LO 3.1Match the correct term with its definition.
| A. cost principle | i. if uncertainty in a potential financial estimate, a company should err on the side of caution and report the most conservative amount |
| B. full disclosure principle | ii. also known as the historical cost principle, states that everything the company owns or controls (assets) must be recorded at their value at the date of acquisition |
| C. separate entity concept | iii. (also referred to as the matching principle) matches expenses with associated revenues in the period in which the revenues were generated |
| D. monetary measurement concept | iv. business must report any business activities that could affect what is reported on the financial statements |
| E. conservatism | v. system of using a monetary unit by which to value the transaction, such as the US dollar |
| F. revenue recognition principle | vi. period of time in which you performed the service or gave the customer the product is the period in which revenue is recognized |
| G. expense recognition principle | vii. business may only report activities on financial statements that are specifically related to company operations, not those activities that affect the owner personally |
LO 3.2Consider the following accounts, and determine if the account is an asset (A), a liability (L), or equity (E).
- Accounts Payable
- Cash
- Dividends
- Notes Payable
LO 3.2Provide the missing amounts of the accounting equation for each of the following companies.
LO 3.2Identify the financial statement on which each of the following accounts would appear: the income statement (IS), the retained earnings statement (RE), or the Balance Sheet (BS).
- Insurance Expense
- Accounts Receivable
- Office Supplies
- Sales Revenue
- Common Stock
- Notes Payable
LO 3.2Cromwell Corporation has the following trial balance account balances, given in no certain order, as of December 31, 2018. Retained Earnings at January 1, 2018, was $3,600. Using the information provided, prepare Cromwell’s annual financial statements (omit the Statement of Cash Flows).
LO 3.3From the following list, identify which items are considered original sources:
- prepaid insurance
- bank statement
- sales ticket
- general journal
- trial balance
- balance sheet
- telephone bill
- invoice from supplier
- company sales account
- income statement
LO 3.4Indicate what impact the following transactions would have on the accounting equation, Assets = Liabilities + Equity.
| Impact 1 | Impact 2 | |
|---|---|---|
| Received cash from issuance of common stock | ||
| Sold goods to customers on account | ||
| Collected cash from customer sales made in previous month | ||
| Paid cash to vendors for supplies delivered last month | ||
| Purchased inventory on account |
LO 3.1For the following accounts please indicate whether the normal balance is a debit or a credit.
- Sales
- Dividends
- Office Supplies
- Retained Earnings
- Accounts Receivable
- Prepaid Rent
- Prepaid Insurance
- Wages Payable
- Building
- Wages Expense
LO 3.4Indicate what impact the following transactions would have on the accounting equation, Assets = Liabilities + Equity.
| Impact 1 | Impact 2 | |
|---|---|---|
| Paid monthly note payment to bank | ||
| Sold inventory on account | ||
| Bought supplies, to be paid for next month | ||
| Received cash from sales this month | ||
| Paid for inventory purchased on account last month |
LO 3.1Identify the normal balance for each of the following accounts. Choose Dr for Debit; Cr for Credit.
| Normal balance | |
|---|---|
| Utilities Expense | |
| Cash | |
| Equipment | |
| Rent Revenue | |
| Preferred Stock | |
| Interest Payable |
LO 3.4Identify whether each of the following transactions would be recorded with a debit (Dr) or credit (Cr) entry.
| Debit or credit? | |
|---|---|
| Cash increase | |
| Supplies decrease | |
| Accounts Payable increase | |
| Common Stock decrease | |
| Interest Payable decrease | |
| Notes Payable decrease |
LO 3.4Identify whether each of the following transactions would be recorded with a debit (Dr) or credit (Cr) entry.
| Debit or credit? | |
|---|---|
| Equipment decrease | |
| Common Stock Sold increase | |
| Gas and Oil Expense increase | |
| Service revenue decrease | |
| Miscellaneous Expense decrease | |
| Bonds Payable decrease |
LO 3.4Identify whether ongoing transactions posted to the following accounts would normally have only debit entries (Dr), only credit entries (Cr), or both debit and credit entries (both).
| Type of entry | |
|---|---|
| Accounts Payable | |
| Cash | |
| Gas and Oil Expense | |
| Rent Revenue | |
| Supplies Expense | |
| Common Stock |
LO 3.5Determine whether the balance in each of the following accounts increases with a debit or a credit.
