Deck 2: Analyzing Transactions: the Accounting Equation

Question 1

Any item a business owns that will provide future benefits is called owner's equity.

Answer 1

False

Question 2

The terms "profit and loss statement" or "operating statement" are sometimes used as synonyms for the balance sheet.

Answer 2

False

Question 3

Recognizing the effects of transactions on assets,liabilities,owner's equity,revenue,and expenses of a business is the processing function.

Answer 3

True

Question 4

If the revenue of a period exceeds the expenses,the excess represents a net loss.

Question 5

Any accounting period of twelve months' duration is usually referred to as a fiscal year.

Question 6

Expenses that are incurred in operating the enterprise increase owner's equity.

Question 7

Other terms used for owner's equity include net worth and capital.

Question 8

Expenses represent a decrease in liabilities.

Question 9

The accounting equation shows the relationship among the three basic accounting elements-assets,expenses,and owner's equity.

Question 10

The accounting equation may be expressed as assets − liabilities = owner's equity.

Question 11

Liabilities represent an "inside" interest in a business.

Question 12

The income statement provides information about events over a period of a month,year,or other period of time.

Question 13

It is not necessary to measure a business transaction in dollars.

Question 14

If owner's equity and liabilities increased during the period,then assets must also have increased.

Question 15

Since insurance lasts for several months,it is recorded as owner's equity.

Question 16

An accounts payable is an unwritten promise to pay a supplier for assets purchased or services rendered.

Question 17

A business entity is an individual,association,or organization with control over economic resources and which engages in economic activities.

Question 18

According to the business entity concept,a proprietor may include nonbusiness assets and liabilities in the business entity's accounting records.

Question 19

Revenues received during an accounting period increase owner's equity.

Question 20

Since supplies last for several months,they are recorded as assets.

Question 21

Tyler paid $3,700 on account to the company from which equipment was purchased on credit.This transaction would

A) decrease assets and decrease liabilities.
B) increase assets and increase owner's equity.
C) increase assets and increase liabilities.
D) increase one asset and decrease another asset.

Question 22

The financial statement that should be completed first is the

A) balance sheet.
B) statement of financial position.
C) statement of financial condition.
D) income statement.

Question 23

Which phase of the accounting process involves recognizing the effect of transactions on assets,liabilities,owner's equity,revenue,and expenses of a business?

A) input
B) processing
C) output
D) summarizing

Question 24

Withdrawing cash from a business entity will result in an increase in owner's equity.

Question 25

The financial statement that shows the state of the firm's assets,liabilities,and owner's equity on a specific date is called a(n)

A) balance sheet.
B) statement of operations.
C) statement of owner's equity.
D) income statement.

Question 26

A decrease in owner's equity may result from a(n)

A) purchase of office supplies for cash.
B) withdrawal of cash from the business by the owner.
C) revenue that is derived from sales of goods or services.
D) investment of cash in the business by the owner.

Question 27

The income statement and statement of owner's equity provide information covering a period of time.

Question 28

Falana received $7,000 in cash from a client for professional services rendered.This transaction would

A) increase assets and increase owner's equity.
B) decrease assets and increase owner's equity.
C) increase liabilities and decrease owner's equity.
D) decrease assets and decrease owner's equity.

Question 29

Any accounting period of twelve months' duration is usually referred to as a(n)

A) fiscal year.
B) calendar year.
C) physical year.
D) operational year.

Question 30

Stephen purchased office supplies for $800 on account.This transaction would

A) increase assets and increase owner's equity.
B) increase one asset and decrease another asset.
C) increase assets and increase liabilities.
D) decrease assets and decrease liabilities.

Question 31

Financial statements commonly prepared by businesses include an income statement,a statement of owner's equity,and a balance sheet.

Question 32

Sue Lee paid $1,200 for her employees' salaries.This transaction would

A) increase assets and decrease owner's equity.
B) increase assets and increase liabilities.
C) decrease assets and decrease liabilities.
D) decrease assets and decrease owner's equity.

Question 33

Meghan started her business by investing $30,000 in cash.This transaction would

A) increase assets and increase owner's equity.
B) increase assets and increase liabilities.
C) increase one asset and decrease another asset.
D) decrease assets and decrease liabilities.

Question 34

Jason purchased office equipment for $4,800 in cash.This transaction would

A) increase assets and increase owner's equity.
B) increase assets and increase liabilities.
C) increase one asset and decrease another asset.
D) decrease assets and decrease liabilities.

Question 35

An example of an expense is

A) investments.
B) supplies consumed.
C) prepaid insurance.
D) withdrawals by the owner.

