Learning Objective 1.2
What agency oversees the creation and governance of accounting standards?
Financial Accounting Standards Board (FASB)
What is the accounting equation?
Assets = Liabilities + Equity
Which Financial Statement provides valuable information about economic resources the company owns as well as debts the company owes?
The Balance Sheet
What is the rule of accounting which dictates that each transaction has dual effects?
Double-entry accounting
What is the record of transactions in order of their dates?
The (General) Journal
Accounting guidelines primarily established by FASB and its predecessors are called what?
Generally Accepted Accounting Principles (GAAP)
What is any event that affects the financial position of the business and can be measured with faithful representation?
A transaction
Beginning Retained Earnings and Dividends.
The left side of every T-account always implies which effect on each account?
Debit.
What is Posting?
The process of transferring information from the journal to the ledger.
Sole Proprietorship, Partnership, Corporation, Limited-Liability Company (LLC)
What are the four main components of the Equity Category of accounts?
Common Stock, Dividends, Revenues, and Expenses.
Beginning Retained Earnings + Net Income (Loss) - Dividends = Ending Retained Earnings
All assets always have (by default) what type of normal balance?
Debit Normal Balance
Journalize this transaction correctly.
Frankwater Corporation issues 100,000 shares and receives $5,000,000 in return.
Debit Cash $5,000,000; Credit Common Stock $5,000,000.
Name two features of a corporation that set this economic entity apart from the others.
Separate legal entity. Continuous life and transferability of ownership. No mutual agency. Limited liability of stockholders (owners of the corporation - also called shareholders). Separation of ownership and management. Corporate taxation. Government regulation.
Summarize the Net Income calculation into a formula.
Net Income (Net Loss) = Revenues - Expenses
What is the correct order of the Financial Statements?
(1.) Income Statement (2.)Statement of Retained Earnings (3.)Balance Sheet (4.)Statement of Cash Flows
What type of account is Unearned Revenue? Therefore, its normal balance is what?
Liability account; Credit Normal Balance
Journalize the following transaction.
Emerson Company sold $300,000 worth of products on account to Adobe Inc.
Debit Accounts Receivable $300,000; Credit Sales Revenue $300,000
What are the four principles of GAAP? Provide a description of one of the principles.
Economic Entity Assumption. Cost Principle. Going Concern Assumption. Monetary Unit Assumption.
How do Dividends and Revenue differ in the expanded accounting equation?
Dividends cause a decrease in equity, meaning that the normal balance of this account is Debit. Revenue causes an increase in equity, meaning that the normal balance is Credit.
When should the trial balance be completed during the Accounting Cycle?
Before completing the Income Statement.
According to the expanded accounting equation, all Dividends and Expenses have a Debit normal balance, what effect does this have on stockholder's equity?
Journalize the following transaction.
Honda Corporation received $20,000 from Luka's Trucking Company for services not yet performed.
Debit Cash $20,000; Credit Unearned Revenue $20,000