Accounting 201 Chapters 1&2

Current assets are assets that are expected to be converted into cash, sold, or consumed within a relatively short period of time, usually within a year. These assets include cash, accounts receivable, inventory, and prepaid expenses. By stating that current assets are expected to be converted within the next 12 months, the answer aligns with the generally accepted definition of current assets and their time frame for conversion.

A balance sheet is a financial statement that provides a snapshot of a company's financial position on a specific date. It shows the firm's assets, liabilities, and owners' equity, allowing stakeholders to understand the company's financial health and its ability to meet its obligations. The balance sheet is an essential tool for investors, creditors, and management to assess the company's financial performance and make informed decisions. It differs from other financial statements like the statement of operations, statement of owners' equity, and income statement, which focus on the company's financial performance over a specific period rather than a specific date.

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The normal balance of the Accounts Payable account is credit because it is a liability account. Accounts Payable represents the amount owed by a company to its creditors for goods or services received on credit. A credit balance in this account indicates that the company owes money to its suppliers or vendors.

An example of an expense is a telephone bill. Expenses are the costs incurred by a business in order to generate revenue. A telephone bill is a recurring expense that a business has to pay for its communication needs. It is considered an expense because it is necessary for the operation of the business and is not an investment or a prepaid expense. Accounts receivable, on the other hand, represents money owed to the business and is not an expense.

Notes payable, accounts payable, taxes payable, and salaries payable are all examples of liabilities because they represent obligations or debts that a company owes to external parties. Liabilities are recorded on a company's balance sheet and are typically settled by paying cash, providing goods or services, or transferring other assets.

When Meghan invests $30,000 in cash into her business, it increases the assets of the business because cash is considered an asset. Additionally, it increases the owner's equity because the owner's equity represents the owner's investment in the business. Therefore, the correct answer is that this transaction would increase assets and increase owner's equity.

Cash is considered an asset because it represents the value of money or other liquid instruments that a company possesses and can use to meet its financial obligations or make purchases. As an asset, cash holds economic value and can be readily converted into other assets or used to settle liabilities. It is an essential component of a company's balance sheet and is vital for its day-to-day operations and financial stability.

In accounting, a T-account is a visual representation of a general ledger account. It has a left side, known as the debit side, and a right side, known as the credit side. The debit side is used to record increases in assets, expenses, and withdrawals, while the credit side is used to record decreases in liabilities, revenues, and capital. Therefore, the correct answer is debit side as it represents the side where increases are recorded.

The balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It lists the company's assets, which are resources owned by the company, such as cash, inventory, and equipment. It also lists the company's liabilities, which are obligations or debts owed by the company, such as loans and accounts payable. Lastly, it includes stockholders' equity, which represents the owners' claim on the company's assets after deducting liabilities. This answer accurately identifies the components that are included in a balance sheet.

Based on the information given, we know that the beginning cash balance was $10,000 and cash received was $8,000. The ending cash balance was $6,000. To find the cash payments, we need to calculate the change in cash balance. The change in cash balance is the beginning cash balance plus cash received minus the ending cash balance. Therefore, the cash payments for the month would be $10,000 + $8,000 - $6,000 = $12,000.

The credit side of an account is the right side of the account. In accounting, a T-account is used to represent an account, with the left side being the debit side and the right side being the credit side. Depending on the type of account, whether it is an asset or a liability, the credit side may have different implications. However, in general, the credit side represents increases in liabilities, revenues, and equity accounts, and decreases in asset and expense accounts. The credit side can also change as needed, depending on the transactions and adjustments made to the account.

A fiscal year is an accounting period of twelve months that is used by businesses and organizations for financial reporting and taxation purposes. It may or may not align with the calendar year, depending on the company's preference or industry requirements. The term "fiscal" refers to financial matters, so a fiscal year is the most appropriate term to describe an accounting period. A calendar year, on the other hand, refers to a twelve-month period that starts on January 1st and ends on December 31st. A physical year and operating year are not commonly used terms in accounting.

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This transaction decreased cash because the company paid cash for employee wages, resulting in a decrease in the company's cash balance. Additionally, it increased expenses because employee wages are considered an expense for the company.

When purchasing supplies on account, it means that the company is buying supplies on credit and will pay for them at a later date. This transaction increases the total assets because the supplies are considered an asset for the company. At the same time, it also increases the total liabilities because the company now owes money to the supplier for the purchased supplies. Therefore, purchasing supplies on account increases both total assets and total liabilities.

The accounting equation states that the total assets of a company are equal to the sum of its liabilities and stockholders' equity. This equation is based on the fundamental principle of double-entry bookkeeping, which requires that every financial transaction have an equal debit and credit. Therefore, if we subtract liabilities from assets, we are left with the stockholders' equity, representing the residual interest in the company's assets after deducting its liabilities.

