Chapter 1
Beginning R/E
+NI
-Dividends
Ending R/E
Define the economic entity principle
Business transactions are separate from the personal transactions of the owners
True or False?
An adjusting journal entry always affects one balance sheet account and one income statement account
True
Name 3 liability accounts
Accounts Payable
Accrued Expenses
Unearned Revenue
Short term note payable
What would be the journal entry for the following transaction?
Received $1000 for a job to be performed next month.
Debit Cash $1000
Credit Unearned Revenue $1000
List the 4 types of adjusting journal entries
Deferred Revenue, deferred expense, accrued revenue, accrued expense
What is the current ratio?
Current Assets/Current liabilities
Which 3 accounts have a normal DEBIT balance?
Expenses, assets, dividends
Explain the accrual basis of accounting.
Revenues are recorded when earned, expenses are recorded when incurred. Required by GAAP
What does GAAP stand for?
Generally Accepted Accounting Principles
What would the journal entry be for the following transaction?
During the month of September, ABC corporation used $500 worth of supplies.
Debit Supplies Expense $500
Credit Supplies $500
List an example of a deferred expense
Prepaid Expense
Name and explain the 3 types of business activities
Financing- how company pays for growth
Investing- purchasing resources to be used in your day to day operations
Operating- activities that earn revenue and generate expenses
What would the journal entry be for the following transaction?
Purchased equipment for $10,000. The company paid $3000 cash and signed a 6 month note for the remaining balance.
Debit Equipment $10000
Credit Cash $3000
Credit Note Payable $7000
Why do we not use the cash account when we record adjusting journal entries?
Cash is not being received/paid at the time the AJE is recorded at year end