Lemonade Stand Accounting Quiz

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Questions and Answers

Which of the following best describes Retained Earnings?

Earnings of only the current week

Earnings from past accounting periods (correct)

Earnings that are still pending

Earnings from the upcoming week

When was the Ending Balance Sheet prepared?

At the end of last week (correct)

At the end of the current week

At the beginning of week number 2

During the first week of business

What happens to last week’s Ending Inventory as the new week begins?

It is merged with current Inventory

It becomes the Ending Inventory for this week

It is discarded from the records

It is now considered Beginning Inventory (correct)

What must be done with last week's earnings when creating the new Balance Sheet?

They are rolled into Retained Earnings Signup and view all the answers

What are the two main outcomes for earnings in a business?

Retain in the business or distribute to owners Signup and view all the answers

How are earnings updated at the beginning of a new week?

By rolling up the earnings and retaining them in the company Signup and view all the answers

What did the banker's response imply when asked if they give loans to kids?

They do not discriminate based on age Signup and view all the answers

How much cash did the business owner claim to have in their balance sheet?

$13.00 Signup and view all the answers

What was the total amount of sales reported for the previous week?

$25.00 Signup and view all the answers

What was the gross profit mentioned in the scenario?

$15 Signup and view all the answers

How much cash did the banker loan?

$50.00 Signup and view all the answers

Which account reflects the amount owed to the banker?

Notes payable Signup and view all the answers

What was the return on investment after selling the lemonade?

200% Signup and view all the answers

What happened to the inventory when the lemonade was sold to the friend?

Decreased to zero Signup and view all the answers

How much cash was added after selling the lemonade to the friend?

$2.00 Signup and view all the answers

Did the sale of lemonade generate profit?

No, but it generated cash Signup and view all the answers

Will the lemonade sale transaction appear on the Income Statement?

Yes, as total sales Signup and view all the answers

What is suggested to be included in the Income Statement at the end of the week?

Sales from lemonade Signup and view all the answers

What is indicated by checking if the financial results are in balance?

Agreement between assets and liabilities Signup and view all the answers

Study Notes

Lemonade Stand Accounting

The lemonade stand owner starts the week with a beginning inventory of lemonade, which was the ending inventory from the previous week.
The owner also has retained earnings from the previous week, which are earnings from past accounting periods.
The owner takes out a loan from a bank, increasing cash and creating Notes Payable (liability).
The owner sells remaining inventory for cash to a friend at cost, reducing inventory and increasing cash.
The owner purchases sugar on credit from the grocery store, increasing inventory and creating Accounts Payable (liability).
Notes Payable is a liability for money borrowed from a bank, and Accounts Payable is a liability for goods or services purchased on credit.
Notes Payable is typically long-term, while Accounts Payable is short-term.

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Description

Test your knowledge on basic accounting principles through the scenario of a lemonade stand. This quiz covers concepts such as inventory management, liabilities, and cash flow. Understand how retained earnings, loans, and purchasing on credit affect a small business's finances.