Expenses Will Cause Retained Earnings To

Recognizing cash expenses will cause the amount of cash: and the amount of retained earnings to decrease. Paying a cash dividend will cause the amount of cash to decrease and the amount of retained earnings to decrease. Assets are normally shown on the company’s books at current market value: False Assets are normally shown in accounting records as cost. A general ledger is a: complete list of a company’s accounts Jane Smith started a company by investing $50,000 of her personal money in the company called Jane's Candies. Immediately after Jane's investment, the company borrowed $20,000 from the State Bank. The number of reporting entities described in this scenario is: 3. (1)Jane smith, (2) janes candles, (3) state bank. A home builder used $80,000 of materials and $70,000 of labor to build a house that was sold for $160,000: Profit equals $10,000 (160,000-80,000-70,000) To get resources to start a business resource owner should be convinced that their resources can produce: profits Resource providers use accounting information to identify companies with high earnings potential because those companies are better able to: make interest payments, pay higher salaries, share profits Paying cash expense will cause the amount of: cash to decrease and retained earnings to decrease Assets are normally shown on the company’s books as: historical cost The specific resources businesses commonly use to satisfy consumer demand are financial resources, physical resources, and labor resources. Stakeholders who use accounting information include: newspaper reporters, federal government, investors, creditors Resource provides are primarily interested in accounting information. The resource a business uses to conduct its operations are called: assets When a business borrows cash from a creditor: both assets and liabilities increase Which of the following contains languages that describes the rights and privileges of ownership in a company? Common stock certificate Which of the following statements are true? Businesses may retain assets generated through operations and increase in a business’s commitments to stockholders is called retained earnings Taylor company has $10,000 of assets, $2,000 of liabilities, and $5,000 of common stock. Based on the information alone the company’s retained earnings equal: $3,000 ($10,000 - $2,000 - $5,000) The relationship between a business’s assets and the claims on its assets is frequently expressed in an equality called the accounting equation. Which of the following are investing activities? Selling a building, purchasing a building, purchasing land Activities dealing with purchasing and selling short term assets are operating activities. The interrelationships among the various elements of the financial statements is knows as: articulation Which of the following is a investing activity? Purchasing land Which items are presented on the balance sheet? Liabilities, land, cash, common stock, assets, retained earnings, total stockholder’s equity, notes payable The financial statement that shows all the revenue earned and expenses incurred during the accounting period is the: income statement Net income occurs when revenues are greater than expenses: true The matching concept states that expenses should be matched to revenues earned during the accounting period: True The income statements report revenues and expenses over the accounting period Which financial statement reports the effects of transactions of stockholder’s equity? Statements of changes In stockholders equity. Ending balances of assets, liabilities, and stockholder’s equity are reported on the balance sheet Assets reported on the balance sheet are listed in the order of liquidity “As of” indicates that the information reported on the financial statement’s refers to: the financial condition at a specific point in time Which statement reports on a company’s financial condition at a specific point in time? Balance sheet “for the period ended” indicates that the information reported on the financial statement refers to: what happened over the accounting period Acquiring cash by issuing common stock will cause the amount of: cash to increase, and stockholder’s equity to increase. Assets accounts include: land and cash The double entry booking systems derives its name from the fact that every transaction affects the accountings equation in at least two places: true Borrowing money from creditors will cause the amount of cash to increase and the amount of liabilities to increase. An event that causes one assent to decrease and another asset account to increase is called an asset exchange transaction Earning cash revenue by providing services to customers will cause the: amount of cash to increase, and amount of retained earnings to increase Paying a cash dividend will cause assets on the left side of the accounting equation to decrease and retained earnings on the right side of the accounting equation to decrease. Green company has $10,000 of assets. Fifty percent of the assets were acquired from the issue of common stock and thirty percent were acquired from earnings. Base of the information the dollar value of liabilities must be $2,000. (right side was 100% of total assets 100-50-30= 20%. $10,000 x .20 = $2,000 Monsters media accounting records indicate that the company has $500 of cash; $2,500 of land =, $1,600 of common stock; and $1,400 of retained earnings. Based on the information the maximum cash dividend the company can pay is $500. (need cash to pay for dividends) When it id liquidated a business has assets of $500 cash, $800 of liabilities and $400 common stock and ($700) deficit in retained earnings. Based on this information: owners will receive zero (owners are paid after creditors have been paid. Since there is nothing left after the creditors are paid the owners will receive zero.) and creditors will receive $500(creditors are paid first. They cannot collect more money than the business has since business has only $500 that’s all they collect.) West company has $200 cash and $1,200 land, $600 liabilities and $800 stockholder’s equity. West has earned profits every year since its inception based on this information: if the liabilities are due immediately. West could be forced into bankruptcy. (west only has $200 cash to pay off $600 of liabilities. West could be forced to liquidate the land to repay the debt. And west may be forced to sell its land in order to pays its debt. Which of the following statements are true? The obligations of the business to creditors are shown to the right side of the accounting equation. (obligations of a business are called liabilities. Liabilities are shown on right side. And the right side of the accounting equation shows the source of assets. (assets maybe acquired from 3 sources: creditors, investors, and operations. On right side of equation. In a business liquidation? Liabilities are paid in full before funds are distributed to owners and creditors may be unable to collect the full amount of liabilities. The right side of the accounting equation for a corporation may be viewed as: claims of creditors and owners, obligation and commitments of the business, and source of assets. An event that increases total assets and total claims is an asset source transaction. Balance sheet: Find beginning common stock: total common stock – common stock issued Beginning notes