W.1-9

Question 1

Expenses increase owner’s equity.

Answer 1

False

Question 2

Gross profit minus expenses equals:

Answer 2

Net profit

Question 3

Which of the following is not factored into computing Owner’s Equity in the expanded Accounting equation:

Answer 3

Gross profit

Question 4

The costs of doing business are termed:

Answer 4

Expenses

Question 5

John Smith takes $5,000.00 back from his business to repay himself some of the money he loaned to his business. Which account would be affected:

Answer 5

Withdrawal

Question 6

The expanded accounting equation is: Assets = Liabilities + Owner’s Equity

Answer 6

False

Question 7

The basic accounting equation is: Assets = Liabilities + Owner’s Equity

Answer 7

True

Question 8

Another name for ownership is:

Answer 8

Equity

Question 9

Account receivables are:

Answer 9

Assets

Question 10

Revenue after deducting costs of goods sold is called:

Answer 10

Gross Profit

Question 11

Net Loss is defined as the amount remaining when revenue exceeds expenses.

Answer 11

False (expenses exceed revenue)

Question 12

A firm has $15,000.00 in liabilities and $22,500.00 in assets. In order to compute the Basic Accounting Equation, what must Owner’s Equity be?

Answer 12

7,500.00

Question 13

John Smith gives his business $10,000.00 from his own personal funds. Which of the following accounts does this transaction affect?

Answer 13

Capital

Question 14

Which of the following is an example of a liability:

Answer 14

Accounts payable

Question 15

Cash is considered to be:

Answer 15

Asset

Question 16

The left side of a standard T account is

Answer 16

Debit Side

Question 17

Increases to the Cash Account are recorded as:

Answer 17

Debits

Question 18

Monies that you or your business owe to another are called:

Answer 18

Account Payables

Question 19

This account should have a Debit balance associated with it:

Answer 19

Expenses

Question 20

Owner’s Equity is comprised of Assets + Liabilities + Revenue - Expenses

Answer 20

False (Revenue- Expenses+ Capital)

Question 21

The cash account has a Debit Balance of $ 10,000.00 and a Credit Balance of $ 4,000.00. The account balance is:

Answer 21

6,000.00 Dr

Question 22

The term given to recording an entry when one debit and one credit are affected is called:

Answer 22

transposition

Question 23

This statement proves the equality of debits to credits:

Answer 23

Trial Balance

Question 24

An account balance is:

Answer 24

the total of all debits and credits

Question 25

Which of the following is an asset:

Answer 25

Building

Question 26

From the following select the group whose accounts should have a Credit balance associated with them:

Answer 26

liabilities, revenue and capital

Question 27

When the Revenue Account is credited, that means:

Answer 27

we increased revenue

Question 28

The first step in preparing a trial balance is to:

Answer 28

pencil foot each account

Question 29

If the Cash Account has a debit balance, that means:

Answer 29

the cash account has money in it

Question 30

The difference between an account’s debits and credits is called:

Answer 30

account balance

Question 31

The abbreviation for debit is DT.

Answer 31

False

Question 32

Decreases in owner’s equity caused by withdrawals are debited to a Withdrawals account.

Answer 32

True

Question 33

Which account below should NOT have a credit balance?

Answer 33

Expenses

Question 34

Which of the following is an account payable:

Answer 34

Mortgage Payable

Question 35

Which of the following accounts is NOT a part of Owner’s Equity:

Answer 35

Cash

Question 36

The Cash Account should have a ____________account balance

Answer 36

Debit

Question 37

Assets = Liabilities + Owner’s Equity is:

Answer 37

Basic accounting equation

Question 38

The Revenue Account should have a _______ account balance

Answer 38

Credit

Question 39

From the following select the group whose accounts should have a Debit balance associated with them:

Answer 39

Cash, withdrawals and expenses

Question 40

The expanded accounting equation is Assets = Liabilities - Owner’s Equity

Answer 40

False

Question 41

Jennie Hoffmann received a $5,500.00 check for legal services provided. Which accounts are affected in this transaction?

Answer 41

Cash / Revenue

Question 42

Ms. Hoffman goes to the post office and mails a statement to a client that has an Account Receivable of $5,000. Which accounts are affected?

