Chapter Three: The Income Statement

Asset, Liability, or Equity?

100

Accounts Receivable

What is an asset?

200

Deferred Revenue

What is a liability?

300

Salaries and Wages Expense

What is an equity?

400

Prepaid Rent

What is an asset?

500

Sales Revenue

What is an equity?

Income Statement Journal Entries

100

Paid wages of $1,000 for the current period

Dr. Cash 1,000

Cr. Wages and Supplies Expense 1,000

200

Earned $400 of sales revenue, collected cash

Dr. Cash 400

Cr. Sales Revenue 400

300

Received $800 of utilities service, on credit

Dr. Accounts Payable 800
Cr. Utilities Expense 800

400

Earned $400 of service revenue, collected half in cash, with balance on credit

Dr. Cash 200

Dr. Accounts Receivable 200
Cr. Service Revenue 400

500

Incurred $300 of advertising costs; paid half in cash, with balance on credit

Dr. Advertising Expense 300
Cr. Cash 150
Cr. Accounts Payable 150

Definition Questions

100

Something that is recorded when the company uses up its resources to generate revenues during the period, regardless of when the company pays for the resource

What is an expense?

200

Something that indicates the profitability of company operations

What is net income?

300

Dividing the company's long life into shorter chunks such as months, quarters, and years

What is the time-period assumption?

400

Method of accounting that records revenues when cash is received and expenses when cash is paid

What is cash-basis accounting?

500

Method of accounting that records revenues when earned and expenses when incurred, regardless of the timing of cash receipts or payments

What is accrual-basis accounting?

Financial Statement Equations

100

What is the accounting equation related to the income statement?

Revenues - Expenses = Net Income

200

What is the accounting equation related to the Balance Sheet?

Assets = Liabilities + Stockholders' Equity

300

What is the accounting equation related to the Statement of Cash Flows?

Beginning Balance Cash +/- Cash From Operating Activities +/- Cash from Investing Activities +/- Cash from Financing Activities = Ending Balance Cash

400

What is the accounting equation related to the Statement of Retained Earnings?

BBRE + NI - Div = EBRE

500

How do you calculate equity? (Hint: What are the two sources of stockholder's equity)

Paid-in Capital (Common Stock) + Earned Capital (Retained Earnings)

Chapter 1 and 2 Review

100

What side of the t-account do Liabilities increase on?

The right side, the credit side

200

What side of the t-account do assets increase on?

The left side, the debit side

300

What side of the t-account do stockholders' equity increase on?

The right side, the credit side

400

What is the current ratio?

Current Assets / Current Liabilities

500

You borrowed $100,000 cash from a local bank, payable in two years. What accounts are affected by this transaction?

Notes Payable, Cash