Chapter 2

Question 1

if revenues > expenses

Answer 1

net income, increases equity

Question 2

if revenues < expenses

Answer 2

net loss, decreases equity

Question 3

what are withdrawals

Answer 3

assets removed from the business to pay personal expenses (decreases owner’s equity so remove from capital)

Question 4

what goes on an income statement?

Answer 4

company name
income statement
for month ended…
revenue:
fees
operating expenses:
expenses
total operating expenses:
net income (revenue - expenses)

Question 5

what goes on a statement of owner’s equity?

Answer 5

company name
statement of owner’s equity
for month ended…
capital (beginning of month)
net income for month (from incomes statement)
less: withdrawals
increase/decrease in capital (net income-withdrawals)
capital at end of month (capital +/- increase/decrease)

Question 6

when is it an increase in capital

Answer 6

income > withdrawals (subtract, add totals on the right together)

Question 7

when is it a decrease in capital

Answer 7

income < withdrawals (subtract, subtract totals on the right too)

Question 8

what goes on a balance sheet?

Answer 8

company name
balance sheet
month & year
assets on left side:
cash
accounts receivable
equipment
supplies
total assets
liabilities & owner’s equity on right side:
liabilities:
accounts payable
owner’s equity:
capital
totals = total assets

Question 9

what is the structure of T accounts

Answer 9

left side: title & debit side
right side: account # & credit side

Question 10

how do you balance an account

Answer 10

add items on each side
subtract the smaller # from larger #
list total on side with larger #

Question 11

what increases on the debit side

Answer 11

assets, withdrawals, & expenses

Question 12

what increases on the credit side

Answer 12

liabilities, capital, & revenue

Question 13

debit totals =

Answer 13

credit totals

Question 14

what is the transaction analysis

Answer 14

which 2 accounts are affected
increase or decrease?
T account

Question 15

what is a ledger

Answer 15

group of accounts that records data from business transactions

Question 16

what is a compound entry

Answer 16

transaction involving more than one debit/credit