Answer 42

Postage Expense/Cash

Question 43

Mrs. Hoffman received a check for $2,000.00 from a client as partial payment towards their outstanding bill. Which accounts are affected in this transaction?

Answer 43

Cash / Account Receivable

Question 44

Increases to revenue increase owner’s equity, and increases to expenses also increase owner’s equity.

Answer 44

False

Question 45

Ms. Hoffman purchased a new all-in-one scanner/copier/machine for her office. Which accounts are affected?

Answer 45

Supplies/Cash

Question 46

Mr. Funky decides he wants to buy a $125,000-new hearse. His business checking account has only $50,000. He decides to take some of his personal money and writes a check to Funky Funeral Home for $75,000. His deposit of this check is considered to be a/an (capital). He then runs to Custom Coach Company, and buys the hearse. The hearse is considered to be a/an (investment). He pays $75,000 in cash and finances $50,000 with Custom Coach Finance Company. The $50,000 is considered to be a/an Term 3
(expense). On his way back to the funeral home, he decides to top off the gas tank with fuel. The fuel purchase is considered to be a/an (expense).

Answer 46

Expense

Question 47

Credits are listed after debits in each transaction.

Answer 47

True

Question 48

Jennie Hoffmann invested $20,000.00 into her legal practice. Which accounts are affected in this transaction?

Answer 48

Withdrawals / Cash

Question 49

Which of the following in not to be considered an asset?

Answer 49

Accounts Payable

Question 50

Ms. Hoffmann paid $1,000.00 for July’s rent. Which accounts are affected in this transaction?

Answer 50

Rent Expense / Cash

Question 51

Ms. Hoffmann withdrew $500.00 from her business account. Which accounts are affected in this transaction?

Answer 51

Withdrawal / Cash

Question 52

Increases in expenses, ____________ owner’s equity:

Answer 52

decrease

Question 53

Regarding the following transaction:
May 5, received 600.00 from ABC Company for work performed on April 23 and 24. The two accounts that are affected are Cash and Accounts Receivable.

Answer 53

True

Question 54

Folly family wants to return an urn (they have not yet filled) that they purchased from Friendly Funeral Home. The returned urn (and decreased revenue) ___________ owner’s equity.

Answer 54

decrease

Question 55

Regarding the following transaction:
May 9, paid wages to a part time worker of 200.00. The first entry line in the General Journal, not including the year/date of the transaction nor the name of the account being affected, would be a debit to Wages.

Answer 55

True

Question 56

Regarding the following transaction:

May 18, bought 1,000 worth of goods from Jones Inc. on account. You have incurred an accounts payable.

Answer 56

True

Question 57

Given the following transaction:
May 5, received 600.00 from ABC Company for work performed on April 23 and 24. Which gets entered first into the General Journal?

Answer 57

the increase in cash

Question 58

Given the following transactions:
1 May 10, paid Joe R. Inc 2,000.00 for supplies that we purchased on May 6.
2 May 5 received 600.00 from ABC Company for work performed on April 23 and 24.
3 May 2 paid 50.00 in cash for gas for delivery truck
4 May 18 brought 1,000 worth of goods from Jones Inc. on account
5 May 9 paid wages to part time worker of 200.00
In what order would these transactions be entered into the General Journal? ( Keep in mind YOU are the owner of the company and have to record the transactions. )

Answer 58

3, 2, 5, 1, 4

Question 59

Regarding the following transaction:
May 10, paid Joe R. Inc 2,000.00 for supplies that were purchased on May 6. The two accounts that are affected are Revenue and Accounts Receivable.

Answer 59

False

Question 60

Regarding the following transaction:

May 9, paid wages to part time worker of 200.00. You have incurred an accounts payable.

Answer 60

False

Question 61

Regarding the following transaction:

May 10, paid Joe R. Inc 2,000.00 for supplies that were purchased on May 6. Your Cash Account was decreased.

Answer 61

True

Question 62

What number on the Chart of Accounts would be given to: Capital

Answer 62

300 - 399

Question 63

What number on the Chart of Accounts would be given to: Revenue

Answer 63

400 - 499

Question 64

Capital withdrawal decreases owner’s equity.

Answer 64

True

Question 65

Owner’s equity (as learned in the Expanded Accounting Equation) consists of Capital In, Withdrawals, Revenue and Liabilities.

