Financial Accounting Ch 1 Flashcards

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Questions and Answers

The definition of revenues includes which of the following statements? (Select all that apply)

Revenues increase equity. (correct)

Revenues are creditor's claims against the company.

Revenues are the sales of products or services to customers by a business. (correct)

Revenues are resources owned or controlled by a company.

How should the transaction of Bakery Company receiving its utility bill of $800 be recorded in the accounting equation?

Increase expenses and decrease cash

What are expenses?

Decrease equity and are the cost of assets or services used to earn revenue

What do revenues do to equity?

Increase equity and are the assets earned from a company's earning activities Signup and view all the answers

What are withdrawals?

Decrease equity and are the assets removed from the company for personal use Signup and view all the answers

What are investments in relation to equity?

Increase equity and are assets an owner puts into the business Signup and view all the answers

Which of the following accounts would appear on a balance sheet? (Select all that apply)

Cash (B), Supplies (C), Equipment (D), Retained Earnings (E), Accounts Payable (G) Signup and view all the answers

What is the accounting equation?

Assets = Liabilities + Equity Signup and view all the answers

To record the purchase of supplies for cash, the correct entry into the accounting equation would include an increase to _ and a decrease to .

supplies; cash Signup and view all the answers

How should Jackson's Catering Company's transaction of providing cookies for $3,000 be recorded in their accounting equation?

Increasing cash; increasing revenues Signup and view all the answers

How will Johna's Plant Nursery's payment of salaries affect its accounting equation?

Salaries expense will be increased; Equity will be decreased Signup and view all the answers

Identify the accounts classified as assets from the list: Wages Payable, Land, Dividends, Building, Cash, Accounts Receivable, Common Stock, Supplies

Accounts Receivable (C), Building (D), Cash (E), Land (G), Supplies (H) Signup and view all the answers

On 6/25, supplies costing $1,000 were purchased, with $400 paid in cash. To record this transaction, Supplies would be increased by $, Cash would be decreased by $, and Accounts Payable would be increased by $______.

1,000; 400; 600 Signup and view all the answers

Owner investments cause a(n) _ in equity and are entered directly in the ___ account.

Increase; common stock Signup and view all the answers

Which statements define an asset? (Select all that apply)

Resources controlled by the business (A), An amount owed (D), Resources with future benefits (E) Signup and view all the answers

How could you characterize a company's Accounts Receivable account?

It is an asset account Signup and view all the answers

What does public accounting include?

Offering tax advice services and auditing services Signup and view all the answers

What is private accounting?

Where employees work for a business Signup and view all the answers

What is true about both public and private accounting?

Accounting specialists in this area are highly regarded Signup and view all the answers

Dividends cause a(n) in equity and are recorded directly in the ____ account.

decrease; dividends Signup and view all the answers

What is the most accurate definition of dividends?

The outflow of resources such as cash and other assets to stockholders or distributions of cash or other assets to stockholders Signup and view all the answers

Which account is decreased if the owner of H Hair Salon Company pays $40 cash dividends to its shareholders?

Cash Signup and view all the answers

What are the four major types of transactions that affect equity in a business?

Revenues, expenses, common stock, and dividends Signup and view all the answers

Which statements explain how the accounting equation applies to businesses? (Select all that apply)

The equation states the Assets = Liabilities + Equity (A), The relation of assets, liabilities, and equity is reflected in the equation (B), The equation applies to all monetary business transactions (C), The equation reflects that the total of what a business owns at any point in time will equal the total of what it owes creditors and owners (D) Signup and view all the answers

Define equity.

Equity refers to the claims of the business's owners on the assets of a business Signup and view all the answers

What is the expanded accounting equation?

Assets = Liabilities + Common Stock + Revenues - Expenses - Dividends Signup and view all the answers

When recording transactions into the accounting equation, which statements are correct? (Select all that apply)

The accounting equation must always remain in balance (B), After recording the transaction, total assets will always equal total liabilities plus equity (C), At least two accounts will be affected when recording a transaction (E) Signup and view all the answers

Define a liability.

A creditor's claims against the assets of a business; the company obligations to provide assets, products, or services to others; an amount owed to a creditor Signup and view all the answers

Define owner investments.

Cash or other assets an owner puts into the business Signup and view all the answers

Describe the effect of expenses on equity.

Expenses cause equity to decrease Signup and view all the answers

ABC Co. performs $200 of services for a customer, but does not get paid right away. How would ABC Co. record this transaction in the accounting equation?

Accounts receivable; revenue Signup and view all the answers

How should Landen Consulting record a $400 cash payment from a customer for services provided last month?

Increasing cash, $400; decreasing Accounts Receivable, $400 Signup and view all the answers

The Accounts Payable account is a(n) _________ account.

liability Signup and view all the answers

Which accounts are classified as liabilities? (Select all that apply)

Taxes Payable (A), Notes Payable (D), Accounts Payable (F), Wages Payable (G) Signup and view all the answers

What is correct regarding revenues?

