Chapter 1
What must three things must accounting information be, in order to have faithful representation?
1. complete
2. neutral
3. free from error
List 3 assets accounts, 3 liability accounts, and 3 equity accounts.
Assets: cash, accounts receivable, notes receivable, prepaid expense, land, building, equipment, furniture, and fixtures
Liabilities: accounts payable, notes payable, accrued liability, unearned revenue
equity: common stock, dividends, revenues, expenses
What are the main differences between cash basis and accrual basis accounting?
When revenues and expenses are recorded; cash basis not allowed by GAAP; accrual basis used by most businesses; accrual provides better picture of business’s revenues and expenses
What are some features of a corporation?
–Separate legal entity
–Continuous life and transferability of ownership
–No mutual agency
–Limited liability of stockholders (owners of the corporation)
–Separation of ownership and management
–Corporate taxation
Government regulation
On October 1, Cookies, Inc. paid employee salaries of $2,000.
Which accounts were affected by this transaction? Were they debited, or credited?
Salaries expense: debit $2,000
Cash: credit $2,000
What is the five step process required by the revenue recognition principle?
What are the four main types of financial statements covered in Chapters 1-3? In what order should you prepare them, and why?
Income Statement first; then Statement of Retained Earnings, using the Net Income from Income Statement; then Balance Sheet, using retained earnings from Statement of Retained Earnings; then Statement of Cash Flows
Cookies, Inc. has the following account balances: Cash $4,000; Accounts Receivable $2,000; Notes Payable $1,000; Accounts Payable $400; Unearned Revenue $600; Dividends $500; Service Revenue $1000.
Calculate the Debt Ratio for Cookies, Inc.
.33 or 33%
Compare and contrast deferral and accruals.
Deferrals defer the recognition of revenue or expense to a date after the cash is received or paid
Accruals record an expense before the cash is paid, or records revenue before the cash is received