Exam 1, Chapters 2, 3, 4 - Concepts Flashcards
(45 cards)
List:
Types of Journal Entries
- Daily Journal Entry
2. Adjusting Journal Entries
List:
Steps in the Account Cycle (in order)
- Transaction Analysis
- Journal Entires (?)
- Financial Statement Preparation
Answer:
For each transaction, the analysis should tell you if the transaction ___(a)___ while at the same time ___(b)___, or does it ___(c)___ while at the same time ___(d)___
a. increase asset
b. increase liability
c. increase asset
d. decrease another asset
Answer:
We use a ___(a)___ to practice/perform transaction analysis
a. spreadsheet
Answer:
If you perform services, you earn ______
revenue
Answer:
Revenue is part of your ___(a)__ which is part of your ___(b)___. If you earn revenue it is recorded under the ___(c)___ column of your transaction analysis
a. net income
b. retained earnings
c. revenue
Answer:
Revenue from services performed on account grants you ___(a)___ and it is recorded on the ___(b)___ column of the transaction analysis
a. title to receive cash in the future
b. accounts receivable
Answer:
In transaction analysis, we study the effect of ___(a)___ on ___(b)___
a. each transaction
b. different accounts
Define:
Debit/Credit Model
Anything on the left hand side is an asset and any asset increases your debit. Anything on the right hand side is a liability or shareholder equity and any increase on the right hand side increases your credit.
Answer:
In the debit/credit model you don’t write numbers as ___(a)___ or ___(b)___ because if you debit ___(c)___, there is a/an ___(d)___, and when you credit ___(e)___, there is a/an ___(f)___
a. positive
b. negative
c. any type of asset
d. increase that type of asset
e. a common stock or any type of liability or shareholders’ equity
f. increase in liability or shareholders’ equity
Answer:
Using the debit/credit model: you purchase land for $20,000, what happens with the accounting equation?
You debit land (increase asset - land)
You credit cash with $20,000
Answer:
Using the debit/credit model: What happens when you borrow $9,000 cash from the bank?
You borrowed cash, so cash increases, cash is an asset so you debit $9,000
You borrowed $9,000, which is a notes payable (liability), so you credit $9,000
Define:
Double-entry rule
In the credit/debit model, any action on one side of the equation will have an equal transaction on the other side. These can be increases or decreases - both sides can increase/decrease simultaneously, or one can increase while the other decreases, but the amount will be the same
Any increase in asset you debit
Any decrease in asset you credit
Any increase in liability or equity you credit
Any decrease in liability or equity you debit
Answer:
Using the debit/credit model: What happens when you provide services on account for $8,000
You have an accounts receivable for $8,000, which is an asset, so you debit $8,000
You have service revenue of $8,000, which increases net income, so increase in retained earnings. Retained earnings is part of shareholders’ equity, so you credit $8,000
Answer:
Explain how/why service revenue is something we credit in the credit/debit model
Service revenue increases net income, an increase in net income increases retained earnings, and retained earnings are part of shareholders’ equity, which is on the right side of the equation and is a credit
Answer:
Any revenue increase will increase ___(a)___, so we ___(b)___ according to the double-entry rule
a. shareholders’ equity
b. credit
Answer:
In accordance with the debit/credit model:
Any increase in asset you ___(a)___
Any decrease in asset you ___(b)___
Any increase in liability or equity you ___(c)___
Any decrease in liability or equity you ___(d)___
a. debit
b. credit
c. credit
d. debit
Answer:
Using the debit/credit model: What happens when you pay $5,500 cash for expenses?
Cash decreases $5,500, which is an asset decrease, so we credit cash $5,500
An expense decreases net income, which decreases retained earnings, which decreases stockholders’ equity, so we debit $5,500 (decrease in equity is a debit)
Answer:
Explain why we debit an expense in the debit/credit model
An expense decreases net income, which decreases retained earnings, which decreases stockholders’ equity, so we debit the amount of the expense
Decrease in equity is a debit
Answer:
Using the debit/credit model: You pay dividends to owners
You pay dividends in cash, so cash decreases, cash is an asset, so you credit the decrease in cash
Dividends decrease shareholders’ equity, decrease in equity in amount of dividends paid, so you debit
Answer:
Dividends are a/an ___(a)___, so it is not shown on the ___(b)___, it is not a/an ___(c)___.
a. contra equity
b. income statement
c. expense
Answer:
Why do we debit dividends?
Any dividends will decrease retained earnings, which are part of shareholders’ equity, so equity decreases. Any decrease in equity is a debit
Answer:
Dividends are paid directly ___(a)___ instead of ___(b)___, so it is not included on the ___(c)___
a. out of net income
b. within net income
c. income statement
Answer:
Dividends are a ___(a)___ shareholders’ equity, which will ___(b)___ retained earnings because you only want the ___(c)___
a. decrease in
b. reduce
c. company to pay dividends