Question 36

The balance sheet reports assets,liabilities,and owner's equity on a specific date.

Question 37

An increase in a revenue account may also result in an increase in the accounts receivable account.

Question 38

Increases to owner's equity may be from

A) expenses that are incurred.
B) expenses exceeding revenue for the period.
C) withdrawals of cash from the business by the owner.
D) revenue that is derived from sales of goods or services.

Question 39

The statement of owner's equity shows the state of the business on a specific date.

Question 40

The accounting equation may be expressed as

A) owner's equity = assets − liabilities.
B) revenue − expenses = net income.
C) revenue = net income − expenses.
D) liabilities − owner's equity = assets.

Question 41

From the following list of accounts,prepare an income statement,statement of owner's equity,and balance sheet for the year ended or at December 31,20--,for J.Carr's Delivery Service.
$$\begin{array} { l r } \text { Cash } & \$ 11,450 \\\text { Accounts Payable } & 4,450 \\\text { Fees Earned } & 41,500 \\\text { J. Carr, Capital January 1, 20-- } & 14,500 \\\text { J. Carr, Drawing } & 7,000 \\\text { Office Supplies } & 250 \\\text { Rent Expense } & 10,000 \\\text { Accounts Receivable } & 7,000 \\\text { Equipment } & 6,000 \\\text { Wages Expense } & 14,000 \\\text { Repairs Expense } & 250 \\\text { Furniture } & 4,500\end{array}$$

Question 42

The relationship between the three basic accounting elements: ____________________,____________________,and ____________________,can be expressed in the form of a simple equation known as the accounting equation.

Question 43

____________________ represent probable future benefits.

Question 44

____________________ is the amount by which business assets exceed the business liabilities.

Question 45

____________________ represent the decrease in assets (or increase in liabilities)as a result of efforts made to produce revenues.

Question 46

____________________ represent the amount a business charges customers for products sold or services performed.

Question 47

Show the effect of each transaction on the three basic accounting elements by indicating the dollar amount of the increase or decrease under the proper element heading.Compute the resulting accounting equation.
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Question 48

The report which shows a firm's assets,liabilities,and owner's equity as of a specific date is called the ____________________.

Question 49

Amounts owed to the business by its customers are called ____________________.

Question 50

Madame Shira began a fortune telling business on May 1.The following transactions occurred:
?
1. Owner Madame Shira invested $\$ 5,000$ cash in the business.
2. Purchased $\$ 2,000$ of furniture with a down payment of $\$ 500$ ; the rest by issuing an account payable to be paid in three monthly installments.
3. Paid $\$ 700$ rent.
4. Purchased a crystal ball for $\$ 300$ .
5. Paid $\$ 1,700$ for a 12 -month insurance policy.
6. During the first month received $\$ 2,500$ from cash customers.
7. Sent billings of $\$ 2,000$ for services rendered to credit customers.
8. Paid assistant $\$ 1,500$ wages for the month.
9. Received $\$ 600$ in payments from credit customers.
10. Borrowed $\$ 3,200$ by signing a note.
11. Made a $\$ 500$ payment on the furniture bill (from transaction 2).
12. Owner withdrew $\$ 300$ cash for personal use.
13. Paid bills for advertising $\$ 60$ , utilities $\$ 39$ , and repairs $\$ 52$ . Required:
1.Enter the above transactions in an accounting equation work sheet.
2.Prepare an income statement for Madame Shira for the month of May.
3.Prepare a statement of owner's equity for the month of May.

Question 51

The ____________________ reports the investments and withdrawals by the owner,the profits and losses generated through operations,and how they have affected the capital account.

Question 52

Show the effects of each transaction on the accounting equation by indicating under the proper heading the dollar amount of increase or decrease for each transaction listed below.Compute the resulting accounting equation.
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Question 53

A(n)____________________ is a reduction in owner's equity as a result of the owner taking cash or other assets out of the business for personal use.

Question 54

The ____________________,sometimes called the profit and loss statement,reports the profitability of business operations for a specific period of time.

Question 55

Kristin Holden started her own consulting business in July,20--.During the first month,the following transactions occurred:
Required:
a. Owner invested $\$ 12,000$ cash in the business.
b. Purchased office equipment for $\$ 7,500$ cash.
c. Purchased computer equipment costing $\$ 11,500$ on account.
d. Paid $\$ 1,100$ office rent for the month.
e. Received $\$ 1,700$ cash from a client for services rendered.
f. Paid water bill for the month, $\$ 170$ .
g. Paid $\$ 2,400$ on account for computer equipment purchased in transaction (c).
h. Paid the electric bill for the month, $\$ 200$ . Record the effects of these transactions in an accounting equation worksheet.
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Question 56

Most businesses recognize ____________________ when earned,even if cash has not yet been received.

