Chapter 3 Accounting

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The effect on the basic accounting equation of performing services for cash are to:

increase assets and increase stockholders’ equity.

Genesis Company buys a $900 machine on credit. This transaction will immediately affect the

balance sheet only.

What all is recorded in the accounting records?

-A cash investment is made into the business. -Equipment is purchased on account. -The owner withdraws cash for personal use.

During 2010, Gibson Company assets decreased $50,000 and its liabilities decreased $90,000. Its stockholders’ equity:

increased $40,000.

Retained earnings is decreased by


If an expense is paid with cash

assets will decrease.

If cash is received in advance from a customer

Liabilities will increase

Receipt of an unearned revenue does what?

increases an asset; increases a liability.

Payment of a dividend does what?

decreases cash; decreases retained earnings.

If a company receives cash from a customer before performing services for the customer, then what will happen?

assets increase and liabilities increase.

What is an acceptable effect if total liabilities increase by $5,000 as a result of a transaction?

Assets increase by $5,000, or stockholders’ equity decrease by $5,000.

An account is a part of the financial information system and is described as?

-An account consists of three parts. -An account has a title. -An account has a debit and credit side.

An account is an…

individual accounting record of increases and decreases in specific asset, liability, and stockholders’ equity items.

In its simplest form, an account consists of how many parts?


What do debits do?

Increase assets and decrease liabilities.

A revenue account Is increased by what?


Which accounts normally have debit balances?

Assets, dividends, and expenses

What effects occur when an account payable is paid with cash?

Decreases assets and decreases liabilities

Accounts with normal debit balances include:

expenses and assets.

Accounts with normal credit balances include:

liabilities and stockholders’ equity

Which accounts normally have credit balances?

Revenues, liabilities, and retained earnings

An account has $300 on the debit side and $900 on the credit side. How much is the account balance?

Credit of $600

State the correct sequence of events

Analyze a transaction; record it in the journal; post it to the ledger.

What is the evidence that a transaction has occurred?

Source document

Parts of the recording process

-Posting transactions -Analyzing transactions -Entering transactions in a journal

what does a journal do?

-It discloses the complete effect of a transaction in one place. -It provides a chronological record of transactions. -It helps to locate errors because the debit and credit amounts for each entry can be readily compared.

Parts of the complete journal entry

-The date of the transaction. -A brief explanation of the transaction. -The accounts and amounts to be debited and credited.

Where is the first place every transaction is recorded?

The journal

What transaction is recorded as a result of issuing stock to investors for cash?

A debit to Cash and a credit to Common Stock

A complete journal entry does not show

the new balance in the accounts affected by the transaction.

Transactions are initially recorded in chronological order in a __________ before they are transferred to the accounts.


What does a general ledger of a company contain?

All the asset, liability, stockholders’ equity, revenue, and expense accounts

What type of account is unearned revenue?


What is the entire group of accounts maintained by a company collectively called?


What is the appropriate order for a company’s chart of accounts?

Assets, liabilities, stockholders’ equity, revenues, expenses

A ledger is a what?

collection of the entire group of accounts maintained by a company.

Posting does what?

transfers journal entries to ledger accounts.

What is the process of transferring entries from the journal to the ledger called?


If an account is debited in the journal entry, then:

That account will be debited in the ledger.

What is the correct sequence of events?

Journalize; post; prepare a trial balance

If the sum of the debit column equals the sum of the credit column in a trial balance, it indicates what?

the mathematical equality of the accounting equation.

When a trial balance balances, it is an indication that:

debits equal credits.

Accounts are listed on the trial balance in what order?

the order that they appear in the ledger.

A trial balance does what?

is a list of accounts with their balances at a given time.

A trial balance will not balance if

a $100 cash dividend is debited to Dividends for $1,000 and credited to Cash for $100.

On. Jan. 10, Novis Company purchased manufacturing equipment for $80,000 cash. What kind of activity is this?


In what section of the statement of cash flows would the purchase of office equipment for $10,000 appear?

Investing activities

Three primary types of the financing activity

-Borrowing money -Buying equipment -Issuing shares of stock

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