- Cash
- Common Stock
- Equipment
- Accounts Payable
- Fees Earned
- Electricity Expense
LO 3.5Journalize for Harper and Co. each of the following transactions or state no entry required and explain why. Be sure to follow proper journal writing rules.
- A corporation is started with an investment of $50,000 in exchange for stock.
- Equipment worth $4,800 is ordered.
- Office supplies worth $750 are purchased on account.
- A part-time worker is hired. The employee will work 15–20 hours per week starting next Monday at a rate of $18 per hour.
- The equipment is received along with the invoice. Payment is due in three equal monthly installments, with the first payment due in sixty days.
LO 3.5Discuss how each of the following transactions for Watson, International, will affect assets, liabilities, and stockholders’ equity, and prove the company’s accounts will still be in balance.
- An investor invests an additional $25,000 into a company receiving stock in exchange.
- Services are performed for customers for a total of $4,500. Sixty percent was paid in cash, and the remaining customers asked to be billed.
- An electric bill was received for $35. Payment is due in thirty days.
- Part-time workers earned $750 and were paid.
- The electric bill in “C” is paid.
LO 3.5For each item that follows, indicate whether a debit or a credit applies.
- increase in prepaid insurance
- increase in utilities expense
- increase in commissions earned
- increase in supplies
- decrease in retained earnings
- decrease in income taxes payable
- increase in unearned revenue
- increase in salaries expense
- decrease in notes receivable
- increase in common stock
LO 3.5Indicate whether each account that follows has a normal debit or credit balance.
- Unearned Revenue
- Office Machines
- Prepaid Rent
- Cash
- Legal Fees Earned
- Salaries Payable
- Dividends
- Accounts Receivable
- Advertising Expense
- Retained Earnings
LO 3.5A business has the following transactions:
- The business is started by receiving cash from an investor in exchange for common stock $20,000
- The business purchases supplies on account $500
- The business purchases furniture on account $2,000
- The business renders services to various clients on account totaling $9,000
- The business pays salaries $2,000
- The business pays this month’s rent $3,000
- The business pays for the supplies purchased on account.
- The business collects from one of its clients for services rendered earlier in the month $1,500.
What is total income for the month?
LO 3.5Prepare journal entries to record the following transactions.
- January 22, purchased, an asset, merchandise inventory on account for $2,800.
- February 10, paid creditor for part of January 22 purchase, $1,600
LO 3.5Prepare journal entries to record the following transactions.
- July 1, issued common stock for cash, $15,000
- July 15, purchased supplies, on account, $1,800
- July 25, billed customer for accounting services provided, $950
LO 3.5Prepare journal entries to record the following transactions.
- March 1, purchased land for cash, $20,000
- March 11, purchased merchandise inventory, on account, $18,500
- March 15, Sold merchandise to customer for cash, $555
LO 3.5Post the following February transactions to T-accounts for Accounts Receivable and Cash, indicating the ending balance (assume no beginning balances in these accounts).
- provided legal services to customers for cash, $5,600
- provided legal services to customers on account, $4,700
- collected cash from customer accounts, $3,500
LO 3.5Post the following November transactions to T-accounts for Accounts Payable and Inventory, indicating the ending balance (assume no beginning balances in these accounts).
- purchased merchandise inventory on account, $22,000
- paid vendors for part of inventory purchased earlier in month, $14,000
- purchased merchandise inventory for cash, $6,500
LO 3.6Prepare an unadjusted trial balance, in correct format, from the alphabetized account information as follows. Assume all accounts have normal balances.