The income statement should be completed first because it provides a summary of a company's revenues, expenses, and net income over a specific period of time. It helps to determine the profitability of the business and provides important information for decision-making. The balance sheet and statement of financial position, on the other hand, provide a snapshot of a company's financial position at a specific point in time and require information from the income statement to be prepared accurately. Therefore, completing the income statement first is essential for preparing the other financial statements.

An account will have a debit balance if the amount of the debits exceeds the amount of the credits. This means that more money has been debited or taken out of the account than has been credited or put into the account. As a result, the account will have a negative balance, indicating that more money is owed than is owned.

Accounts receivable is an asset account that represents the amount of money owed to a company by its customers for goods or services provided on credit. The normal balance of an asset account is a debit, which means that an increase in accounts receivable is recorded as a debit entry. This is because an increase in accounts receivable represents an increase in the company's assets, specifically the amount of money owed to the company. Therefore, the correct answer is debit, asset.

When a business makes a sale on account, it means that the customer will pay for the goods or services at a later date. In this situation, the business creates an asset called accounts receivable. Accounts receivable represents the amount of money that the business is owed by its customers. It is considered an asset because it represents the future inflow of cash to the business.

In accounting, a T-account is a visual representation of a general ledger account. It has a left side (debit side) and a right side (credit side). The credit side of a T-account is always used to record increases in the account balance, while the debit side is used to record decreases. Therefore, the correct answer is credit side.

When Jason purchased office equipment for $4,800 on account, it increased the assets of the company because now they have an additional item of value. At the same time, it also increased the liabilities because the purchase was made on account, meaning the company owes the amount to the supplier. Therefore, this transaction increases both assets and liabilities.

When a business purchases a truck by signing a note payable to the seller, it means that the business is promising to pay the seller in the future for the truck. This creates a liability for the business, as they owe the seller the amount stated in the note payable. Therefore, the transaction would include a credit to note payable, indicating an increase in the liability owed to the seller.

This transaction would increase one asset and decrease another asset. When Stephen purchased office supplies for $800 in cash, the cash asset would decrease by $800, while the office supplies asset would increase by $800. Therefore, one asset (cash) is decreasing, and another asset (office supplies) is increasing.

When a company pays cash for an amount owed to a creditor, it means they are reducing their debt or liabilities. By paying off the amount owed, the company is decreasing their obligations to the creditor, which in turn decreases their liabilities. This transaction does not affect revenues or expenses directly, as it is solely related to the reduction of debt.

The correct answer is debit to rent expense because when paying the monthly rent for an office building, it is considered an expense for the business. Therefore, the rent expense account needs to be debited to reflect the decrease in assets (cash) and the increase in expenses (rent).

The income statement is the correct answer because it is the financial statement that provides information about a firm's revenue and expenses. It shows the company's financial performance over a specific period of time, typically a year. The income statement helps stakeholders understand how profitable the company is and provides insights into its ability to generate revenue and manage expenses. It includes details such as sales revenue, cost of goods sold, operating expenses, and net income or loss.

A transaction refers to any event that has a financial impact on a business and can be measured. It involves the exchange of goods, services, or money between two parties. Transactions are recorded in the accounting system and are essential for preparing financial statements, including the income statement. This statement summarizes a company's revenues, expenses, and net income over a specific period. Therefore, the correct answer is transaction as it encompasses the financial activities that are recorded in the income statement.

Prepaid insurance is considered an asset because it represents an amount paid in advance for insurance coverage that will be utilized in the future. It is an asset because it provides future economic benefits to the company, as it can be used to cover potential losses or damages. As the coverage period progresses, the prepaid insurance is gradually recognized as an expense in the company's financial statements. However, at the time of payment, it is initially recorded as an asset on the balance sheet.

The cash account is classified as an asset account because it represents the amount of cash a company has on hand. Assets are resources owned by a company that have monetary value. The normal balance for an asset account is a debit balance, meaning that increases to the account are recorded as debits and decreases are recorded as credits. Therefore, the correct answer is that the cash account is an asset account with a debit balance.

Liabilities refer to debts that a company owes to external parties, known as creditors. These debts are obligations that the company is obligated to repay in the future. Therefore, the correct answer is "debts payable to outsiders called creditors."

The major types of transactions that affect retained earnings are revenues, expenses, and dividends. Revenues increase retained earnings as they represent the income generated by the company. Expenses, on the other hand, decrease retained earnings as they represent the costs incurred to generate revenue. Dividends, which are payments made to shareholders, also decrease retained earnings as they are a distribution of the company's profits. Paid-in capital and common stock do not directly affect retained earnings, while assets and liabilities and revenues and liabilities are not comprehensive enough to cover all the transactions that impact retained earnings.