Answer 65

False

Question 66

What number on the Chart of Accounts would be given to: Withdrawals

Answer 66

100 - 199

Question 67

What number on the Chart of Accounts would be given to: Machinery

Answer 67

100 - 199

Question 68

What number on the Chart of Accounts would be given to: Accounts Receivable

Answer 68

100 - 199

Question 69

What number on the Chart of Accounts would be given to: Cash

Answer 69

100 - 199

Question 70

What number on the Chart of Accounts would be given to: Wages Expense

Answer 70

500 - 599

Question 71

What number on the Chart of Accounts would be given to: Postage Expense

Answer 71

500 - 599

Question 72

What number on the Chart of Accounts would be given to: Advertising Expenses

Answer 72

500 - 599

Question 73

What number on the Chart of Accounts would be given to: Accounts Payable

Answer 73

200 - 299

Question 74

Account

Answer 74

a device for recording the changes (increases or decreases) in the fundamental accounting elements. Record showing increases and decreases in a owner’s equity item.

Question 75

Accounting

Answer 75

recording, classifying, and summarizing financial information; interpreting the result.

Question 76

Accounting Equity

Answer 76

Assets= Liabilities+Owners Equity

Question 77

Balance Sheet

Answer 77

itemized list of assets, liabilities, and owners equity, showing financial position of a business on a certain date. Provides a financial snapshot of the business on a specific date.

Question 78

Business Transactions

Answer 78

business activities involving the exchange of on item of value for another.

Question 79

Debit side

Answer 79

left side of an account

Question 80

Debiting

Answer 80

entering an amount on the left side of an account.

Question 81

Credit side

Answer 81

right side of an account.

Question 82

Crediting

Answer 82

entering an amount on the right side of an account.

Question 83

Assets accounts

Answer 83

record increases as debits. Record decreases as credit.

Question 84

Source documents

Answer 84

paper evidence of a transaction.

Question 85

Account balance

Answer 85

difference between debits and total credits in an account.

Question 86

Pencil footing

Answer 86

total or balance written in small pencil figures.

Question 87

Liabilities and owners equity accounts

Answer 87

record increases as credits, record decrease as debits

Question 88

General Ledger

Answer 88

entire group of accounts for a business’s assets, liabilities, and owners equity.

Question 89

Proprietor

Answer 89

owner of a business. A business may take one of three legal forms: sole proprietorship, a partnership, or a corporation.

Question 90

Assets

Answer 90

Property that a business owns or posses that are worth a specific dollar value. Examples include automobiles, cash.

Question 91

Investment

Answer 91

assets used in the business that were provided by the owner.

Question 92

Creditors

Answer 92

companies and individuals to whom money is owned.

Question 93

Basic Accounting Equation:

Answer 93

Assets = Liabilities + Owner’s Equity

Question 94

Revenue

Answer 94

inflow of assets from business operations, usually from providing services or selling goods. Revenue increase equity.

Question 95

Account Receivables-

Answer 95

amounts customers have promised to pay in the future for services or goods bought on credit. Example: furniture and fixtures.

Question 96

Liabilities

Answer 96

are debts that are owed to another for goods and/or services received or used but not yet paid for. Debits owned by a business. Other liabilities include notes payable, dividends payable, and salaries payable.

Question 97

Account Payable

Answer 97

short term debts owned for credit purchases. Examples are mortgages, car loans

Question 98

Owner’s Equity

Answer 98

how much a business is worth in dollar value. Financial interest of the owner in a business. Owner’s Equity is comprised of Revenue, minus expenses plus capital.

Question 99

Equity

Answer 99

equates to ownership, i.e. how much worth or value something that you posses actually has.

Question 100

Revenue

Answer 100

is the money that your business takes in from the sale of goods or services rendered. Monies earned by services are termed fees. Lawyers and doctors earn fees, while merchandising businesses earn revenues (income).

Question 101

Expenses

Answer 101

are the costs associated with doing business. Expenses are incurred in order for a business to either attract new business, increase revenue, or simply to do business. Expenses decrease equity.

Question 102

Net Income-

Answer 102

amount remaining when revenue exceeds expenses.

Example: If you made $1,000.00 for the week and had $500.00 in expenses, your net profit was $500.00

Question 103

NET LOSS-

Answer 103

amount remaining when expenses exceed revenue.

