Chapter 1
What is the Accounting Equation?
Assets = Liabilities + Equity
A company bought $300 of supplies on credit. What is the journal entry?
Debit Supplies 300
Credit Accounts Payable 300
Which Account is NEVER used in an Adjusting Entry?
Cash
What account do you close Revenues and Expenses to?
Income Summary
What does 5/10, n/45 mean?
5% discount if paid within 10 days, otherwise pay in full after 45 days.
What is the Revenue Recognition Principle?
Revenue must be recorded when it is incurred, not when cash is received. This is set by GAAP.
What is unearned revenue? (description and type of account)
Liabilities recorded when customers pay in advance for products or services.
What is the expense of allocating the cost of equipment to the periods in which it is used called?
Depreciation Expense
Give 3 Examples of Permanent Accounts
Anything on the Balance Sheet
What does the buyer debit in FOB Shipping Point if there is a delivery cost?
Merchandise Inventory
The accounting concept that requires every business to be accounted for separately from other business entities, including its owner or owners is known as the:
Business Entity Assumption
A company’s list of all ledger accounts with an identification number assigned to each account.
Which two types of accounts will adjusting entries ALWAYS affect?
1 Balance Sheet Account and 1 Income Statement Account
Give an example of a current asset, noncurrent asset, current liability, and a long-term liability.
Various (Cash (current asset), Equipment (plant asset/noncurrent asset), Unearned revenue/accounts payable (current liability), bonds payable due in 10 years (long-term liability)
If a company has $300,000 in net sales, $100,000 in other expenses, and $50,000 in Cost of Goods Sold (COGS), what is the gross profit?
$250,000 ($300,000 - $50,000)
What accounts does the balance sheet consist of and which financial statement flows into the balance sheet?
Assets, Liabilities, and Equity. The statement of owner's equity flows into the balance sheet.
What is the General Ledger?
The collection of all accounts and their balances
A company is paid $12,000, 6 months in advance for yard work they will complete at a rate of once a month on Jan 15. What is the journal entry made on Jan 15 and April 15.
Jan 15
Debit Cash 12,000
Credit Unearned Revenue 12,000
April 15
Debit Unearned Revenue 6,000
Credit Service Revenue 6,000
A company has $2,000 in consulting revenues and $3,000 in service revenues. What is the closing entry made on Dec 31.
Debit Consulting Revenue 2,000
Debit Service Revenue 3,000
Credit Income Summary 5,000
A company purchased $1,100 of Merchandise on July 1 with terms 10/15, n/30. On July 6, it returned $100 worth of merchandise. On July 7, it paid the full amount due. How much cash was paid on July 7?
$900 ($1,100 - $100 = $1000 * 10% = $100. $1,000 - $100 = $900)
What accounts does the statement of owner's equity consist of?
Beginning Capital Balance
+ Investments by owner
+/(-) Net Income (Loss)
- Withdrawals by owner
= Ending Capital Balance
What is the difference between cash basis accounting vs accrual basis accounting?
Cash Basis records revenue when cash exchanges hands, while Accrual Basis record revenue when it occurs.
A company pays each of its two office employees each Friday at the rate of $130 per day for a five-day week that begins on Monday. If the monthly accounting period ends on Tuesday and the employees worked on both Monday and Tuesday, the month-end adjusting entry to record the salaries earned but unpaid is:
Debit Salaries Expense 520
Credit Salaries Payable 520
A company has $40,000 in revenues, $18,000 in expenses, and $2,000 in withdrawals for the period. What is the journal entry to close out the income summary account?
Debit Income Summary 22,000
Credit Owner's Capital 22,000
A company purchased $10,000 of merchandise on credit on November 3. Terms of the sale are 5/10, n/60. On November 8th, the company paid the amount due in full. What journal entry will be made on November 8?
Debit Accounts Payable 10,000
Credit Cash 9,500
Credit Merchandise Inventor 500