Revenues cause equity to increase Signup and view all the answers

Dividends cause a(n) _ in equity and are recorded directly in the account.

decrease; dividends Signup and view all the answers

What does a balance sheet report?

The balance of assets, liabilities, and owner's equity at a point in time Signup and view all the answers

What does the income statement describe?

A company's revenues and expenses along with the resulting net income or loss over a period of time Signup and view all the answers

What does the statement of retained earnings report?

The changes in equity during a period of time Signup and view all the answers

What does the statement of cash flows identify?

The cash inflows and outflows over a period of time Signup and view all the answers

Describe the order in which a company prepares financial statements.

<ol> <li>Income statement; 2. Statement of retained earnings; 3. Balance sheet; 4. Statement of cash flows</li> </ol> Signup and view all the answers

What happens when a customer makes a partial payment of $100 on a billed service?

Increasing cash and decreasing accounts receivable Signup and view all the answers

When purchasing equipment for cash, which accounts are involved?

increase to the equipment; decrease to the cash Signup and view all the answers

How should Morsels Company record catering services provided at a wedding on May 1?

Increasing Accounts Receivable and increasing Revenue Signup and view all the answers

What are the two main parts of a corporation's equity?

Retained Earnings (A), Contributed Capital (B) Signup and view all the answers

Buying and selling long-term assets like land and equipment falls under which section of the Statement of Cash Flows?

Investing Signup and view all the answers

What statements are true regarding the revenue recognition principle? (Select all that apply)

The principle guides a business as to when it should recognize revenue (A), Revenue is to be recorded when it is earned (B), The earnings process is complete when the services are performed or product is sold (C) Signup and view all the answers

How should Russell's Consulting Services record their transaction of providing $1,000 of services to a college?

Increasing both cash and accounts receivable; and increasing revenues Signup and view all the answers

How is net income calculated?

Revenues - expenses = net income Signup and view all the answers

Define equity.

It is the accumulated revenues and owner's investments less the accumulated expenses and dividends since the company began (B), Equity is equal to assets minus liabilities (C) Signup and view all the answers

The equity of a corporation consists of retained earnings and _______ capital.

contributed Signup and view all the answers

What is the meaning of the measurement principle?

The recorded cost of a purchased item will be based on the actual cost Signup and view all the answers

Why is accounting important?

Accounting info identifies, records and communicates info about a business Signup and view all the answers

Why does a business need accounting information?

Accounting records business transactions and communicates financial information Signup and view all the answers

What is the expense recognition principle?

The principle states that expenses are recorded in the same period they were incurred to generate revenue Signup and view all the answers

What are the items included in the heading of every financial statement? (Select all that apply)

The company name (A), The date or time period the financial statement covers (B), The title of the statement (C) Signup and view all the answers

What is the accounting assumption that presumes a business will continue operating indefinitely called?

going-concern Signup and view all the answers

The area of accounting that serves the needs of internal users is referred to as _______ accounting.

managerial Signup and view all the answers

The statement of retained earnings explains changes in equity from net income (or loss) and from any _ and _ over a period of time.

investments; dividends Signup and view all the answers

What is a corporation?

A business entity legally separate from its owners, also called shareholders Signup and view all the answers

How can ethics be defined?

Accepted standards of good and bad behavior; beliefs that distinguish right from wrong Signup and view all the answers

What statements correctly define a balance sheet? (Select all that apply)

The statement reports the equality of the accounting equation at any point in time (A), The statement reports assets, liabilities, and equity at a point in time (B), The statement reports the financial position of a company at a point in time (C) Signup and view all the answers

Users of accounting information can be divided into which two main groups?

Internal (A), External (B) Signup and view all the answers

A __________ is a business owned by two or more people.

partnership Signup and view all the answers

Which accounts belong on the statement of retained earnings?

Retained earnings, 1/31; Dividends; Retained earnings, 1/1; Net Income(loss) Signup and view all the answers

Which options are part of the FASB conceptual framework EXCEPT:

Principles (D) Signup and view all the answers

What are the three factors that must exist for a person to commit fraud?

Opportunity, rationalization or attitude, pressure or incentive Signup and view all the answers

What is the full disclosure principle?

A company must report the details behind financial statements that would impact users' decisions Signup and view all the answers

A __________ is a business entity owned by one person.

proprietorship Signup and view all the answers

What does financial accounting provide external users?

General-purpose financial statements Signup and view all the answers

Who are the internal users of accounting information?

Officers, Managers Signup and view all the answers

What was the purpose of the Dodd-Frank Act?

