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Questions and Answers
The definition of revenues includes which of the following statements? (Select all that apply)
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?
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?
What are expenses?
Decrease equity and are the cost of assets or services used to earn revenue
What do revenues do to equity?
What do revenues do to equity?
What are withdrawals?
What are withdrawals?
What are investments in relation to equity?
What are investments in relation to equity?
Which of the following accounts would appear on a balance sheet? (Select all that apply)
Which of the following accounts would appear on a balance sheet? (Select all that apply)
What is the accounting equation?
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 ________.
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 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?
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
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 $______.
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.
Owner investments cause a(n) _______ in equity and are entered directly in the _________ account.
Which statements define an asset? (Select all that apply)
Which statements define an asset? (Select all that apply)
How could you characterize a company's Accounts Receivable account?
How could you characterize a company's Accounts Receivable account?
What does public accounting include?
What does public accounting include?
What is private accounting?
What is private accounting?
What is true about both public and private accounting?
What is true about both public and private accounting?
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.
What is the most accurate definition of dividends?
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?
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?
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)
Which statements explain how the accounting equation applies to businesses? (Select all that apply)
Define equity.
Define equity.
What is the expanded accounting equation?
What is the expanded accounting equation?
When recording transactions into the accounting equation, which statements are correct? (Select all that apply)
When recording transactions into the accounting equation, which statements are correct? (Select all that apply)
Define a liability.
Define a liability.
Define owner investments.
Define owner investments.
Describe the effect of expenses on equity.
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?
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?
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.
The Accounts Payable account is a(n) _________ account.
Which accounts are classified as liabilities? (Select all that apply)
Which accounts are classified as liabilities? (Select all that apply)
What is correct regarding revenues?
What is correct regarding revenues?
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.
What does a balance sheet report?
What does a balance sheet report?
What does the income statement describe?
What does the income statement describe?
What does the statement of retained earnings report?
What does the statement of retained earnings report?
What does the statement of cash flows identify?
What does the statement of cash flows identify?
Describe the order in which a company prepares financial statements.
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?
What happens when a customer makes a partial payment of $100 on a billed service?
When purchasing equipment for cash, which accounts are involved?
When purchasing equipment for cash, which accounts are involved?
How should Morsels Company record catering services provided at a wedding on May 1?
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?
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?
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)
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 should Russell's Consulting Services record their transaction of providing $1,000 of services to a college?
How is net income calculated?
How is net income calculated?
Define equity.
Define equity.
The equity of a corporation consists of retained earnings and _______ capital.
The equity of a corporation consists of retained earnings and _______ capital.
What is the meaning of the measurement principle?
What is the meaning of the measurement principle?
Why is accounting important?
Why is accounting important?
Why does a business need accounting information?
Why does a business need accounting information?
What is the expense recognition principle?
What is the expense recognition principle?
What are the items included in the heading of every financial statement? (Select all that apply)
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?
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 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.
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?
What is a corporation?
How can ethics be defined?
How can ethics be defined?
What statements correctly define a balance sheet? (Select all that apply)
What statements correctly define a balance sheet? (Select all that apply)
Users of accounting information can be divided into which two main groups?
Users of accounting information can be divided into which two main groups?
A __________ is a business owned by two or more people.
A __________ is a business owned by two or more people.
Which accounts belong on the statement of retained earnings?
Which accounts belong on the statement of retained earnings?
Which options are part of the FASB conceptual framework EXCEPT:
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 are the three factors that must exist for a person to commit fraud?
What is the full disclosure principle?
What is the full disclosure principle?
A __________ is a business entity owned by one person.
A __________ is a business entity owned by one person.
What does financial accounting provide external users?
What does financial accounting provide external users?
Who are the internal users of accounting information?
Who are the internal users of accounting information?
What was the purpose of the Dodd-Frank Act?
What was the purpose of the Dodd-Frank Act?
Why did Congress pass the Sarbanes-Oxley Act?
Why did Congress pass the Sarbanes-Oxley Act?
Which organization has the ultimate authority to create Generally Accepted Accounting Principles?
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.
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?
What appears on an income statement?
What is a shareholder?
What is a shareholder?
What does the accounting equation represent?
What does the accounting equation represent?
Other names for equity in a corporation include:
Other names for equity in a corporation include:
Which statements represent how expenses affect equity? (Select all that apply)
Which statements represent how expenses affect equity? (Select all that apply)
Dividends cause a(n) (increase/decrease) _________ in equity and are recorded directly in the (retained earnings/dividends/equity) __________ account.
Dividends cause a(n) (increase/decrease) _________ in equity and are recorded directly in the (retained earnings/dividends/equity) __________ account.
Identify the accounts that would appear on a balance sheet:
Identify the accounts that would appear on a balance sheet:
What are the three sections of the statement of cash flows? (Select all that apply)
What are the three sections of the statement of cash flows? (Select all that apply)
What are some reasons why Congress passed the Sarbanes-Oxley Act?
What are some reasons why Congress passed the Sarbanes-Oxley Act?
What are Generally Accepted Accounting Principles (GAAP)?
What are Generally Accepted Accounting Principles (GAAP)?
Which organization has the legal authority to create Generally Accepted Accounting Principles (GAAP)?
Which organization has the legal authority to create Generally Accepted Accounting Principles (GAAP)?
What are the roles of the International Accounting Standards Board (IASB) and International Financial Reporting Standards (IFRS)?
What are the roles of the International Accounting Standards Board (IASB) and International Financial Reporting Standards (IFRS)?
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.
Studying That Suits You
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Description
Test your knowledge with these flashcards on the key concepts from Chapter 1 of Financial Accounting. Each card includes definitions and scenarios to deepen your understanding of revenues and expenses. Perfect for students looking for a quick review!
