Chapter 2 Flashcards
__________basis accounting is the only acceptable method for external reporting of net income.
Accrual
What type of an account is Accounts Receivable?
Asset
In May, Sea the World Cruises, Inc. collected $1,000 cash from a customer for services to be performed in June. When should this transaction be recorded? May or June
June
In June, Cellars, Inc. collected $1,000 from a customer in advance. In July, Cellars completed the first half of the job. In August, Cellars completed the work. If Cellars uses the cash basis of accounting, it will record revenues in______.
June
Morris Lest, Inc. received and paid a $500 electric bill in June for electricity used in May. In which month should Morris Lest record the expense in accordance with Generally Accepted Accounting Principles?
May
Under which of the following circumstances would cash basis accounting report lower revenue than accrual basis accounting in a company’s 1st year of business?
When it makes sales on account
The key factor in determining whether revenue should be recognized is whether the ______.
seller has provided the goods or services to the customer
Accounts Receivable is on the ______ and reports the amount ______.
Balance Sheet, not yet collected
On October 31, Pizza Company sold pumpkin spice pizzas for Halloween parties on account. The customers have 30 days to pay for the pizzas. In which month should Pizza Company record the revenue under accrual accounting?
October
In its 1st year of operation, City Perk paid Salaries Expense of $1.1 million. On December 31, it recorded an entry for additional Salaries Expense of $100,000 that will be paid at the beginning of the 2nd year. How much will Salaries Expense for the 1st year ended equal?
1.2 million
Stockholders’ equity consists of ______, which is the amount contributed, and ______, which is generated from profitable operations (i.e., from revenues being greater than expenses).
Common Stock, Retained Earnings
In accrual basis accounting, revenue is recorded when the seller ______.
performs the work promised to the customer and thus is entitled to receive compensation
Receiving cash from a customer to pay for a previously recorded accounts receivable will:
have no effect on liabilities, total assets and stockholders equity
Quartz Instruments had Retained Earnings of $145,000 at December 31, 2020. Net Income for 2021 was $90,000, and Dividends for 2021 were $30,000. What amount of Retained Earnings should be reported at December 31, 2021?
$205,000
ABC Company paid $6,000 cash for insurance in June that provides coverage for 6 months, from July through December. How much expense should be recognized in June to be in accordance with generally accepted accounting principles?
No expense should be recognized in June.
Under the expanded accounting equation, assets equal liabilities plus common stock and __________ earnings.
retained
Revenues increase net income and retained earnings, so revenues are recorded with a _________ just like all increases in stockholders’ equity.
credit
True or false: In accordance with generally accepted accounting principles, the timing of cash receipts dictates when revenues are recognized.
False
True or false: A company generates Retained Earnings by operating profitably.
True
If Sales Revenue is credited, then which of the following would be the corresponding debit?
Inventory, Retained Earnings, Accounts Payable, Cash
Cash
Revenues are increased with ______, because they increase _______.
credits, stockholders’ equity
Accounts Receivable arises when a company sells on______, and is an ____.
credit, asset
If expenses are greater than revenues, Retained Earnings will ______.
decrease
If a company records a debit to Cash and a credit to Deferred Revenue, it must be recording the ______.
collection of cash from customers in advance of the revenue being generated
If a company debits Cahs and credits Sales Revenue, it is recording the:
sale of goods to a customer for cash
Expenses are increased with ______.
debits because they decrease stockholders’ equity
Pizza Company sold pizzas on account. The journal entry to record the sales will include a _________________
debit to accounts receivable, credit to sales revenue
Bank ‘n’ Roll, Inc. pays its employees once a month and records the expense at the time of payment. On May 31, Bank ‘n’ Roll, Inc. paid its employees $10,000 for work performed in May. The entry to record the payment includes a ______ for $10,000.
debit to wages expense, credit to cash
The entry to record cash collected from customers in advance includes a _________
debit to cash, credit to deferred revenue
The journal entry to record the purchase of supplies on account is debit _______
supplied and credit accounts payable
What is the most liquid asset
Cash
If a company records a debit to Accounts Receivable and a credit to Revenue, it must be recording the ______
sale of goods on account
If a company has no Wages Payable on its balance sheet, then one may conclude ______.
the wages expensed in the period were paid
When a company receives cash from a customer in advance of performing the service, the company will debit _______
and credit ___________ __________
Cash, Deferred Revenue
All assets are increased by ______
Debit
Expenses decrease net income and retained earnings, so expenses are recorded with a __________, just like all decreases in stockholders’ equity.
debit
If the purchase of supplies on account is not recorded then ___________
Liabilities will be understated
Utilities expense is _________
debited when the service is received.
Credits will increase which of these T-accounts? (many choices) (Advertising expense, Deferred revenue, Accounts payable, Sales revenue)
Deferred revenue, accounts payable, sales revenue
The journal entry a law firm records when it provides legal services for a client who will pay in a later period includes a ______.
credit to service revenue, debit to accounts receivable
When Pizza Company sells three $100 gift cards at the beginning of the month, it should record a debit to ______ and credit to ______ for $300.
Cash, Deferred Revenue
On June 1, Pizza Company paid $100 for advertisements to be run on June 1. Pizza Company’s entry to record this payment will include a $100 ______.
debit to Advertising Expense, credit to Cash
The Accounts Receivable T-account will have ____ on the credit side.
collections of sales made on account
Performing services on account will increase ______.
Total assets, stockholders equity
True or false: The unadjusted trial balance reports the increases and decreases in each account that occurred during the accounting period.
false
When revenue is credited, the possible three debits are _____, accounts _______, and _______ revenue.
cash, receivable, deferred
Which ratio change provides good news about a company?
An increase in the net profit margin ratio
Multiple Choice Question
The ending balance of Accounts Receivable in the ledger is calculated by adding the ______
debits and subtracting the credits recorded during the period to the beginning debit balance to arrive at the ending debit balance
If a company records a debit to Accounts Receivable and a credit to Revenue, it must be recording the ______.
sale of goods on account
If a company records a debit to Accounts Receivable and a credit to Revenue, it must be recording the ______.
sale of goods on account
The trial balance is an internal report used to determine whether total debits
______total credits.
equal
If Revenues is credited, then the possible debits are ______.
Cash, Accounts Receivable, Deferred Revenue
Which are 3 common misconceptions users of an income statement may have?
Net income does not include estimates,
Net Income equals cash,
Net Income reports all changes of value that occurred during the accounting period
The net profit margin ratio is calculated by dividing net income by ______.
revenue
If the Accounts Receivable ending balance is greater than its beginning balance, then its debits were ______ than its credits during the period.
greater
When AppGame Company delivers pizza to customers on account and bills its customer accounts, it should record a debit to Blank______ and a credit to Blank______.
Accounts Receivable; Sales Revenue
True or false: The unadjusted trial balance reports the increases and decreases in each account that occurred during the accounting period.
False
True or False: Measurement of net income involves estimations.
True
Accounts Payable, Sales Revenue, and Deferred Revenue are all ______ by T-accounts
increased
The ending balance of Accounts Receivable in the ledger is calculated by adding the ______.