End notion of 'too big to fail'; promote accountability and transparency; protect consumers Signup and view all the answers

Why did Congress pass the Sarbanes-Oxley Act?

To require public companies to apply both accounting oversight and stringent internal controls; to improve transparency, accountability, and truthfulness in reporting transactions; to help curb financial abuses at companies that issue their stock to the public Signup and view all the answers

Which organization has the ultimate authority to create Generally Accepted Accounting Principles?

SEC Signup and view all the answers

In every financial statement, a single underlines denotes an addition or subtraction and double lines indicate the final totals.

single-ruled; double lines Signup and view all the answers

What appears on an income statement?

Wages Expense; Rent Revenue; Rent Expense; Service Revenue Signup and view all the answers

What is a shareholder?

An owner of a corporation Signup and view all the answers

What does the accounting equation represent?

The total of everything owned by a business must always equal the total of what the business owes to creditors and owners. Signup and view all the answers

Other names for equity in a corporation include:

Stockholders' equity and capital. Signup and view all the answers

Which statements represent how expenses affect equity? (Select all that apply)

Higher expenses result in lower total equity (A), If expenses increase, then total equity decreases (B) Signup and view all the answers

Dividends cause a(n) (increase/decrease) _ in equity and are recorded directly in the (retained earnings/dividends/equity) __ account.

decrease; dividends Signup and view all the answers

Identify the accounts that would appear on a balance sheet:

All of the above (D) Signup and view all the answers

What are the three sections of the statement of cash flows? (Select all that apply)

Operating (A), Financing (B), Investing (C) Signup and view all the answers

What are some reasons why Congress passed the Sarbanes-Oxley Act?

To require public companies to apply both accounting oversight and stringent internal controls; To help curb financial abuses at companies that issue their stock to the public. Signup and view all the answers

What are Generally Accepted Accounting Principles (GAAP)?

The concepts and rules that govern financial accounting practice. Signup and view all the answers

Which organization has the legal authority to create Generally Accepted Accounting Principles (GAAP)?

SEC (Securities and Exchange Commission) Signup and view all the answers

What are the roles of the International Accounting Standards Board (IASB) and International Financial Reporting Standards (IFRS)?

The IASB issues IFRS that identify preferred accounting practices; The IASB issues IFRS to increase comparability of accounting reports between companies in different countries; The IASB consists of individuals from many countries. Signup and view all the answers

Study Notes

Revenues and Expenses

Revenues increase equity and represent sales of products or services to customers.
Expenses decrease equity and are costs of assets or services used to generate revenue.
Withdrawals decrease equity and refer to assets taken from the company for personal use.
Investments increase equity, consisting of assets put into the business by the owner.

Key Accounting Principles

The accounting equation is expressed as Assets = Liabilities + Equity.
Financial statements include the balance sheet, income statement, statement of retained earnings, and statement of cash flows.
The measurement principle bases recorded costs on actual purchase prices.
The expense recognition principle states that expenses must be recorded in the same period they are incurred to generate revenue.

Financial Statements

The balance sheet shows assets, liabilities, and equity at a specific point in time.
The income statement reflects revenues and expenses over a period, calculating net income or loss.
The statement of cash flows tracks cash inflows and outflows from operating, investing, and financing activities.
The statement of retained earnings reports changes in equity due to net income and dividends.

Accounting Equation and Transactions

Recording transactions affects at least two accounts, maintaining balance in the accounting equation.
For equipment purchased with cash, assets increase under equipment and decrease under cash.
When receiving cash on account, cash increases while accounts receivable decreases.

Liabilities and Equity

Liabilities represent creditor claims and obligations of the business.
Equity includes contributed capital and retained earnings, signifying the owner's claims against assets.
Dividends are a decrease in equity, reflecting distributions to shareholders.

Users of Accounting Information

Internal users, like managers, rely on accounting for decision-making.
External users, such as creditors and investors, seek reliable financial information to assess a business.

Regulatory and Ethical Standards

The Sarbanes-Oxley Act promotes accountability and transparency in financial reporting for public companies.
The Dodd-Frank Act aims to prevent failures of large institutions and protect consumers.
GAAP governs standard accounting practices, while the SEC has the authority to enforce these standards.

International Accounting

The IASB issues IFRS to enhance the comparability of financial reports across different countries.
IFRS are preferred accounting practices recognized internationally.

Important Accounting Terms

A corporation is a separate legal entity from its owners (shareholders).
Owner investments are assets an owner contributes to the business.
Accounts receivable represent amounts owed to the business by customers.
The going-concern assumption presumes a business will continue operations indefinitely.

Common Errors and Misunderstandings

Expenses directly impact equity, with increases leading to decreases in total equity.
Recognizing revenue is based on the completion of the earning process, not necessarily upon cash collection.

Financial Reporting Format

Financial statements should clearly include the company name, date, and statement title.
Single and double lines are used to denote additions or totals within financial statements.

