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ACT 230 - Principles of Accounting > Exam 1 > Flashcards

Exam 1 Flashcards

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1
Q

Is the following an asset, liability, or stockholder’s equity?

Retained earnings

A

Liability

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2
Q

Is the following an asset, liability, or stockholder’s equity?

Service revenue

A

Stockholder’s equity

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3
Q

Is the following an asset, liability, or stockholder’s equity?

Insurance expense

A

Stockholder’s equity

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4
Q

Is the following an asset, liability, or stockholder’s equity?

Equipment

A

Asset

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5
Q

Is the following an asset, liability, or stockholder’s equity?

Prepaid rent

A

Asset

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6
Q

Is the following an asset, liability, or stockholder’s equity?

Dividends

A

Stockholder’s equity

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7
Q

Is the following an asset, liability, or stockholder’s equity?

Common stock

A

Stockholder’s equity

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8
Q

Is the following an asset, liability, or stockholder’s equity?

Interest expense

A

Asset

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9
Q

Is the following an asset, liability, or stockholder’s equity?

Accounts payable

A

Liability

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10
Q

Is the following an asset, liability, or stockholder’s equity?

Supplies expense

A

Liability

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11
Q

Is the following an asset, liability, or stockholder’s equity?

Salaries and wages payable

A

Liability

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12
Q

Is the following an asset, liability, or stockholder’s equity?

Supplies

A

Asset

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13
Q

Is the following an asset, liability, or stockholder’s equity?

Cash

A

Asset

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14
Q

Is the following an asset, liability, or stockholder’s equity?

Accounts receivable

A

Asset

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15
Q

Is the following an asset, liability, or stockholder’s equity?

Notes payable

A

Liability

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16
Q

Is the following an asset, liability, or stockholder’s equity?

Unearned service revenue

A

Liability

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17
Q

Is the following an asset, liability, or stockholder’s equity?

Salaries and wages expense

A

Stockholder’s equity

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18
Q

Is the following an asset, liability, or stockholder’s equity?

Utility’s expense

A

Stockholder’s equity

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19
Q

Is the following an asset, liability, or stockholder’s equity?

Rent expense

A

Stockholder’s equity

20
Q

Is the following an asset, liability, or stockholder’s equity?

Prepaid insurance

A

Asset

21
Q

Is the following an asset, liability, or stockholder’s equity?

Interest payable

A

Liability

22
Q

Which one of the following is included in current assets?

A) Accounts receivable
B) Taxes payable
C) Automobiles
D) Common stock

A

A

A) Accounts receivable is included in current assets as it represents amount owed by customers that are expected to be paid within one year of the operating cycle

23
Q

Assets are recorded in the balance sheet in order of:

A) Market value
B) Historic value
C) Liquidity
D) Maturity

A

C

C) Liquidity refers to the ease of conversation to cash. Current assets will be used during the current operating cycle (starting with cash, short-term investments, accounts receivables, inventories, and other assets). Market value and historic value refer to the measurement of assets. Maturity refers to the order in which liabilities are recorded in the balance sheet.

24
Q

Which one of the following is not a current liability?

A) Taxes payable
B) Accounts payable
C) Wages payable
D) Wage expense

A

D

D) Wage expense. Wages expense is an income statement account, not a balance sheet account. Current liabilities are amounts owed and due to be repaid within one year or within operating cycle.

25
Q

Current assets are usually listed in the order of their:

A) Size; smallest to largest
B) Liquidity; most liquid to least liquid
C) Size; largest to smallest
D) Lack of liquidity; least liquid to most liquid

A

B

B) Liquidity; most liquid to least liquid. Current assets are listed on a classified balance sheet in the order of their expected liquidity. Liquidity is determined by the ability of an asset to be readily converted into cash.

26
Q

Current assets are cash and other assets that will be converted into cash or used up within

A) One year
B) The normal operating cycle of the business or one year, whichever is longer
C) The normal operating cycle of the business
D) The normal operating cycle of the business or one year, whichever is shorter

A

Answer: B

B) The normal operating cycle of the business or one year, whichever is longer. Current assets are cash and other assets that will be converted into cash or used up within the normal operating cycle of the business or one year, whichever is longer. The normal operating cycle of a business is the average period between the use of cash to deliver a service or to buy goods for resale and the subsequent collection of cash from customers who purchase those services or products.

