Exam 3: The Accounting Cycle: Capturing Economic Events

Dividends are an expense of a corporation and appear on the income statement.

The term revenue can best be described as:

Matching principle In April, Grinnel Paving Limited acquired a large quantity of crushed stone on account with payment due in 90 days. The stone was used in May when Grinnel Paving Limited completed a large parking lot for a local shopping center. In early July, Grinnel Paving Limited paid the supplier from which the crushed stone had been obtained. In which month should Grinnel Paving Limited recognize the cost of the crushed stone as an expense? What accounting principle provides the justification for the answer?

The essential point of double-entry system of accounting is that every transaction:

Brett Tarek, a manager at D & J Landscaping Limited, needs information regarding the amount of accounts payable currently owed by the company. This information would most easily be found in the:

Recognizing revenue when it is earned and not when cash is received and recognizing expenses when the related goods or services are used rather than when they are paid for is called:

Posting is the process of:

The following transactions occurred during May, the first month of operations for Hunter Products Limited: * Issued 50,000 shares of share capital to the owners of the corporation in exchange for $600,000 cash * Purchased a piece of land for $400,000, making a $150,000 cash down payment and signing a note payable for the balance. * Made a $60,000 cash payment on the note payable from the purchase of land. * Purchased equipment on credit from BBW Limited for $63,000. -Refer to the above data. What is the total equity at the end of May?

Clinton prepares monthly financial statements. Which of the following violates the matching principle?

Montauk Oil Co. reports these account balances at December 31, 2010 Accounts Payable \ 110,000 Land \ 200,000 Notes Payable \ 260,000 Equipment \ 160,000 Cash \ 80,000 Accounts Receivable \ 100,000 Buildings \ 240,000 Share Capital \ 340,000 Retained Earnings \ 70,000 On January 2, 2011, Montauk Oil collected $50,000 of its accounts receivable and paid $20,000 of its accounts payable. -Refer to the above data. In a trial balance prepared at December 31, 2010 the total of the debit column is:

Each business transaction is initially recorded in a journal and later transferred to the appropriate accounts in a general ledger.

A business that is profitable and liquid will have more accounts with credit balances than with debit balances.

The following transactions occurred during March, the first month of operations for Quality Galleries Limited: * Share Capital was issued in exchange for $360,000 cash. * Purchased $180,000 of equipment by making a $60,000 cash down payment and signing a note payable for the balance. * Made a $35,000 cash payment on the note payable from the purchase of equipment. * Sold a piece of equipment for cash of $18,000. The equipment was sold at cost, so there is no gain or loss on the sale. -Refer to the above data. What is the balance in the Note Payable account at the end of March?

The collection of accounts receivable is recorded by a:

A CEO or CFO associated with fraudulent financial reporting could be fined but not imprisoned under the Sarbanes Oxley act.

Listed below are accounts of Global Company, each identified by a number. Following this list of accounts is a series of transactions. You are to indicate for each transaction the accounts that should be debited and credited by inserting the proper account numbers in the space provided. 1 Cash 5 Delivery Equipment 2 Accounts Receivable 6 Notes Payable 3 Land 7 Accounts Payable 4 Building 8 Share Capital 9 Retained Earnings Trarsaction Accounts(s) Debited Account(s) Credited Example: Purchased delivery equipment, paying part cash and charging the balance on account 5 1,7 G. Paid an account payable H. Collected an account receivable I. Issued share capital in exchanige for cash J. Sold some delivery equipment at costl received part of the proceeds in cash, with the balance due in 60 days K. Purchased land and building paying part cash and signing a note payable for the balance L. Borrowed money from a bank and signed a note payable due in six months

A trial balance that balances provides proof that all transactions were correctly journalized and posted to the ledger.

Liability accounts should only be debited and never credited.

In February of each year, the Carlton Hotel holds a very popular wine tasting event. Tickets must be ordered and paid for in advance, and are typically sold out by November of the preceding year. The recognition principle indicates that the revenue from these ticket sales should be recognized in the period in which the:

The credit side of an account is the right side while the debit side is the left side.