1: Investors invested $10,000 for common stock; increases cash and equity equally.
- October 1: Sierra borrowed $5,000 from Castle Bank with a 12% note payable for three months; increases cash and liabilities.
- October 2: Sierra purchased office equipment for $5,000 cash; cash decreases while assets increase.
- October 2: Received $1,200 cash advance from a client; increases cash and unearned revenue (liability).
- October 3: Received $10,000 cash for advertising services rendered; increases cash and revenue (equity).
- October 3: Paid $900 in cash for office rent; decreases cash and increases expenses (reducing equity).
- October 4: Paid $600 for a one-year insurance policy; decreases cash and increases prepaid expenses (asset).
- October 5: Purchased $2,500 in advertising materials on account; increases inventory (asset) and accounts payable (liability).
- October 20: Paid a $500 dividend; decreases cash and retained earnings (equity).
- October 26: Paid $4,000 in salaries; decreases cash and increases salary expenses (reducing equity).
Understanding Accounts
- An Account records increases and decreases in specific asset, liability, equity, revenue, or expense items.
- Debits (Dr) are recorded on the left; Credits (Cr) are on the right.
- Each transaction impacts multiple accounts ensuring the equation remains balanced.
Double-Entry Accounting
- Every transaction includes at least one debit and one credit.
- Debits must equal credits for accurate bookkeeping.
- Any excess debits result in a debit balance; credit balances occur when credits exceed debits.
Normal Balance
- Accounts typically have normal balances:
- Debits: Assets, expenses, dividends.
- Credits: Liabilities, equity, revenues.
Trial Balance Purpose
- A trial balance lists all accounts and their balances to verify that total debits equal total credits.
- Important limitations include the potential to balance despite errors like unjournalized transactions or incorrect postings.
Review Questions Insights
- Understanding increases and decreases related to debits and credits is crucial for accounting accuracy.
- Mistakes in journal entries can lead to imbalances in the trial balance.
Summary of Debit/Credit Rules
- Maintaining balance is critical; for every debit entry, there must be a corresponding credit entry.
- Appropriate record-keeping ensures clarity in a company's financial position and aids in analyzing business transactions effectively.
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Description
This quiz focuses on analyzing the effects of business transactions on the basic accounting equation. It includes transaction analysis and illustrations to deepen your understanding of accounting principles. Test your knowledge about how these transactions affect the financial statements.
