Chapter 3
6 Questions
0 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

If the sale transaction was at a profit, how would it have affected the owner's equity?

  • Eliminate owner's equity
  • Not affect owner's equity
  • Increase owner's equity (correct)
  • Decrease owner's equity
  • What are retained earnings?

  • Earnings for future projections
  • Current week's earnings
  • Earnings from past accounting periods (correct)
  • Earnings distributed to shareholders
  • What must be done at the beginning of each new week concerning earnings?

  • Ignore last week's earnings
  • Convert Ending Inventory to Beginning Inventory (correct)
  • Maintain the same earnings balance
  • Distribute all earnings to shareholders
  • Which of the following statements about dividends is correct?

    <p>Dividends are payments made to stockholders</p> Signup and view all the answers

    What happens to earnings that are not distributed to shareholders?

    <p>They are retained in the company</p> Signup and view all the answers

    Why is retaining earnings considered beneficial for a business?

    <p>It fuels growth and expansion opportunities</p> Signup and view all the answers

    Study Notes

    Business Starts

    • The business begins with 5incashanda5 in cash and a 5incashanda5 investment in inventory.
    • The 10profitfromlemonadesalesisinitiallyrecordedasa10 profit from lemonade sales is initially recorded as a 10profitfromlemonadesalesisinitiallyrecordedasa10 increase in owner's equity.

    Bank Loan

    • The business owner borrows 50fromabankandusesthemoneytopayoffa50 from a bank and uses the money to pay off a 50fromabankandusesthemoneytopayoffa50 debt, bringing Notes Payable on the balance sheet to $50.

    Inventory Sale

    • The lemonade business sells its remaining inventory (worth $2) at cost in cash, meaning a sale is recorded but no profit occurs.

    Retained Earnings

    • Prior week's earnings are labeled as Retained Earnings and are moved to the company's equity.
    • Current week's earnings are recorded in Earnings Week to Date.

    Beginning Balance Sheet

    • Each week, the balance sheet is updated by moving Retained Earnings from the previous week to the beginning balance and by converting Ending Inventory to Beginning Inventory.

    Growth and Financing

    • The lemonade business owner seeks to grow the business rather than relying on personal loans from family.
    • Seeking bank loans is seen as a sign of a real businessperson.

    Studying That Suits You

    Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

    Quiz Team

    Related Documents

    Accounting Chapter 3 PDF

    Description

    Test your knowledge on fundamental accounting principles as they relate to starting a lemonade business. This quiz covers topics such as owner’s equity, bank loans, inventory sales, and retained earnings. Perfect for anyone looking to understand the basics of business finance.

    More Like This

    Equity and Owner's Capital Quiz
    7 questions

    Equity and Owner's Capital Quiz

    DiversifiedLaboradite avatar
    DiversifiedLaboradite
    Basic Accounting Principles Review
    25 questions
    Basic Accounting Terms Quiz
    33 questions

    Basic Accounting Terms Quiz

    WellReceivedSquirrel7948 avatar
    WellReceivedSquirrel7948
    Use Quizgecko on...
    Browser
    Browser