Assumptions & Principles
The assumption that a business entity will continue operating for the foreseeable future.
What is the Going Concern Assumption?
This = Liabilities + Equity
What is Assets?
If net income equals 1,000 and assets at the beginning of the year equals 10,000 and ending assets equal 16,000. The return on assets is this amount.
What is .0769 or 7.69%?
Net income/ avg total assets = 1,000/ 13,000
Avg total assets = (10,000+16,000)/2
An asset that shows the amount of an expense that was paid in advance and has not yet been used or expired but will be adjusted at the end of the year.
What is a “Prepaid” asset?
Prepaid Rent appears under this major section of the Balance Sheet.
What is the “Asset” section?
The financial records of any business must be kept separate from all other businesses or the owners financial records.
What is the Business Entity Assumption?
Big Builders Corp purchased supplies and paid cash this is the effect on the accounting equation.
Hint: what happens to assets, what happens to liabilities, what happens to equity
What is one asset increases while another asset decreases?
This ratio assesses a company’s ability to pay it’s debts in the near future and is calculated by dividing current assets by current liabilities.
What is the Current Ratio?
The total amount of depreciation that has been expensed for the equipment or asset so far.
What is accumulated depreciation?
Owner Withdrawals appear under this major section of the balance sheet .
What is the “Equity” Section?
A core element of accrual basis of accounting is to recognize expenses when incurred or consumed.
What is the Expense Recognition Principle?
When a company purchases equipment on credit, this is the effect on the accounting equation
Hint: what happens to assets, what happens to liabilities, what happens to equity
What is Assets increase and Liabilities increase?
Profit Margin shows the relationship between Net Income and this.
On June 1, a company paid 30,000 for the next 24 months rent. This amount of rent expense will appear on the income statement as of December 31st.
What is 8,750?
30,000/24 = 1,250 x 7 months = 8,750
A liability that is settled in the future when a company deliver’s it’s product or service
What is Unearned Revenues?
The concept that all goods and services purchased should be recorded at actual cost.
What is the Measurement (Cost) Principle?
If equity is 42,000 and assets are 65,000 then liabilities are
What is 23,000?
Debt ratio is: Total Liabilities / Total assets
Company A’s debt ratio is .27 and company B’s debt ratio is .44.
This company has a higher debt risk.
What is company B?
A company forgot to make an adjusting entry for wages accrued the last week of the year. This mistake causes the income to be ______ and expenses to be ______
What is overstated (income) and understated (expenses)?
The side of an entry (debit or credit) that increases an accounts balance is called this.
What is the accounts normal balance?
The principle that states that revenues are to be recognized when they are earned, regardless if the customer has paid.
What is the Revenue Recognition Principle?
If cash =5,000, accounts receivable =10,000
supplies =7,500, equipment =25,000
accumulated depreciation =2,000
& accounts payable =30,000
equity will equal this amount.
What is 15,500.
Assets = 45,500 & Liabilities = 30,000
Current assets $ 87,000
Investments 50,000
Plant assets 220,000
Current liabilities 39,000
Long-term liabilities 90,000
Owner, Capital 228,000
__________ is the current ratio.
What is 2.23?
87,000/39,000
The portion of the equipment or asset cost that is being allocated and expensed for the current period.
What is Depreciation Expense?
Accumulated Depreciation appears on this statement.
What is the Balance Sheet?