Question 57

Dr.Etana Jenson is a podiatrist.As of December 31,Jenson owned the following assets related to the professional practice:
As of that date,Jenson owed business suppliers as follows:
$$\begin{array} { l r l r } \text { Cash } & \$ 6,600 & \text { X-ray Equipment } & \$ 9,000 \\\text { Office Equipment } & 3,500 & \text { Laboratory Equipment } & 3,000\end{array}$$ Required:
$\begin{array}{lr}\text { Top Flight Office Equipment Co. } & \$ 3,000 \\\text { Dunhill Medical Supplies Company } & 1,000 \\\text { Island Gas Company } & 2,200\end{array}$

Question 58

From the following list of accounts,prepare an income statement,statement of owner's equity,and balance sheet for the year ended or at December 31,20--,for Milner's Star Express Cleaning Service.
$\begin{array}{lr}\text { Cash } & \$ 2,026 \\\text { Fees Earned } & 13,835 \\\text { Accounts Payable } & 7,530 \\\text { D. Milner, Capital January 1, 20-- } & 6,000 \\\text { D. Milner, Drawing } & 1,750 \\\text { Utilities Expense } & 153 \\\text { Prepaid Insurance } & 1,216 \\\text { Rent Expense } & 1,200 \\\text { Accounts Receivable } & 4,080 \\\text { Equipment } & 15,290 \\\text { Wages Expense } & 1,650\end{array}$

Question 60

A(n)____________________ is an unwritten promise to pay a supplier for assets purchased or services received.

Question 61

A(n)____________________ is a separate record used to summarize changes in assets,liabilities,and owner's equity of a business.

Question 62

Match the terms with the definitions.


-The concept that nonbusiness assets and liabilities are not included in the business' accounting records.

A) account
B) accounts payable
C) accounts receivable
D) accounting equation
E) assets
F) balance sheet
G) business entity
H) business entity concept
I) business transaction
J) drawing
K) expenses
L) income statement
M) liability
N) net income
O) net loss
P) notes payable
Q) owner's equity
R) revenues
S) statement of owner's equity

Question 63

Match the terms with the definitions.


-An economic event that has a direct impact on the business.

A) account
B) accounts payable
C) accounts receivable
D) accounting equation
E) assets
F) balance sheet
G) business entity
H) business entity concept
I) business transaction
J) drawing
K) expenses
L) income statement
M) liability
N) net income
O) net loss
P) notes payable
Q) owner's equity
R) revenues
S) statement of owner's equity

Question 64

Match the terms with the definitions.


-Withdrawals that reduce owner's equity as a result of the owner taking cash or other assets out of the business for personal use.

A) account
B) accounts payable
C) accounts receivable
D) accounting equation
E) assets
F) balance sheet
G) business entity
H) business entity concept
I) business transaction
J) drawing
K) expenses
L) income statement
M) liability
N) net income
O) net loss
P) notes payable
Q) owner's equity
R) revenues
S) statement of owner's equity

Question 65

Match the terms with the definitions.


-The excess of total revenues over total expenses for the period.

A) account
B) accounts payable
C) accounts receivable
D) accounting equation
E) assets
F) balance sheet
G) business entity
H) business entity concept
I) business transaction
J) drawing
K) expenses
L) income statement
M) liability
N) net income
O) net loss
P) notes payable
Q) owner's equity
R) revenues
S) statement of owner's equity

Question 66

Match the terms with the definitions.


-An individual,association,or organization that engages in economic activities and controls specific economic resources.

A) account
B) accounts payable
C) accounts receivable
D) accounting equation
E) assets
F) balance sheet
G) business entity
H) business entity concept
I) business transaction
J) drawing
K) expenses
L) income statement
M) liability
N) net income
O) net loss
P) notes payable
Q) owner's equity
R) revenues
S) statement of owner's equity

Question 67

A(n)____________________ is an economic event that has a direct impact on the business.

Question 68

Match the terms with the definitions.


-The decrease in assets (or increase in liabilities)as a result of efforts to produce revenues.

A) account
B) accounts payable
C) accounts receivable
D) accounting equation
E) assets
F) balance sheet
G) business entity
H) business entity concept
I) business transaction
J) drawing
K) expenses
L) income statement
M) liability
N) net income
O) net loss
P) notes payable
Q) owner's equity
R) revenues
S) statement of owner's equity

Question 69

According to the ____________________,nonbusiness assets and liabilities are not included in the business entity's accounting records.

