Referring to the items listed below, place the appropriate letter next to the corresponding description.
a. Accounting equation g. Merchandising company m. Service company
b. Assets h. Net income n. Single proprietorship
c. Corporation i. Net loss o. Solvency
d. Dividends j. Profitability p. Stockholders’ equity
e. Liabilities k. Salaries expense q. Transactions
f. Manufacturing company l. Stockholders’equity / Total equities r. Statement of cash flows
1. Ability to generate earnings.
2. Cash paid to stockholders as distribution of income.
3. Exchanges of goods and services that are objective and that occur at an agreed-upon price.
4. An organization owned by stockholders and managed by officers who generally are people other than the owners.
5. Land, buildings, cash, and other resources owned by the business.
6. This type of business acquires materials and converts them into products to sell to other companies or final customers.
7. Creditor’s equity or claims on assets.
8. An organization owned by one individual who is solely responsible for all debts of the business.
9. The resulting figure when expenses exceed revenues.
10. This type of business acquires goods and sells them in the same form to customers.
11. Ability to pay debts as they become due.
12. Stockholders’ equity = assets – liabilities is one form of this equation.
13. Shows cash inflows and cash outflows for a period of time.
14. Equity ratio.
The __________ __________ (sometimes called the statement of financial position) reflects a firm’s solvency, while the __________ __________ shows profitability.
Accounting deals primarily with information regarding __________ activities of a business and is expressed in __________ terms.
__________, __________, and __________ are the three forms of ownership of business organizations.
The balance sheet of a business corporation usually shows three classes of items, namely (a) __________, (b) __________, and (c) __________ __________; while the income statement shows two classes, namely, (a) __________ and (b) __________.
In its most basic form, the accounting equation is simply __________ = __________. This is usually expanded to ________ = __________ + __________ __________.
Changes in the financial position of an organization are brought about by events, exchanges, and other real-world happenings that accountants measure and record and which they call __________.
To show your understanding of the effects of each of the named transactions on the assets, liabilities, and stockholders’ equity of a business, fill in the blank in each column with either + (for increase), – (for decrease), or 0 (for no change).
Assets Liabilities Stockholders’ Equity
a. Stockholders invested cash in the business
b. Borrowed money from a bank
c. Purchased equipment on credit
d. Rendered services for cash
e. Paid creditor in (c)
f. Paid monthly rent
g. Rendered services for which the customer promised to pay at a later date.
Indicate, by letter, which of the above transactions would be reported in the income statement: __________, __________, and __________.
The inflows of assets for services rendered or goods delivered (as measured by the assets received from customers) are called __________, while the assets surrendered or consumed in this process are called __________.
The statement that shows the assets and equities of an entity as of a point in time is called the __________ __________.
The specific unit or organization for which accounting information is accumulated and reported is called the __________. The basis for valuation of assets in accounting is __________.
The __________ concept in accounting refers to the fact that the amounts entered in an accounting system are the objective money prices determined in the exchange process.
If expenses for a period exceed revenues for the same period, the entity is deemed to have suffered a __________ __________.
An income statement is prepared for a __________, while a balance sheet is prepared as of a __________.
Under the __________-__________ concept, the accountant assumes that a business will continue more of less indefinitely.
The __________ __________ is equal to stockholders’ equity divided by __________ __________.
The __________ __________ __________ __________ shows the cash inflows and cash outflows for a period of time.
Indicate the effect each of the following transactions has on the basic accounting equation by indicating one of the following:
a. Decrease in an asset, decrease in a liability.
b. Increase in an asset, increase in stockholders’ equity.
c. Increase in one asset, decrease in another asset.
d. Increase in an asset, increase in a liability.
e. None of the above.
1. Purchased equipment on account.
2. Returned an item of defective equipment purchased in (1).
3. Paid cash to the supplier of equipment purchased in (1) for the remainder of the equipment.
4. Received cash on account from customers.
5. The stockholders invested additional cash in the business.