When office furniture is purchased for cash, it means that the company is buying furniture and making the payment immediately without any credit involved. In accounting, a debit entry is made to record an increase in assets or expenses. Since office furniture is an asset, a debit entry is made to the office furniture account to increase its value. Therefore, the correct answer is office furniture.

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Revenues are recorded when the work is completed on the job, whether or not the cash is received. This is because revenue recognition is based on the completion of the performance obligation, which is the transfer of goods or services to the customer. The completion of the work signifies that the company has fulfilled its obligation, regardless of whether payment has been received. This approach ensures that revenues are recognized in a timely and accurate manner, reflecting the company's performance and economic activity.

The trial balance is used to determine whether total debits equal total credits. This is because the trial balance is a statement that lists all the accounts and their balances in the general ledger. Each transaction recorded in the ledger has a debit entry and a corresponding credit entry, and the trial balance ensures that the total of all the debit entries equals the total of all the credit entries. If the totals do not match, it indicates that there is an error in the recording of transactions.

An example of an expense is supplies consumed. Expenses are costs incurred by a business in order to generate revenue. Supplies consumed refers to the materials or resources used up in the process of conducting business operations. These supplies are considered an expense because they are consumed and no longer available for use in the future. The cost of supplies consumed is deducted from the revenue earned to determine the net income or profit of the business.

This transaction is not a transaction recognized by the business because the owner used his personal funds and not the business's funds to purchase the automobile. As a result, it does not affect the business's accounts such as liabilities, expenses, assets, or owner's equity.

The correct answer is Supplies because when supplies are purchased on account, it means that the company has acquired supplies but has not yet paid for them. Therefore, a debit is made to the Supplies account to increase the asset value and reflect the increase in supplies owned by the company.

Double-entry accounting is a system where each transaction is recorded by debiting at least one account and crediting at least one account. This means that for every transaction, there is a simultaneous increase in one account and a decrease in another account. By using this method, the accounting equation (assets = liabilities + equity) is always balanced, ensuring accuracy in financial records. This approach also allows for a comprehensive recording of transactions in both the journal and the ledger, providing a complete and organized record of all financial activities.

When Jason paid $3,700 on account to the company, it means that he settled a debt. By doing so, he decreased the amount of money he owed to the company, which is a liability. Therefore, the transaction decreased liabilities. Additionally, since he paid with cash, his assets also decreased. Hence, the transaction decreased assets as well.

A trial balance is a statement that lists all the accounts and their balances in the ledger. It is used to ensure that the debits and credits in the accounting system are equal and to detect any errors in the recording of transactions. Therefore, the correct answer is that a trial balance has totals for all accounts listed in the ledger, not just balance sheet or income statement accounts.

When a business makes a purchase on account, it means that they are buying something and promising to pay for it later. This creates a liability for the business, as they owe money to the supplier or vendor. This liability is called an account payable. Therefore, the correct answer is account payable.

Notes receivable due in 60 days would be classified as a current asset on the balance sheet because they are expected to be converted into cash within the next operating cycle, which is usually within one year. Current assets are resources that are expected to be converted into cash, sold, or consumed within the normal operating cycle of a business. Since the notes receivable are expected to be collected within 60 days, they meet the criteria of a current asset.

When a company receives a check from a customer on account, it means that the customer is making a payment towards the amount they owe to the company. This payment increases the company's accounts receivable, which represents the amount of money owed to the company by its customers. Therefore, a credit to the accounts receivable is necessary to record the increase in the amount owed by the customer.

When a company receives cash in exchange for issuing stock, it increases its equity. Equity represents the ownership interest in the company, and when new stock is issued, it means that the company is selling a portion of its ownership to investors in exchange for cash. This cash is then recorded as an increase in the company's equity, as it adds to the overall value of the company and the shareholders' ownership stake. Therefore, this transaction does not affect expenses, revenues, or liabilities directly, but it does increase the equity of the company.

The correct answer is statement of retained earnings because the net income is a component of retained earnings. The statement of retained earnings shows the changes in retained earnings over a specific period, including the net income or net loss. It is a financial statement that reconciles the beginning and ending balances of retained earnings by considering net income, dividends, and other adjustments. Therefore, the amount of net income shown on the income statement is also reflected in the statement of retained earnings.

The chart of accounts is a listing of all the accounts that make up the ledger. It provides a systematic and organized way to categorize and classify different types of accounts, such as assets, liabilities, equity, revenue, and expenses. This helps in the efficient recording, reporting, and analysis of financial transactions and balances. The chart of accounts is an essential tool for maintaining accurate and reliable financial records.

When purchasing office computers for cash, the company's cash account will be decreased (debited) as cash is being paid out. At the same time, the office equipment account will be increased (credited) to reflect the addition of new computers to the company's assets. Therefore, the correct answer is "Office equipment and a credit to cash."