Example: If your revenue for the week was $500.00 and your expenses were $1,000.00 the net loss would have been $500.00

Question 104

Gross Profit

Answer 104

Revenue - Cost of Goods Sold

Example: $4,000 Gross Profit - $3,000 Expenses (phone, utilities, etc…) = $1,000 Net Profit

Question 105

Net Profit(or Net Loss)

Answer 105

Gross Profit - Expenses

Example: $4,000 Gross Profit - $3,000 Expenses (phone, utilities, etc…) = $1,000 Net Profit

Question 106

Withdrawals

Answer 106

Money that the owner takes back out of the business, or monies that the owners pay themselves back from the business, are called Withdrawals ( sometimes this account is referred to as the Drawing Account).

Question 107

The Expanded Accounting Equation

Answer 107

Assets = Liabilities + Capital In- Withdrawals + Revenue - Expenses

Question 108

Capital

Answer 108

the money invested by you the owner into the business

Question 109

Capital account

Answer 109

use for changes in the owner’s investment.

Question 110

Withdrawals account

Answer 110

use for personal withdrawals by the owner.

Question 111

Revenue accounts

Answer 111

use for revenue earned by the business

Question 112

Expense account

Answer 112

use for expenses incurred by the business.

Question 113

Preparing a Trail balance

Answer 113

checking equality of total debits and total credits in ledger accounts.

Question 114

Steps in preparing a trail balance:

Answer 114

• Find balances of account
• List accounts and balances
• Add balances to see if total debits and total credits are equal

Question 115

Accounting period

Answer 115

period of time for which financial results of business operations are summarized

Question 116

Fiscal Year

Answer 116

any accounting period of twelve consecutive months.

Question 117

Income statement

Answer 117

report of revenue, expenses, and net income or net loss, showing results of business operations for a period of time.

Question 118

Statement of owners equity

Answer 118

report of changes in owner’s equity during a period of time.

Question 119

Journal

Answer 119

chronological record of business operations.

Question 120

Chronological order

Answer 120

order in which transactions happen day by day.

Question 121

Journalizing

Answer 121

recording transactions in a journal.

Question 122

General journal

Answer 122

a record in which all business transactions can be entered as they occur. Is referred to as the book of original entry.

Question 123

Double entry accounting

Answer 123

the system of recording at least on debit and credit for each transaction.

Question 124

Chart of accounts

Answer 124

a list of all the accounts of a business arranged and numbered according to classification.

Question 125

Opening entry

Answer 125

journal entry that starts a new set of financial records.

Question 126

Compound entry

Answer 126

journal entry with more than one debit or credit.

Question 127

Ledger

Answer 127

record that contains accounts.

Question 128

Posting

Answer 128

transferring information from the journal to the ledger.

Question 129

Balance ledger form

Answer 129

form of ledger account that always shows the account balance.

Question 130

Worksheet

Answer 130

from used to compute the net income or the net loss and to plan the preparation of financial statement.

Question 131

Report form balance sheet

Answer 131

balance sheet in which liabilities and owner’s equity are placed under assets.

Question 132

Account form balance sheet

Answer 132

balance sheet in which assets are on the left side and liabilities and owner’s equity are on the right side.

Question 133

Rules for Debiting and Crediting:

Answer 133

• Increases to Assets and Expenses are Debits
• Increase to Liabilities, Revenue and Capital are Credits
• Decrease to assets and Expenses are Credits
• Decrease to Liabilities, revenue and Capital are Debits

Question 134

Double Entry

Answer 134

Every transaction in accounting requires that at least one debit and one credit be affected.

Question 135

Dr

Answer 135

Debit

Question 136

Cr

Answer 136

Credit

Question 137

Debit or Credit?

