Chapter 3

Question 1

accounting transactions

Answer 1

recordable events

Question 2

basic accounting equation

Answer 2

assets= stockholders equity + liabilities

must always balance

Question 3

when stock is issued

Answer 3

assets and stockholders equity goes up

Question 4

note issued in exchange for cash

Answer 4

cash and liabilities go up

Question 5

purchased equip with cash

Answer 5

-500 on cash but +500 on equip. assets stayed the same

Question 6

cash in advance from customer

Answer 6

+1200 assets, +1200 liabilities

Question 7

service provided for cash

Answer 7

+10,000 assets, +10,000 rev

Question 8

basic equation

Answer 8

assets= liabilities + stockholders equity (common stock and retained earnings) (retained earnigs=revenues-expenses-dividends)

Question 9

assets in relation to debit and credits

Answer 9

debits= increase assets/ decrease liabilities
credits= decrease assets/ increase liabilities

Question 10

common stock (db/cr)

Answer 10

debits decrease common stock/credits increase common stock. because when cash is invested in the business, cash is debited and common stock is credited

Question 11

retained earnings (db/cr)

Answer 11

decreased by debits/increased by credits.

Question 12

dividends (db/cr)

Answer 12

debit for increase/ credit for decrease. they result in a reduction of the stockholders claim on retained earnings

Question 13

expenses (db/cr)

Answer 13

debits increase expenses/decrease expenses.

Question 14

revenues (db/cr)

Answer 14

debits decrease revenue/credits increase revenue

Question 15

review page 116

Answer 15

sum of debits and credits

Question 16

general journal

Answer 16

1. tells complete effect of transaction 2. chronological order 3. helps prevent errors because debits and credits are easily visible

Question 17

posting

Answer 17

this process accumulates the effects of journalized transactions in the individual accounts.

Question 18

trial balance

Answer 18

lists accounts and their balances at a given time. they prove the mathematical equality of debits and credits after posting. it may also uncover errors in journalizing and posting. useful when preparing financial statements. errors may still occur