27
Q

Which of the following accounts would not be classified as a current asset?

A) Accounts receivable
B) Prepaid rent
C) Supplies
D) Unearned service revenue

A

D

D) Unearned service revenue

28
Q

The primary components of the stockholders’ equity section of a balance sheet for a corporation are:

A) A capital amount for each stockholder in the corporation
B) Net income and retained earnings
C) Common stock and dividends
D) Common stock and retained earnings

A

D

D) Common stock and retained earnings. Stockholders’ equity is the residual ownership interest in the assets of a business after its liabilities have been paid off, The stockholders; equity of a corporation is divided into two main categories: amounts invested by stockholders (common stock) and the cumulative net income of a business that has not yet been distributed to its stockholders as a dividend (retained earnings).

29
Q

The current ratio is computed as:

A) Current liabilities divided by current assets
B) Current assets divided by current liabilities
C) Current assets minus current liabilities
D) Current assets divided by total assets

A

B

B) Current assets divided by current liabilities. The current ratio of a company is its current assets divided by its current liabilities. The current ratio is a widely used measure of a company’s liquidity. A current ratio greater than one implies that a company has more cash and current assets than needed to pay off its current obligations and a ratio of less than one implies the opposite.

30
Q

Which of the following is not shown in the statement of stockholder’s equity?

A) Unearned revenue
B) Dividends
C) Retained earnings
D) Common stock

A

A

A) Unearned revenue. Unearned revenue is a liability that represents amounts collected in advance from customers. It is an obligation that must be satisfied with a future cash payment or delivery of goods or services.

31
Q

Which one of the following does not impact retained earnings directly?

A) Service revenue
B) Gas expense
C) Dividends
D) Stock issuances

A

D

D) Stock issuances. Stock issuances impact stockholders’ equity through the common stock account

32
Q

True or False?

Debit = increase
Credit = decrease

A

True

33
Q

What are the 9 steps of the accounts cycle?

A
  1. Identify the recordable transactons
  2. Jounalize
  3. Post to ledgers
  4. Trial balance
  5. Adjusting entries are made and posted to ledgers
  6. Adjusted trial balance
  7. Financial statements
  8. Closing entries and post to ledgers
  9. Post closing trial balance
34
Q

What is the first step of the accounting cycle, and what does it mean?

A
  1. Identify the recordable transactions

Identify which area of the economy the transaction affects (asset, liability, or stockholder’s equity.)

35
Q

What is the second step of the accounting cycle, and what does it mean?

A
  1. Journalize.

Enter the transaction data in a journal in chronological order.

36
Q

What is the third step of the accounting cycle, and what does it mean?

A
  1. Post to ledgers

Transferring the amount from the journal into the ledger account

37
Q

What is the fourth step of the accounting cycle, and what does it mean?

A
  1. Trial balance

A listing of all accounts from the general ledger with their respective debit or credit balances. Prepared at the end of the accounting period, serves as a check that debits = credits, aids in the preparation of the financial statements

38
Q

What is the fifth step of the accounting cycle, and what does it mean?

A
  1. Adjusting entries are made and posted to ledgers

Make sure that numbers match

39
Q

What is the sixth step of the accounting cycle, and what does it mean?

A
  1. Adjusted trial balance

Make sure that debit = credit

40
Q

What is the seventh step of the accounting cycle, and what does it mean?

A
  1. Financial statements

Prepare the statements in the following order:1)Income statements (2)Statement of stockholder’s equity (3)Balance sheet (4)Statement of cash flows

41
Q

How to prepare income statement?

A

Income statement needs name of bank account, state its an income statement, what date the info is “Sep. 1-Sep. 30, 2023”

Includes:
revenue (+)
advertisement exp. (-)
Rent. (-)
Salaries. (-)
=net income

42
Q

How to prepare statement of stockholder’s equity

A

Needs bank account, needs name of statement, needs date

Beginning stockerholder’s equity: 0
Common stock: 15,000
Divident: 600 (-)
Revenue and expenses / net income:

43
Q

How to prepare balance sheet?

A

Presents the main categories of the basic accounting equation—Assets, Liabilities and Stockholder’s Equity.

44
Q

How to prepare statement of cash flow?

A

Provides information on the company’s change in cash over a period.
Sources of cash
Uses of cash

45
Q
A

ACT 230 - Principles of Accounting (8 decks)

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