Chapter 2

Question 1

What does Debit mean in accounting?

Answer 1

Dr

Question 2

What does Credit mean in accounting?

Answer 2

Cr

Question 3

What is Normal Balance (NB) in accounting?

Answer 3

The side of the T-account that increases that account.

Question 4

If NB=Debit, what effect does a Debit have?

Answer 4

A Dr will increase, and a Cr will decrease.

Question 5

If NB=Credit, what effect does a Credit have?

Answer 5

A Cr will increase, and a Dr will decrease.

Question 6

What is a contra-account?

Answer 6

An account that has a balance that is opposite of the parent account’s normal balance.

Question 7

What is the basic equation in accounting?

Answer 7

Assets = Liabilities + Equity (Stock and Retained Earnings)

Question 8

What is the normal balance for Assets?

Answer 8

Debit

Question 9

What is the normal balance for Revenues?

Answer 9

Credit

Question 10

What is the normal balance for Expenses/Losses and Dividends Declared?

Answer 10

Debit

Question 11

What is the first step in the accounting cycle?

Answer 11

There is an event.

Question 12

What are internal events in accounting?

Answer 12

Events that relate totally within the enterprise.

Question 13

What are external events in accounting?

Answer 13

Transactions between the enterprise and its environment.

Question 14

What is the purpose of the General Journal?

Answer 14

Used for non-routine transactions.

Question 15

What is a Special Journal?

Answer 15

Used for repetitive transactions.

Question 16

What types of accounts are found in the General Ledger?

Answer 16

Real accounts, Nominal accounts, Mixed accounts.

Question 17

What are Real accounts?

Answer 17

Accounts that always stay open.

Question 18

What are Nominal accounts?

Answer 18

Accounts that are closed at the end of the accounting period.

Question 19

What is a Mixed account?

Answer 19

An account that has both Nominal and Real components.

Question 20

What is the purpose of a trial balance?

Answer 20

To check the equality of debits and credits.

Question 21

What is a weakness of the trial balance?

Answer 21

Cannot detect all errors.

Question 22

What is an Adjusting Entry (AJE)?

Answer 22

Entries made at the end of accounting periods to bring all accounts up to date.

Question 23

What is the difference between Accruals and Deferrals?

Answer 23

Accruals recognize revenue or expenses before cash changes hands; Deferrals recognize them after cash changes hands.

Question 24

What are accrued revenues?

Answer 24

Revenues recognized before cash is received.

Question 25

What are deferred expenses?

Answer 25

Cash paid before the expense is incurred.

Question 26

What is the purpose of the Adjusted Trial Balance?

Answer 26

To list all accounts and their balances after adjusting entries have been recorded.

Question 27

What are the steps in preparing financial statements?

Answer 27

1. Income Statement 2. Statement of Retained Earnings 3. Balance Sheet 4. Statement of Cash Flows

Question 28

What is the purpose of closing entries?

Answer 28

To reduce all nominal accounts to zero and summarize the period's performance.

Question 29

What is the difference between Accrual Basis and Cash Basis accounting?

Answer 29

Accrual Basis recognizes revenues and expenses when they occur; Cash Basis recognizes them when cash is received or paid.

Question 30

What is the goal when converting between Accrual and Cash Basis?

Answer 30

To accurately reflect the financial position and performance of the business.

Question 31

What should be recorded for accrued expenses during conversion?

Answer 31

Make sure the accrued expense number is negative.

Question 32

What is the format of the Income Statement?

Answer 32

Single-step or multiple-step.

Question 33

What is the formula for Retained Earnings?

Answer 33

Beginning R/E + Net Income - Dividends

Question 34

What happens to Current Assets (CA) when the balance increases?

Answer 34

Subtract the change from the accrual item (i.e., the Revenue or Expense) ## Footnote This reflects the impact of increased assets on cash flow calculations.

Question 35

What happens to Current Assets (CA) when the balance decreases?

Answer 35

Add the change to the accrual item (i.e., the Revenue or Expense) ## Footnote This shows how decreased assets affect cash flow.

Question 36

What happens to Current Liabilities (CL) when the balance increases?

Answer 36

Add the change from the accrual item (i.e., the Revenue or Expense) ## Footnote This indicates that increased liabilities represent cash inflows.

Question 37

What happens to Current Liabilities (CL) when the balance decreases?

Answer 37

Subtract the change from the accrual item (i.e., the Revenue or Expense) ## Footnote This indicates that decreased liabilities represent cash outflows.

Question 38

What is the first step to find the Cash Received or Cash Paid?

Answer 38

Make sure cash paid is a negative number ## Footnote This is crucial for accurate cash flow calculations.

Question 39

How do you convert Revenue to Cash Received from Customers?

Answer 39

Adjust for changes in Accounts Receivable and Unearned Revenue ## Footnote This process helps in determining cash flow from sales.

Question 40

What formula is used to determine Cash Paid to Suppliers?

Answer 40

COGS + Beginning Inventory - Ending Inventory + Beginning Accounts Payable - Ending Accounts Payable ## Footnote This formula accounts for inventory and payables in cash flow.

Question 41

How to convert Other Expenses to Cash Paid?

Answer 41

Adjust for changes in Wages Payable ## Footnote This reflects actual cash outflows for wages.

Question 42

What is the sales revenue for Alatorre Company?

Answer 42

$90,000 ## Footnote This is the total sales before any deductions.

Question 43

What are sales returns and allowances for Eduardo Company?

Answer 43

(d) ## Footnote This value needs to be calculated based on net sales.

Question 44

What is the net sales for Alatorre Company?

Answer 44

$81,000 ## Footnote This is calculated after deducting sales returns and allowances.

Question 45

What is the Cost of Goods Sold (COGS) for Eduardo Company?

Answer 45

(e) ## Footnote This needs to be calculated based on gross profit.

Question 46

What is the Gross Profit for Alatorre Company?

Answer 46

(b) ## Footnote This is derived from net sales minus COGS.

Question 47

What is the total Operating Expenses for Eduardo Company?

Answer 47

$23,000 ## Footnote This includes all operating costs for the company.

Question 48

What is the Net Income for Alatorre Company?

Answer 48

(c) ## Footnote This is calculated as Gross Profit minus Operating Expenses.

Question 49

Fill in the blank: Cash Paid to Suppliers = COGS CY + _______ - _______ + _______ - _______.

Answer 49

Beginning Inventory, Ending Inventory, Beginning Accounts Payable, Ending Accounts Payable ## Footnote This formula helps to determine the actual cash paid to suppliers.