payable = total notes payable + note payable paid Beginning balance of cash = notes payable + common stock + retained earnings – land Revenue = total cash – beginning balance – issue of common stock + expenses + dividends + purchase of and + payment of notes payable Maximum cash dividend is equal to the balance of retained earnings. Explain the term stakeholder. Distinguish between stakeholders with a direct versus an indirect interest in the companies that issue financial reports. Stake holders are users of accounting information. They include resource providers, financial analysts, brokers, etc. There is a direct link between businesses and stakeholders who provide resources businesses pay the resource providers. These are owners, suppliers, creditors, etc. Resource providers use accounting information to identify companies with high earnings potential. There is an indirect link between businesses and other stakeholders. Financial analysts, brokers, and attorneys may use accounting information when advising their clients. What is the primary mechanism used to allocate resources in the United States? Free markets compete for resources In business, what does market mean? A group of people or entities organized t exchange items of value. There are three distinct participants: consumers, conversion agents, and resource owners. Resource owners provide resources (inputs) to conversion agents (businesses) who provide goods and services (outputs) to consumers. Give an example of a financial resource, a physical resource, and a labor resource.Financial resource: Money, Physical resource: natural resources - timber, for example, Labor resource: intellectual and physical labor by employees What type of income does a creditor expect from providing financial resources to an organization or business? Investors provide financial resources in exchange for ownership interests in businesses; they expect businesses to return to them a share of the business including a portion of income Creditors expect the business to repay borrowed resources plus a specified fee called interest How do financial and managerial accounting differ? Stakeholders such as investors, creditors, lawyers, and financial analysts exist separate from their associated business. The accounting information these external users need is provided by financial accounting. The accounting information needed by internal users - managers and employees within a business - is provided by managerial accounting. What are the U.S. rules of accounting information measurement called? "Generally Accepted Accounting Principles" (GAAP) Explain how a career in public accounting differs from a career in private accounting. Public accountants typically offer: 1. Audit services 2. Tax services 3. Consulting services Private accountants typically work for a specific company or nonprofit organization. They typically classify and record transactions, bill and collect money from customers, order merchandise, pay suppliers, and prepare and analyze financial statements. Distinguish between elements of financial statements and accounts. There are ten categories of information reported in financial statements, known as elements: 1. Assets 2. Liabilities 3. Stockholders' Equity 4. Common Stock 5. Revenue 6. Expenses 7. Dividends 8. Net income 9. Gains 10. Losses What role do assets play in business profitability? The resources a business uses to make money are called assets. They come from three distinct sources: 1. Borrowed from creditors - they must pay this back eventually, this is also a liability 2. Investors - the specific commitments made to investors are described in certificates called common stock 3. Operations - businesses use assets in order to produce higher amounts of other assets To whom do the assets of a business belong? They belong to that business entity as well as their resource providers Name the accounting term used to describe a business's obligations to creditors Liabilities What is the accounting equation?Assets = Claims Assets = [Liabilities + Stockholders Equity] Assets = [Liabilities + Common Stock + Retained Earnings] Assets are the economic resources (cash and land) used by a business for the production of revenue Liabilities are a business's obligation to its creditors Stockholders Equity is the business's commitment to its stockholders Common Stock are specific commitments made to investors Retained Earnings are retained assets a business makes through operations Who ultimately bears the risk and collects the rewards associated with operating a business? The owners What does a double entry bookkeeping system mean? It is a system in which every transaction affects two accounts. A transaction affects both assets and claims. In order to balance the accounting equation, every transaction requires double entry How does acquiring capital from owners affect the accounting equation? Capital is acquired from owners by issuing stock. When stock is issued, the assets of a business increase as well as the Stockholders Equity. How does earning revenue affect the accounting equation? Earning revenue increases the assets and the retained earnings of the business equation. What are the three primary sources of assets? Liabilities, Common Stock, Retained Earnings What is the source of retained earnings? A business retaining its earned assets, rather than distributing them to its owners How does paying dividends affect the accounting equation? Paying dividends decreases both the assets and the retained earnings sides of the accounting equation What are the similarities and differences between dividends and expenses? They are similar because they both affect the accounting equation the same way. They are different because expenses reduce assets as the result of a business's attempt to earn revenue. Dividends reduce assets because it is a transfer of wealth to the business's owners. What four general-purpose financial statements do business enterprises use? 1. Income Statement - measures the differences between revenue and expenses during a particular accounting period 2. Statement of Changes in Stockholders Equity - explains the effects of transactions on stockholders equity during the accounting period 3. Balance Sheet - lists the assets and claims against a company for a particular date 4. Statement of Cash Flows - explains how a company obtained and used cash over the accounting period Which of the general-purpose financial statements provides information about the enterprise at a specific designated date? Balance sheet What causes a net loss? If expenses outweigh revenue in a given accounting period What three categories of cash receipts and cash payments do businesses report on the statement of cash flows? 1. Operating Activities - revenue and expenses 2. Investing Activities - long term assets, such as land or long term supplies 3. Financing Activities - cash inflows and outflows from owners/investors/creditors i.e. common stock, dividends Discuss the term articulation as it relates to financial statements Temporary accounts are used to gather information from a single accounting period. The balances in temporary accounts are transferred out at the end of the period, and have a balance of zero in the beginning of the accounting period. These include revenue/expense accounts and dividends. Permanent accounts carry over from one period to the next. Retained earnings is a permanent account.