Fundamental Accounting Principles CH2

Question 1

Source Documents

Answer 1

Identify and describe transactions and events entering the accounting system
EX. receipts, checks, purchase orders

Question 2

Account

Answer 2

a record of increases and decreases in a specific asset, liability, equity, revenue, or expense

Question 3

General Ledger

Answer 3

a record of all accounts used by a company

Question 4

Unclassified Balance Sheet

Answer 4

broadly groups accounts into assets, liabilities, and equity

Question 5

Accounts Receivable

Answer 5

held by a seller are promises of payment from customers to sellers.
* reduced when customer pays and then cash is increased.

Question 6

Notes Receivable

Answer 6

a promissory note, written promise of another entity to pay a certain sum of money on a specific future date.

Question 7

Debtors

Answer 7

Assets from prepayments of future expenses
* move from prepayments to expenses when expenses occur *ie. when supplies are used
EX. prepaid meal plays remain in prepayment until a meal is purchased

Question 8

Supplies Account

Answer 8

Assets until they are used.
* when they are used their costs are reported as expenses.
IE office supplies like paper

Question 9

Equipment accounts

Answer 9

Equipment is a asset. when it is used it wears down and is recorded as an expense.

the expense is called depreciation.

Question 10

Building Accounts

Answer 10

Stores, offices, warehouses are assets because they provide future benefits. When the building is used it depreciates and the depreciation is recorded as an expense

Question 11

Land

Answer 11

Cost of land is recorded in a land account

Question 12

Types Asset Accounts

Answer 12

Cash
Accounts Receivable
Note Receivable
Prepaid Accounts
Supplies Accounts
Equipment Accounts 
Building Accounts
Land

Question 13

Types of Liability accounts

Answer 13

Obligations to transfer assets or provides products or services to others.
Accounts Payable
Note Payable
Unearned revenue accounts 
Accrued Liabilities

Question 14

Unearned Revenue Account

Answer 14

Liability that is settled in the future when a company delivers its products or services.
Magazine subscriptions collected in advance
Rent collected in advance
Season ticket sales by sports teams

Question 15

Accrued Laibilities

Answer 15

Accrued liabilities owned that are not yet paid
Wages payable - worker’s pay
Taxes Payable
Interest Payable

Question 16

Equity Accounts

Answer 16

Owner’s claim on company assets

Equity = Owner’s capital - Owner’s withdrawals + Revenues - Expenses

Question 17

Intangible Assets

Answer 17

Assets that do not have physical existence.
Patents
Logos
Brands
Brand Loyalty

Question 18

Owner Capital

Answer 18

When an owner invests in a company it increases both assets and equity

Question 19

Owner Withdrawals

Answer 19

Assets for personal use

* decreases both assets and total equity

Question 20

Revenue Accounts

Answer 20

Amounts received from sales of products and services to customers.
*remove always increases equity

Question 21

Expense Accounts

Answer 21

amounts used for costs of providing products and services are recorded in expenses accounts
*always decrease equity

Question 22

Double-Entry system

Answer 22

Double entry accounting demands the accounting equation remain in balance, which means that for each transaction:

• at least two accounts are involved, with at least one debit and one credit.
• Total amount debited must equal total amount credited.
• net increases on one side have equal effect on the other side.

Question 23

Normal balance sheet credit accounts (Cr)

Answer 23

Owner, Capital
Accounts Payable
Interest Payable
Unearned Revenue

Question 24

Normal balance sheet debit accounts (Dr)

Answer 24

Prepaid Rent
Note Receivable
Accounts Receivable
Equipment
Land
Prepaid Insurance
Owner, Withdrawals
Utilities Expense

Question 25

Journal

Answer 25

complete record of each transaction in one place

Question 26

Income Statement

Answer 26

reports revenues earned minus expenses

Question 27

Statement of Owner’s Equity

Answer 27

reports how equity changes over the reporting period

Question 28

Balance Sheet

Answer 28

reports the financial position of a company at a point in time