Chapter 2 Flashcards
Unearned revenues are:
Transferred to revenue when products and services are delivered.
Prepaid accounts (also called prepaid expenses) are:
Assets from prepayments of future expenses.
The collection of all accounts and their balances is called a(n):
Ledger (or General Ledger).
A company’s ledger (or general ledger) is:
A collection of all accounts and their balances used by the company.
A company’s list of all ledger accounts with an identification number assigned to each account is called a:
Chart of accounts.
Identify the account below that is classified as a liability in a company’s chart of accounts:
A. Cash
B. Unearned revenue
C. Salaries Expense
D. Accounts Receivable
E. Supplies
B. Unearned revenue
Identify the account below that is classified as an asset in a company’s chart of accounts:
A. Accounts Receivable
B. Accounts Payable
C. Owner’s Capital
D. Unearned Revenue
E. Service Revenue
A. Accounts Receivable
A business uses a credit to record:
A decrease in an asset account. (one of the reasons, but not all)
A tool that represents a ledger account and is used to show the effects of transactions is called a:
T-account
Edison Consulting received a $300 utilities bill and immediately paid it. Edison’s general journal entry to record this transaction will include a:
Debit to Utilities Expense for $300.
Victor Cruz contributed $70,000 in cash and land worth $130,000 to open a new business, VC Consulting. Which of the following general journal entries will VC Consulting make to record this transaction?
Debit Cash $70,000; Debit Land $130,000; Credit Cruz, Capital, $200,000.
On March 1st, Alejandro Consulting paid $2,500 cash for a 5-month insurance policy that begins that day. Given the choices below, determine the general journal entry that Alejandro Consulting will make to record the cash payment.
Debit
Prepaid insurance: 2,500
Credit:
Cash 2,500
Ted Catering received $800 cash in advance from a customer for catering services to be provided in three months. Determine the general journal entry that Ted Catering will make to record the cash receipt.
Debit
Cash: 800
Credit
Unearned Revenue: 800
On May 31, the Cash account of Tesla had a normal balance of $5,000. During May, the account was debited for a total of $12,200 and credited for a total of $11,500. What was the balance in the Cash account at the beginning of May?
A $4,300 debit balance.
Beginning Cash Balance + Debits − Credits = Ending Cash Balance
Beginning Cash Balance + $12,200 − $11,500 = $5,000
Beginning Cash Balance + $700 = $5,000; Beginning Balance = $4,300 debit balance
The following transactions occurred during July:
Received $900 cash for services provided to a customer during July.
Received $2,200 cash investment from Bob Johnson, the owner of the business.
Received $750 from a customer in partial payment of his account receivable which arose from sales in June.
Provided services to a customer on credit, $375.
Borrowed $6,000 from the bank by signing a promissory note.
Received $1,250 cash from a customer for services to be performed next year.
What was the amount of revenue for July?
$1,275.
Revenues = $900 (from #1) + $375 (from #4) = $1,275
On January 1 of the current year, Jimmy’s Sandwich Company reported owner’s capital totaling $122,500. During the current year, total revenues were $96,000 while total expenses were $85,500. Also, during the current year Jimmy withdrew $20,000 from the company. No other changes in equity occurred during the year. The change in owner’s capital during the year was:
A decrease of $9,500.
Beginning Owner’s Capital + Revenues − Expenses − Withdrawals = Ending Owner’s Capital
$122,500 + $96,000 − $85,500 − $20,000 = Ending Owner’s Capital
Ending Owner’s Capital = $113,000
Change in Equity = Beginning Owner’s Capital − Ending Owner’s Capital
Change in Equity = $122,500 − $113,000 = $9,500 Decrease
Langley has a debt ratio of 0.3 and its competitor, Appleton, has a debt ratio equal to 0.7. Determine the statement below that is correct.
Appleton’s financial leverage is greater than Langley’s financial leverage.
Jennings Company has total assets of $425 million. Its total liabilities are $110.5 million. Its equity is $314.5 million. Calculate the debt ratio.
26%.
Debt Ratio = Total Liabilities/Total Assets
Debt Ratio = $110.5 million/$425 million; Debt Ratio = 0.26 = 26%
The process of transferring journal entry information to the ledger is called:
Posting
A list of all ledger accounts and their balances at a point in time is called a(n):
Trial Balance
A $15 credit to Revenue was posted as a $150 credit. By what amount is the Revenue account in error?
$135 overstated.
Identify which error will cause the trial balance to be out of balance.
A. A $200 cash salary payment posted as a $200 debit to Cash and a $200 credit to Salaries Expense.
B. A $100 cash receipt from a customer in payment of her account posted as a $100 debit to Cash and a $10 credit to Accounts Receivable.
C. A $75 cash receipt from a customer in payment of her account posted as a $75 debit to Cash and a $75 credit to Cash.
D. A $50 cash purchase of office supplies posted as a $50 debit to Office Equipment and a $50 credit to Cash.
E. An $800 prepayment from a customer for services to be rendered in the future was posted as an $800 debit to Unearned Revenue and an $800 credit to Cash.
B. A $100 cash receipt from a customer in payment of her account posted as a $100 debit to Cash and a $10 credit to Accounts Receivable.
