Lo 1-4 Flashcards
there are ___ types of business events
four (4)
(+) assets = (+) claims
asset source transaction
(+) (-) assets = claims
asset exchange transaction
asset (-) = claims (-)
asset use transaction
asset = claims (+) (-)
claim exchange transaction
issuing common stock is an example of
an asset source transaction
borrowing cash from a creditor is an example of
asset source transaction
paying cash to purchase land is an example of
asset exchange transaction
receiving cash for performing services is an
asset source transaction
in an asset source transaction, the benefit of providing goods and services is
receiving revenue
paying cash for operating expenses such as salaries, rent, and interest is an example of
asset use transaction
paying cash to pay dividends to owners is an example of
asset use transaction
the land that was purchased at XX is now appraised at a market value above XX is an example of
asset use transaction but does not affect the balancing equation.
Historical cost
historical cost for assets
requires that assets be accounted for in what you paid for not what theyre worth now.
financial statements
formal reports reflecting the accounting equation
historical cost is what you
paid for
market value is what you
estimate for
expenses are known as
sacrifices
net income is the difference between
revenues and expenses
if net income is positive
then is earnings or profit and can be given back to owners as dividends
accounting equation must always be
in balance
negative net income is
net loss
Sims Company received cash from the issue of common stock. This event is
A. an asset source transaction.
B. an asset use transaction.
C. an asset exchange transaction.
D. None of the answers describes this event.
A. An asset source transaction
Collecting cash from the issue of common stock causes assets (cash) and stockholders’ equity (common stock) to increase. Since the total amount of assets increases, this is an asset source transaction.
Sims Company received cash from the issue of a note payable to a bank. This event is
A. an asset source transaction.
B. an asset use transaction.
C. an asset exchange transaction.
D. None of the answers describes this event.
A. an asset source transaction
Collecting cash from the issue of a note payable causes assets (cash) and liabilities (notes payable) to increase. Since the total amount of assets increases, this is an asset source transaction.
Sims Company earned cash revenue by providing services to its customers. This event is
A. an asset source transaction.
B. an asset use transaction.
C. an asset exchange transaction.
D. None of the answers describes this event.
A. And asset source transaction
Earning cash revenue causes assets (cash) and stockholders’ equity (retained earnings) to increase. Since the total amount of assets increases, this is an asset source transaction.
Which of the following is an asset source event?
A. Received cash from the issue of stock
B. Borrowed cash from creditors
C. Earned cash revenue
D. All of the answers represent asset source transactions.
D. All of the above
Businesses can acquire assets from three sources including owners, creditors, and customers.
Simpson Company paid cash to purchase land. This event is
A. an asset source transaction.
B. an asset use transaction.
C. an asset exchange transaction.
D. None of the answers describes this event.
C. An asset exchange transaction
Paying cash to purchase land causes an increase in one asset account (land) and a decrease in another asset account (cash). The total amount of assets is not affected. Therefore, the cash purchase of land is an asset exchange transaction.
Barnett Company paid a cash dividend. This event is
A. an asset source transaction.
B. an asset use transaction.
C. an asset exchange transaction.
D. None of the answers describes this event.
B. an asset use transaction
Paying a cash dividend causes assets (cash) to decrease and stockholders’ equity (retained earnings) to decrease. Since total assets decrease, this is an asset use transaction.
Kay Company recorded a transaction that had the following effects on its financial statements.
Balance Sheet
Assets (-+) = Liab. (N/A) + Equity (N/A)
Which of the following types of transactions could have caused these effects?
A. An asset source transaction.
B. An asset use transaction.
C. An asset exchange transaction.
D. None of the answers describes a transaction that could have caused these effects.
C. An asset exchange transaction.
The information in the accounting equation indicates that one asset account increased while another asset account decreased. Since total liabilities and stockholders’ equity did not change, total assets did not change. Therefore, these effects were caused by an asset exchange event. An example would be paying cash to purchase land.
Which of the following models accurately depicts the effects of an asset use transaction on the accounting equation?
Balance Sheet Assets = Liab. + Equity A.+ = + NA B. − = NA − C.+ = NA + D. NA = + −
A. Option A
B. Option B
C. Option C
D. Option D
B. Option B
Asset use transactions decrease the total amount of assets and the total amount of claims. Since this answer is the only one that shows a decrease in total assets, it represents the asset use transaction. Also, note that this answer shows an increase in expenses, and a decrease in net income. An example of an asset use transaction that could cause these effects is a cash payment for expenses.