Answer 137

• Increases to Assets and Expenses are Debits
• Increases to Liabilities, Capital and Revenue are Credits
• Decreases to Assets and Expenses are Credits
• Decreases to Liabilities, Capital and Revenue are Debits

Question 138

ASSETS:

Answer 138

• Cash
• Accounts Receivables
• Furniture and office equipment
• Buildings (not the land just the physical building)
• Inventory (stock of goods available for resale)
• Automobiles
• Machinery

Question 139

Cash

Answer 139

includes: Cash, Checks, and Credit Card Sales

Question 140

Accounts Receivables

Answer 140

(monies we are owed from others for merchandise we sold but have not yet been paid for or services provided but not yet fully paid for)

Question 141

LIABILITIES:

Answer 141

• Accounts Payable
• Mortgage Payable Sales
• Tax Payable

Question 142

CAPITAL:

Answer 142

• Monies invested by owner

- Monies withdrawn by owner

Question 143

REVENUE:

Answer 143

• Sales/Income/Fees
• Monies that a professional earns i.e., a doctor, lawyer etc. are termed FEES, monies that a sales business earns are termed INCOME/SALES/REVENUE.

Question 144

EXPENSES:

Answer 144

• Postage
• Advertising
• Wages
• Overtime
• Utilities
• Cost of goods purchased for resale ( those items we buy to resell to the public at a increased cost, resulting in a profit for that business)

Question 145

The primary rule of accounting is?

Answer 145

Debits must equal Credits

Question 146

Common Errors:

Answer 146

• If the debits do not equal the credits something is wrong.

One of the following could have happened:

• an entry was missed.
• an entry was put in the wrong column.
• the numbers were reversed, which is called TRANSPOSITION.

Question 147

Account Balance

Answer 147

The first step in making sure our entries are correct is to do an account balance.

With an account balance we simply add all the debits and all the credits of a particular account and subtract the lesser from the greater.

Question 148

PENCIL FOOTING

Answer 148

It is the first step performed when preparing a trial balance.

The balance of the account is then written in small numbers at the bottom of the column in pencil.

Question 149

Trial Balance

Answer 149

In order to prove the equality of debits to credits we perform or prepare a TRIAL BALANCE.
And a TRIAL BALANCE simply proves the equality of debits to credits.

Step 1
The first step in preparing a Trial Balance is to compute the account balance of each account, which was just explained on the previous page, (Pencil Footing)

Step 2
The second step is List each account and its balance individually

Step 3
The third step is to add the balances and verify that total debits equals total credits
- Omitting a transaction
- Duplicating a transaction
- Or transposing the number on both the Debit and the Credit sides

Question 150

Formal Financial Statements

Answer 150

The financial position of a company is contained in that company’s Formal Financial Statements.

There are 3 formal Financial Statements and they are:

1. Income Statement also known as Profit and Loss Statement
2. Statement of Owner’s Equity
3. Balance Sheet

Question 151

Accounting period

Answer 151

Formal financial statements are prepared at the end of each ACCOUNTING PERIOD.

That period can be one month, three months, semi annually, whatever the owner and their accountant choose.

Formal financial statements are ALWAYS prepared at the end of the FISCAL YEAR.

Question 152

Fiscal year

Answer 152

A fiscal year is any 12 month period, lets say for example January 15, 2004 to January 14, 2005.

A fiscal year is not the same as a calendar year, which is always January 1 until December 31

Question 153

Typical Account Assignments:

Answer 153

Assets are usually assigned 100 thru 199. Each asset is given its own #. 
Liabilities are assigned 200 thru 299
Owner's Equity 300-399
Revenue 400-499 
Expenses 500-599

Question 154

Ledgers

Answer 154

The General Journal is a complete chronological listing of every transaction that happens in a business.

A ledger is a book of accounts. All information about each account that is listed in the Chart of Accounts, appears in the ledger

Question 155

Ledger Entries

Answer 155

If you examine the example in your text book you will notice the following on each ledger entry:

1. the date of the transaction.
2. the debit or credit amount.
3. the posting reference (earlier I told you not to be concerned with that column, now we have to discuss it)
4. Balance Column - Much like you do with your check book (or what you are supposed to do with your checkbook) is to either add or subtract from the previous balance each subsequent transaction to provide you with an accurate balance. If we use the Cash account as the example, a ledger entry where we are Debiting means we will be adding to the account balance, if we are entering a Credit in the cash account we will be subtracting from the account balance.

Question 156

Posting

Answer 156

is the term used when information is transferred from the journal to the ledger.

The posting reference lists the journal page where the transaction was transferred from.

Keep in mind what I mentioned in the very beginning: Accounting is a very organized discipline with numerous checks and balances built into it in order to prevent double work later on. Posting is one example of the check and balance system.