Accounting Exam 1

The nature of an asset is best described as:

an economic resource that's expected to benefit future operations

Which financial statement covers a period of time?

statement of cash flows and the income statement

Identify the two basic categories of items on an income statement

revenues and expenses

What do we call the bottom of the income statement

net income/net loss

The valuation of assets on a balance sheet are based on

the historical cost principal

Which of the following is a true statement about International Financial Reporting systems

They are converging gradually with US standards

How can a business earn large profits but have a small balance of retained earnings?

Paying large dividends

Give two reasons why a business can have a steady stream of net income over a 6 year period and still experience a cash shortage

Heavy investing, paying off debts

The best source of cash for a business is from

collections from customers

How can a business be unprofitable several years in a row and still have plenty of cash

borrowing money, issuing stock to stockholders, and selling capital assets

The primary objective of financial reporting is to provide information

useful for making investment and credit decisions

Which type of business provides the least amount of protection for bankers and creditors of the company

corporation

assets are usually reported at their

historical cost

Owners equity =

Retained Earnings and Paid in Capital

What is the single most important item in the financial statements?

Net Income

board of directors

group elected by the stockholders to set policy for a corporation and to appoint its officers

capital

another name for the owners' equity of a business

common stock

most basic form of capital stock

current asset

an asset that is expected to be converted to cash, sold, or consumed during the next 12 months, or within the business's normal operating cycle if longer than a year

any event that has a financial impact on the business and can be measured reliably

transaction

a liability for an expense you have not yet paid

accrued liability

name two things that increase a company's stockholders' equity

sale of stock and net income (revenue greater than expenses

name two things that decrease a company's stockholders' equity

divdends and net loss (expenses greater than revenue)

shows the cumulative net income earned over a company's lifetime, minus its cumulative net losses and dividends

retained earnings

optional; they are decided by the board of directors of a business.

divdends

increase in stockholders' equity from delivering goods or services to customers

revenue

cost of operating a business

expense

The three items that belong on the income statment

expenses revenues net income

items that belong on the statement of retained earnings

beg. retained earnings net income cash dividends end retained earnings

items belonging to the balance sheet

assets, liabilities, stockholders equity

what items fall under the stockholders' equity of a balance sheet

common stock, retained earnings, other equity, total stockholders equity, total liabilities & stockholders equity

all business transactions include two parts: you give and you receive. therefore accounting is based on a

double entry system

Assets: increases and decreases

left increase, right decrease

liabilities: increases and decreases

right decrease, left increase

stockholders' equity: increases and decreases

right decrease, left increase

Lists all accounts with their balances - assets first, then liabilities and stockholders' equity. Summarizes all the account balances for the financial statments

trial balance

revenues: increases and decreases

right decrease left increase

expenses: increases and decreases

right increase left decrease

the basic summary device for accounting is the

account

which types of accounts normally have a credit balance?

revenues and liabilities
oe as well

correct sequence for recording transactions

journal, ledger, trial balance, financial statements

an investment of cash into a business will ___________ OE's

increase

Balance sheet defect

ignoring to record a sale on account the balance sheet reports no account receivable

income-statement defect

ignoring the sale understates revenue and net income on the income statement

when should you record revenue?

after it has been earned

an adjustment for payment of an item or receipt of cash in advance

deferral

an expense or a revenue that occurs before the business pays or receives cash.

accrual

a revenue that has been earned but not yet collected is called

an accrued revenue

prepaid rent expired

rent expense - prepaid rent

supplies used

supplies expense - supplies

depreciation on equipment

depreciation - accumulated depreciation

accrued salary expense

salary expense - salary payable

accrued service revenue

accounts receivable - service revenue

amount of unearned service revenue that has been earned

unearned service revenue - service revenue

accrued income tax expense

income tax expense - income tax payable

current ratio

total current assets/total current liabilities

debt ratio

total liabilities/total assets

closing the books

zeroing out the revenue expense and dividend accounts

The nature of an asset is best described as:

an economic resource that's expected to benefit future operations

Which financial statement covers a period of time?

statement of cash flows and the income statement

Identify the two basic categories of items on an income statement

revenues and expenses

What do we call the bottom of the income statement

net income/net loss

The valuation of assets on a balance sheet are based on

the historical cost principal

Which of the following is a true statement about International Financial Reporting systems

They are converging gradually with US standards

How can a business earn large profits but have a small balance of retained earnings?

