Chapter 1
What is the accounting equation?
Assets = Liabilities + Equity
What type of account is Accounts Receivable: asset, liability, or equity?
Asset
In a T-account, which side is the debit side?
The left side
What is the purpose of an adjusting entry?
To update/fix account balances at the end of the accounting period so the financial statements are correct.
Are Revenue, Expenses, and Dividends temporary or permanent accounts?
Temporary accounts
A company has $10,000 in assets and $4,000 in liabilities. How much is its equity?
$6,000
Which type of account normally has a debit balance: assets, liabilities, or equity?
Assets
If an asset increases, is it debited or credited?
Debited
A company has $1,000 of supplies recorded in Supplies. They purchased $500 of supplies, then at the end of the period only $300 of supplies remain. How much supplies expense should be recorded?
$1,200 used and expensed
What is the goal of closing the books?
To bring the balances of temporary accounts to $0 and transfer their effects to Retained Earnings.
Which financial statement reports a company's revenues and expenses and determines whether the company earned a net income or net loss?
Income Statement
A company purchases $2,000 of supplies on account. Which two accounts are affected, and what happens to each?
- Supplies increases by $2,000 — Debit, asset
- Accounts Payable increases by $2,000 — Credit, liability
If a liability decreases, is it debited or credited?
Debited
On October 1st a company paid $2,400 for 12 months of prepaid insurance. How much insurance expense should be recorded in the adjusting entry on December 31st, and write the adjusting entry?
Dec 31st Insurance Expense $600
Prepaid Insurance $600
A company begins the year with Retained Earnings of $20,000. It earns $12,000 of revenue, has $7,000 of expenses, and declares $3,000 of dividends. What is ending Retained Earnings?
$22,000
Put these financial statements in the correct order: Balance Sheet, Income Statement, Statement of Cash Flows, Statement of Retained Earnings.
1. Income Statement
2. Statement of Retained Earnings
3. Balance Sheet
4. Statement of Cash Flows
A company pays $800 toward an amount it previously owed to a supplier. What accounts are affected, and what are the debits and credits?
- Accounts Payable decrease — Debit $800
- Cash decrease — Credit $800
A company receives $5,000 cash from a bank by signing a note payable. What is the journal entry?
Cash $5,000
N/P $5,000
A company received $4,000 cash in advance for a service they will perform later. By the end of the period, $2,500 of the work has been completed. Prepare the adjusting entry for the end of the period.
Unearned Revenue $2,500
Revenue $2,500
A company has $8,000 of Revenue and $5,000 of Expenses at the end of the period. Prepare the closing entries.
Revenue $8,000
R/E $8,000
R/E $5,000
Expenses $5,000
A business has $25,000 in assets and $9,000 in liabilities. During the year, the owner invests another $5,000, the company earns $12,000 of revenue, incurs $7,000 of expenses, and pays $2,000 in dividends. What is ending equity?
$24,000
A company performs $3,000 of services for a customer and receives $1,000 cash immediately. The remaining $2,000 will be collected later. Prepare the journal entry.
Cash $1,000
A/R $2,000
Service Revenue $3,000
A company pays $1,200 cash for six months of insurance in advance. Prepare the journal entry and identify the type of account Insurance is.
Prepaid Insurance $1,200
Cash $1,200
- Prepaid Insurance is an asset.
A company pays its employees $2,800 every Friday for a full week of work (they only work mon-fri). The company’s accounting period ends on Wednesday, December 31. Employees will not be paid again until Friday, January 2.
What adjusting entry should the company make on December 31 for the salaries employees have earned but have not yet been paid?
Salary Expense $1,680
Salary Payable $1,680
A company has $10,000 of Revenue, $7,000 of Expenses, and $2,000 of dividends. What would the end balance be in retained earnings if the beginning balance was $3,000? Also, prepare the closing entries.
Revenue $10,000
R/E $10,000
R/E $7,000
Expenses $7,000
R/E $2,000
Dividends $2,000
- End R/E balance is $4,000