Question 70

Match the terms with the definitions.


-An amount owed to a business by its customers as a result of the sale of goods or services.

A) account
B) accounts payable
C) accounts receivable
D) accounting equation
E) assets
F) balance sheet
G) business entity
H) business entity concept
I) business transaction
J) drawing
K) expenses
L) income statement
M) liability
N) net income
O) net loss
P) notes payable
Q) owner's equity
R) revenues
S) statement of owner's equity

Question 71

Match the terms with the definitions.


-Reports the profitability of business operations for a specific period of time.

A) account
B) accounts payable
C) accounts receivable
D) accounting equation
E) assets
F) balance sheet
G) business entity
H) business entity concept
I) business transaction
J) drawing
K) expenses
L) income statement
M) liability
N) net income
O) net loss
P) notes payable
Q) owner's equity
R) revenues
S) statement of owner's equity

Question 72

Match the terms with the definitions.


-A separate record used to summarize changes in each asset,liability,and owner's equity of a business.

A) account
B) accounts payable
C) accounts receivable
D) accounting equation
E) assets
F) balance sheet
G) business entity
H) business entity concept
I) business transaction
J) drawing
K) expenses
L) income statement
M) liability
N) net income
O) net loss
P) notes payable
Q) owner's equity
R) revenues
S) statement of owner's equity

Question 73

Match the terms with the definitions.


-A formal written promise to pay a supplier or lender a specified sum of money at a definite future time.

A) account
B) accounts payable
C) accounts receivable
D) accounting equation
E) assets
F) balance sheet
G) business entity
H) business entity concept
I) business transaction
J) drawing
K) expenses
L) income statement
M) liability
N) net income
O) net loss
P) notes payable
Q) owner's equity
R) revenues
S) statement of owner's equity

Question 74

Match the terms with the definitions.


-Reports assets,liabilities,and owner's equity on a specific date.

A) account
B) accounts payable
C) accounts receivable
D) accounting equation
E) assets
F) balance sheet
G) business entity
H) business entity concept
I) business transaction
J) drawing
K) expenses
L) income statement
M) liability
N) net income
O) net loss
P) notes payable
Q) owner's equity
R) revenues
S) statement of owner's equity

Question 75

Match the terms with the definitions.


-Consists of the three basic accounting elements: assets = liabilities + owner's equity.

A) account
B) accounts payable
C) accounts receivable
D) accounting equation
E) assets
F) balance sheet
G) business entity
H) business entity concept
I) business transaction
J) drawing
K) expenses
L) income statement
M) liability
N) net income
O) net loss
P) notes payable
Q) owner's equity
R) revenues
S) statement of owner's equity

Question 76

____________________ is a measure of the ease with which an asset will be converted to cash.

Question 77

Match the terms with the definitions.


-Items a business owns that will provide future benefits.

A) account
B) accounts payable
C) accounts receivable
D) accounting equation
E) assets
F) balance sheet
G) business entity
H) business entity concept
I) business transaction
J) drawing
K) expenses
L) income statement
M) liability
N) net income
O) net loss
P) notes payable
Q) owner's equity
R) revenues
S) statement of owner's equity

Question 78

Match the terms with the definitions.


-Reports beginning capital,plus net income,less withdrawals to compute ending capital.

A) account
B) accounts payable
C) accounts receivable
D) accounting equation
E) assets
F) balance sheet
G) business entity
H) business entity concept
I) business transaction
J) drawing
K) expenses
L) income statement
M) liability
N) net income
O) net loss
P) notes payable
Q) owner's equity
R) revenues
S) statement of owner's equity

Question 79

Match the terms with the definitions.


-The amount by which the business assets exceed the business liabilities.

A) account
B) accounts payable
C) accounts receivable
D) accounting equation
E) assets
F) balance sheet
G) business entity
H) business entity concept
I) business transaction
J) drawing
K) expenses
L) income statement
M) liability
N) net income
O) net loss
P) notes payable
Q) owner's equity
R) revenues
S) statement of owner's equity

Question 80

Match the terms with the definitions.


-An unwritten promise to pay a supplier for assets purchased or services rendered.

A) account
B) accounts payable
C) accounts receivable
D) accounting equation
E) assets
F) balance sheet
G) business entity
H) business entity concept
I) business transaction
J) drawing
K) expenses
L) income statement
M) liability
N) net income
O) net loss
P) notes payable
Q) owner's equity
R) revenues
S) statement of owner's equity