Paying large dividends

Give two reasons why a business can have a steady stream of net income over a 6 year period and still experience a cash shortage

Heavy investing, paying off debts

The best source of cash for a business is from

collections from customers

How can a business be unprofitable several years in a row and still have plenty of cash

borrowing money, issuing stock to stockholders, and selling capital assets

The primary objective of financial reporting is to provide information

useful for making investment and credit decisions

Which type of business provides the least amount of protection for bankers and creditors of the company

corporation

assets are usually reported at their

historical cost

Owners equity =

Retained Earnings and Paid in Capital

What is the single most important item in the financial statements?

Net Income

board of directors

group elected by the stockholders to set policy for a corporation and to appoint its officers

capital

another name for the owners' equity of a business

common stock

most basic form of capital stock

current asset

an asset that is expected to be converted to cash, sold, or consumed during the next 12 months, or within the business's normal operating cycle if longer than a year

any event that has a financial impact on the business and can be measured reliably

transaction

a liability for an expense you have not yet paid

accrued liability

name two things that increase a company's stockholders' equity

sale of stock and net income (revenue greater than expenses

name two things that decrease a company's stockholders' equity

divdends and net loss (expenses greater than revenue)

shows the cumulative net income earned over a company's lifetime, minus its cumulative net losses and dividends

retained earnings

optional; they are decided by the board of directors of a business.

divdends

increase in stockholders' equity from delivering goods or services to customers

revenue

cost of operating a business

expense

The three items that belong on the income statment

expenses revenues net income

items that belong on the statement of retained earnings

beg. retained earnings net income cash dividends end retained earnings

items belonging to the balance sheet

assets, liabilities, stockholders equity

what items fall under the stockholders' equity of a balance sheet

common stock, retained earnings, other equity, total stockholders equity, total liabilities & stockholders equity

all business transactions include two parts: you give and you receive. therefore accounting is based on a

double entry system

Assets: increases and decreases

left increase, right decrease

liabilities: increases and decreases

right decrease, left increase

stockholders' equity: increases and decreases

right decrease, left increase

Lists all accounts with their balances - assets first, then liabilities and stockholders' equity. Summarizes all the account balances for the financial statments

trial balance

revenues: increases and decreases

right decrease left increase

expenses: increases and decreases

right increase left decrease

the basic summary device for accounting is the

account

which types of accounts normally have a credit balance?

revenues and liabilities
oe as well

correct sequence for recording transactions

journal, ledger, trial balance, financial statements

an investment of cash into a business will ___________ OE's

increase

Balance sheet defect

ignoring to record a sale on account the balance sheet reports no account receivable

income-statement defect

ignoring the sale understates revenue and net income on the income statement

when should you record revenue?

after it has been earned

an adjustment for payment of an item or receipt of cash in advance

deferral

an expense or a revenue that occurs before the business pays or receives cash.

accrual

a revenue that has been earned but not yet collected is called

an accrued revenue

prepaid rent expired

rent expense - prepaid rent

supplies used

supplies expense - supplies

depreciation on equipment

depreciation - accumulated depreciation

accrued salary expense

salary expense - salary payable

accrued service revenue

accounts receivable - service revenue

amount of unearned service revenue that has been earned

unearned service revenue - service revenue

accrued income tax expense

income tax expense - income tax payable

current ratio

total current assets/total current liabilities

debt ratio

total liabilities/total assets

closing the books

zeroing out the revenue expense and dividend accounts