General Ledger and Financial Statements

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Questions and Answers

Which of the following describes a general ledger?

A summary of cash inflows and outflows.

An account used for tracking expenses.

A record containing all accounts used by a company. (correct)

A financial statement summarizing assets and liabilities.

When financial statements are prepared, unexpired prepaid accounts are recorded as__________ and the expired prepaid account is reported as a .

assets, expense

Identify which of the following lists include only examples of assets.

Building, Cash, Accounts Receivable

Prepaid accounts are that represent prepayments of future expenses and are increased with a__.

assets, debits Signup and view all the answers

Notes receivable is considered a(n)

asset Signup and view all the answers

Supplies are __ until they are used. When they are used up, their costs are reported as _.

assets, expenses Signup and view all the answers

Which of the following are accurate statements regarding how to report or treat prepaid accounts? (Check all that apply.)

The expired portion of prepaid accounts is reported on the income statement as an expense. Signup and view all the answers

Define prepaid accounts.

Prepaid accounts are assets that represent prepayments of future expenses. Signup and view all the answers

Which of the following statements is (are) accurate regarding equipment purchased within a business?

Equipment cost is initially recorded as an asset. Signup and view all the answers

Which of the following statements are accurate regarding supplies?

Unused supplies are treated as assets. Signup and view all the answers

Prepaid expenses are also called prepaid accounts and are considered assets.

True Signup and view all the answers

Which of the following statements is accurate regarding the Building account?

A Building asset account is used to record the costs of purchasing a store, office, warehouse, or factory. Signup and view all the answers

Which of the following statements is (are) correct regarding the definition of a liability?

A liability can be settled by transferring assets or providing products or services to others. Signup and view all the answers

Which of the following statements is accurate about the Land account?

The Land account is an asset used to record the costs of land purchased by the business. Signup and view all the answers

Which statement best describes a T-account?

A T-account represents a ledger account and is a tool used to understand the effects of one or more transactions. Signup and view all the answers

Gunner Company purchased a piece of equipment costing $6,000. She paid $1,000 immediately and put the rest on account. Show how to record this transaction to the T-accounts.

$6,000 on left side of the Equipment account; $5,000 on the right side of the Accounts payable account; $1,000 on the right side of the Cash account. Signup and view all the answers

Which of the following statements is (are) correct regarding a journal?

Transactions are generally entered in chronological order. Signup and view all the answers

Which of the following statements correctly explains how to prepare a trial balance?

List each account title and its amount from the ledger. Verify that the total debit balances equals the total credit balances. Signup and view all the answers

Name the accounting document or report that is completed just prior to preparing financial statements and assists in preparing the financial statements.

Trial balance Signup and view all the answers

Dollar signs are used in journals and ledgers.

False Signup and view all the answers

Study Notes

General Ledger

A general ledger records all accounts used by a company, detailing their activity and balances.

Financial Statements and Prepaid Accounts

Unexpired prepaid accounts are recorded as assets; expired prepaid accounts are reported as expenses.

Definition of Assets

Examples of assets include buildings, cash, and accounts receivable.

Prepaid Accounts

Prepaid accounts are assets that represent future expense prepayments and are increased with debits.

Notes Receivable

Classified as an asset in accounting.

Supplies

Supplies are considered assets until used; costs become expenses once consumed.

Reporting Prepaid Accounts

The expired portion of prepaid accounts is an expense on the income statement; the unexpired portion is treated as assets.

Equipment Purchase Accounting

Equipment is recorded as an asset on the balance sheet and its cost is allocated over time as an expense.

Treatment of Supplies

Unused supplies are assets, categorized into store supplies, office supplies, or simply supplies until utilized.

Definition of Prepaid Expenses

Also referred to as prepaid accounts, they are assets representing prepayments for future expenses.

Building Account

Used to record costs associated with land or property purchases necessary for business operations.

Liability Definition

A liability represents debts owed by the business and claims creditors have against its assets.

Land Account

The Land account is an asset and records the purchase costs of land.

Asset Accounts

Key asset accounts include cash, accounts receivable, prepaid accounts, supplies, equipment, buildings, land, and inventory.

Liability Accounts

Include accounts payable, notes payable, accrued liabilities, and unearned revenue.

Equity Accounts

Comprise common stock, dividends, revenues, and expenses.

Chart of Accounts

A list of all ledger accounts with an identification number assigned to each account.

Debit Balances

Accounts that typically hold a normal debit balance include expenses, dividends, and cash.

Journal

Acts as the book of original entry for recording transactions chronologically, detailing both debit and credit.

Trial Balance

A list of each account and its balance used to confirm that total debits equal total credits.

T-Account

Represents a ledger account showing the effects of transactions, structured in a T shape.

Recording Transactions in T-Accounts

Example: For an equipment purchase costing $6,000 with a $1,000 cash payment and a $5,000 account payable entry, the Equipment account is debited $6,000, Cash is credited $1,000, and Accounts Payable is credited $5,000.

Preparing a Trial Balance

Involves listing each account title and balance, ensuring total debits match total credits.

General Journal

Provides a comprehensive record of each transaction, including debit and credit entries.

Accounting Documents Prior to Financial Statements

A trial balance is completed before financial statements to assist in their preparation.

Use of Dollar Signs

Dollar signs are not used in journals and ledgers.

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Description

This quiz covers the essentials of general ledger accounting, including the treatment of prepaid accounts and assets. It addresses how various accounting elements like supplies and notes receivable are categorized. Test your understanding of asset classification and their impact on financial statements.