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Financial Accounting Ch 1 Flashcards

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Questions and Answers

The definition of revenues includes which of the following statements? (Select all that apply)

How should the transaction of Bakery Company receiving its utility bill of $800 be recorded in the accounting equation?

What are expenses?

What do revenues do to equity?

What are withdrawals?

What are investments in relation to equity?

Which of the following accounts would appear on a balance sheet? (Select all that apply)

What is the accounting equation?

To record the purchase of supplies for cash, the correct entry into the accounting equation would include an increase to _________ and a decrease to ________.

How should Jackson's Catering Company's transaction of providing cookies for $3,000 be recorded in their accounting equation?

How will Johna's Plant Nursery's payment of salaries affect its accounting equation?

Identify the accounts classified as assets from the list: Wages Payable, Land, Dividends, Building, Cash, Accounts Receivable, Common Stock, Supplies

On 6/25, supplies costing $1,000 were purchased, with $400 paid in cash. To record this transaction, Supplies would be increased by $, Cash would be decreased by $, and Accounts Payable would be increased by $______.

Owner investments cause a(n) _______ in equity and are entered directly in the _________ account.

Which statements define an asset? (Select all that apply)

How could you characterize a company's Accounts Receivable account?

What does public accounting include?

What is private accounting?

What is true about both public and private accounting?

Dividends cause a(n) ______ in equity and are recorded directly in the __________ account.

What is the most accurate definition of dividends?

Which account is decreased if the owner of H Hair Salon Company pays $40 cash dividends to its shareholders?

What are the four major types of transactions that affect equity in a business?

Which statements explain how the accounting equation applies to businesses? (Select all that apply)

Define equity.

What is the expanded accounting equation?

When recording transactions into the accounting equation, which statements are correct? (Select all that apply)

Define a liability.

Define owner investments.

Describe the effect of expenses on equity.

ABC Co. performs $200 of services for a customer, but does not get paid right away. How would ABC Co. record this transaction in the accounting equation?

How should Landen Consulting record a $400 cash payment from a customer for services provided last month?

The Accounts Payable account is a(n) _________ account.

Which accounts are classified as liabilities? (Select all that apply)

What is correct regarding revenues?

Dividends cause a(n) _________ in equity and are recorded directly in the ________ account.

What does a balance sheet report?

What does the income statement describe?

What does the statement of retained earnings report?

What does the statement of cash flows identify?

Describe the order in which a company prepares financial statements.

What happens when a customer makes a partial payment of $100 on a billed service?

When purchasing equipment for cash, which accounts are involved?

How should Morsels Company record catering services provided at a wedding on May 1?

What are the two main parts of a corporation's equity?

Buying and selling long-term assets like land and equipment falls under which section of the Statement of Cash Flows?

What statements are true regarding the revenue recognition principle? (Select all that apply)

How should Russell's Consulting Services record their transaction of providing $1,000 of services to a college?

How is net income calculated?

Define equity.

The equity of a corporation consists of retained earnings and _______ capital.

What is the meaning of the measurement principle?

Why is accounting important?

Why does a business need accounting information?

What is the expense recognition principle?

What are the items included in the heading of every financial statement? (Select all that apply)

What is the accounting assumption that presumes a business will continue operating indefinitely called?

The area of accounting that serves the needs of internal users is referred to as _______ accounting.

The statement of retained earnings explains changes in equity from net income (or loss) and from any _______ and _______ over a period of time.

What is a corporation?

How can ethics be defined?

What statements correctly define a balance sheet? (Select all that apply)

Users of accounting information can be divided into which two main groups?

A __________ is a business owned by two or more people.

Which accounts belong on the statement of retained earnings?

Which options are part of the FASB conceptual framework EXCEPT:

What are the three factors that must exist for a person to commit fraud?

What is the full disclosure principle?

A __________ is a business entity owned by one person.

What does financial accounting provide external users?

Who are the internal users of accounting information?

What was the purpose of the Dodd-Frank Act?

Why did Congress pass the Sarbanes-Oxley Act?

Which organization has the ultimate authority to create Generally Accepted Accounting Principles?

In every financial statement, a single underlines denotes an addition or subtraction and double lines indicate the final totals.

What appears on an income statement?

To record the purchase of supplies for cash, the correct entry into the accounting equation would include an increase to _ and a decrease to .

Owner investments cause a(n) _ in equity and are entered directly in the ___ account.

Dividends cause a(n) in equity and are recorded directly in the ____ account.

Dividends cause a(n) _ in equity and are recorded directly in the account.

The statement of retained earnings explains changes in equity from net income (or loss) and from any _ and _ over a period of time.

Dividends cause a(n) (increase/decrease) _ in equity and are recorded directly in the (retained earnings/dividends/equity) __ account.