Chapters 1 and 2 Homework Handout 1 T or F?

1 The purpose of accounting is to provide financial information about a business to individuals, agencies, and organizations

2 A business that creates a product to sell to retailers is called a merchandising business.

3 A sole proprietorship can have multiple owners.

4 In a business, capital is the same as cash.

5 Assets + Liabilities = Owners Equity.

6 The balance sheet reports the earnings of the business over time.

7 The income statement reports the earnings of the business over time.

True/False Statements Instructions: Each of the following statements is true or false. Indicate your choice by writing "T" for true or "F" for false in the column to the right of the statement. If you're completing this homework using the Excel template, move on to the next set of questions/problem by clicking on the next tab.

Users of accounting information may include (A) owners; (B) managers; (C) creditors; (D) government agencies; (E) all of these.

2 Entering financial information about business events into the accounting system is called (A) recording; (B) classifying; (C) interpreting; (D) analyzing; (E) reporting.

3 The amount by which the business assets exceed the business liabilities is (A) net income; (B) owners equity; (C) revenue; (D) A & C; (E) B & C.

4 If assets are $130,000 and liabilities are $25,000, owners equity is (A) $155,000; (B) $130,000; (C) $105,000; (D) $25,000; (E) $0.

5 A business paid $1,000 for the months rent. This transaction would (A) increase an asset and decrease an asset; (B) increase an asset and increase a liability; (C) decrease an asset and increase owners equity; (D) decrease an asset and decrease owners equity; (E) increase two asset accounts.

6 A business paid $400 cash for services received earlier in the month. This transaction would (A) increase an asset and decrease an asset; (B) increase an asset and decrease a liability; (C) increase an asset and increase owners equity; (D) decrease a liability and increase owners equity; (E) none of these. Multiple Choice Instructions: Choose the best word or phrase that completes each of the following statements. Write the letter that corresponds to your answer choice in the column to the right of the statement. Acct 110 Chapters 1 and 2 Homework Handout 3

7 Mr. T invested $20,000 in cash into his business. This transaction would (A) increase assets and decrease owners equity; (B) decrease assets and increase owners equity; (C) decrease assets and decrease liabilities; (D) increase assets and increase owners equity; (E) none of these.

8 Which of the following accounts is a liability? (A) Accounts Payable; (B) Sales; (C) Prepaid Insurance; (D) Retained Earnings; (E) Drawing.

9 Which of the following is reported on the balance sheet? (A) Accounts Payable; (B) Fees Earned; (C) Depreciation Expense, (D) Net Income.

10 Which of the following is represented on the income statement? (A) Cash received from sale of equipment; (B) Accounts Payable; (C) Office Equipment; (D) Net Loss.

11 Which of the following will not appear on the statement of owners equity? (A) Net Income; (B) Withdrawals; (C) Capital; (D) Fees Earned.

12 Which financial statement illustrates the accounting equation? (A) Statement of Owners Equity; (B) Income Statement; (C) Balance Sheet; (D) Statement of Cash Flows.

13 The income statement provides information about (A) assets; (B) revenues; (C) owners equity; (D) liabilities; (E) all of these.

14 Which of the following would not decrease owners equity? (A) sales; (B) withdrawals of cash by the owner; (C) more expenses than revenues during the period; (D) expenses incurred; (E) none of these

So the accounting equation can be expanded as .

Asset: An item that is owned by a business and will provide future benefits.

Liability: Amounts owed to another business entity or person.

Capital: Another term for owner's equity, the amount by which the business assets exceed the business liabilities.

Drawing: Withdrawals that reduce owner's equity as a result of the owner taking cash or other assets out of the business for personal use.

Revenue: The amount a business charges customers for products sold or services performed.

Expenses: The decrease in assets (or increase in liabilities) as a result of efforts to produce revenues. Owners Equity = Capital - Drawing + Revenue - Expenses

The Accounting Equation An account is a record of financial increases and decreases affecting a particular item, person, or concern.

Accounts are like file folders in a file cabinet you file paperwork for a particular item in the file folder that contains other paperwork for that same item.

Accounts make up a business Chart of Accounts. Each account has an account title. An account title is brief but descriptive. Rule of thumb: account titles should have no more than three (3) words. Youll learn more complex and longer account titles in future accounting courses, but basic account titles, like those used in this course, are short.

Good account titles: Cash, Accounts Receivable, Prepaid Insurance Bad account titles: Things Purchased with Money, Net Income Why? Things Purchased with Money is vague; not descriptive enough to be useful when sorting information. Net Income is an amount calculated on the Income Statement, its not an account. However, the balances in accounts are used to calculate net income. Accounts are classified into one of six account classifications: asset, liability, capital, drawing, revenue, expense . These six account classifications make up the Accounting Equation. Assets = Liabilities + Owners Equity Assets = Liabilities + Capital - Drawing + Revenue Expenses

Account A, L, O Prepaid Insurance Rent Expense Accounts Payable Delivery Equipment Drawing Accounts Receivable Cash Insurance Expense Supplies Problem 1

Match the letter corresponding to one of the basic elements of accounting to each of the accounts below

-Prepaid Insurance

-Rent Expense

-Accounts Payable

-Delivery Equipment

-Drawing

-Accounts Receivable

-Cash

-Insurance Expense

-Supplies