Ch. 1 Financial Statements
Which type of Accounting is for decision makers outside the entity?
Financial Accounting
What type of account is prepaid rent?
Asset
Under the cash basis, when is revenue recorded?
When cash is received.
What is the formula for the income statement?
Revenue - Expenses = Net Income
What are the two main components of Stockholder's Equity?
Retained Earnings and Paid in Capital
Under the accrual basis, when should revenues be incurred?
When revenue is earned. Revenue is earned when goods/services are delivered to the customer.
What is the formula for the Balance Sheet?
Assets = Liabilities + Owner's Equity
Will a dividend increase or decrease retained earnings?
Decrease retained earnings.
Under the accrual basis, when should expenses be incurred?
In the same period as related revenue (Matching Principle).
A building was purchased for $500,000. The appraisal came in at $600,000, and the building next door recently sold for $700,000. How much should the building be recorded for?
$500,000 - Historical Cost Principle
If a company makes a sale on account, which account is credited?
Revenue (Sales)
An adjusting entry to prepaid rent would include a debit to which account?
Rent Expense
In what order should the financial statements be prepared?
Income Statement, Statement of Retained Earnings, Balance Sheet, Statement of Cash Flows
If a company makes a sales on account, which account is debited?
Accounts Receivable
The closing entry for revenue would include a credit to which account?
Retained Earnings