Ch 2 - Analyzing Bus Trans GEN

Question 1

What is the equation for determining how a transaction affects the business?

Answer 1

property = financial interest

Question 2

What are the steps to analyze the effect of a business transaction? (5)

Answer 2

1. describe the financial event:
2. identify the property
3. identify who owns the property
4. determine the amount of increase or decrease
5. make sure equation is in balance

Question 3

What are two alternate names for purchasing services on account?

Answer 3

1. charge account

2. open-account credit

Question 4

What is another name for a balance sheet?

Answer 4

statement of financial position

Question 5

What are two other names for owner’s equity?

Answer 5

1. proprietorship

2. net worth

Question 6

What three things does a balance sheet show?

Answer 6

1. amount and types of property the business owns
2. amount owed to creditors
3. owner’s interest

Question 7

What is the formula for the fundamental accounting equation?

Answer 7

assets = liabilities + owner’s equity

Question 8

When services are sold on account to a client, what two accounts are affected?

Answer 8

1. increase accounts receivable (assets)

2. increase revenue (owner’s equity)

Question 9

What do a firm’s accounting records show? (2)

Answer 9

1. increases/decreases in assets, liabilities and owner’s equity
2. details of all transactions involving revenue and expenses

Question 10

What is a summary of transactions? (2)

Answer 10

1. report that summarizes transactions for given period of time
2. shows transactions and running balance

Question 11

What are three alternate names for the income statement?

Answer 11

1. profit and loss statement
2. statement of income and expenses
3. statement of operations

Question 12

What does the income statement show?

Answer 12

difference between income/revenue from services provided or goods sold and expenses to operate the business

Question 13

What does a single line indicate on a financial report?

Answer 13

the amounts above it are being added or subtracted

Question 14

What does a double line on a financial report indicate?

Answer 14

used under the final amount to indicate it is complete

Question 15

When do you include and exclude $ signs? (2)

Answer 15

1. if the report is on a paper with ruled columns then no dollar signs
2. if on plan paper, then a dollar sign at the first entry and total

Question 16

What three types of info are included on a balance sheet?

Answer 16

1. asset accts
2. liability accts
3. capital balance of owner’s equity

Question 17

What two types of accounts are included on an income statement?

Answer 17

1. revenue

2. expenses

Question 18

In what order are financial statements prepared?

Answer 18

1. income statement
2. statement of owner’s equity
3. balance sheet