Chapter 3 Summary - Introductory Accounting PDF

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Chapter 3 Summary...

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Chapter 3  Stockholders' equity is increased by: revenues  If total liabilities increased by $5,000, then:  assets must have increased by $5,000, or stockholders' equity must have decreased by $5,000  If total liabilities decreased by $4,000, then:  assets must have decreased by $4,000, or stockholder's equity must have increased by $4,000.  Collection of a $600 Accounts Receivable: increases an asset $600; decreases an asset $600  If an individual asset is increased, then there could be an equal decrease in another asset  If services are rendered on account, then stockholders' equity will increase  If services are rendered for cash, then assets will increase  If expenses are paid in cash: then assets will decrease.  An investment by the stockholders in a business increases: assets and stockholders' equity  The purchase of an asset for cash: leaves total assets unchanged  The purchase of an asset on credit: increases assets and liabilities

 The payment of a liability: decreases assets and liabilities  The sale of an asset on credit for what it cost: leaves total assets unchanged  When collection is made on Accounts Receivable: total assets will remain the same  A revenue generally: increases assets and stockholders' equity  A paid dividend: decreases assets and stockholders' equity  An expense: decreases stockholders' equity  What of the following items has no effect on retained earnings? Land purchase  If a company buys a $700 machine on credit, this transaction will affect the: balance sheet only  A payment of a portion of Accounts Payable will: not affect stockholders' equity  Powers Corporation received a cash advance of $500 from a customer. As a result of this event: assets increased by $500  Courtney Company purchased equipment for $1,800 cash. As a result of this event: assets remained unchanged.

 Comstock Company provided consulting services and billed the client $2,500. As a result of this event: both b and c - assets increased by $2,500 and equity increased by $2,500.  Budke Corporation paid dividends of $5,000. As a result of this event: the dividends account was debited for $5,000.  If a company pays dividends of $10,000: both a and c - equity will be reduced by $10,000 and retained earnings will be reduced by $10,000.  If a company issues common stock for $40,000 and uses $30,000 of the cash to purchase a truck: assets will be increased by $40,000  Are advanced receipts from customers treated as revenue at the time of receipt? Why or why not? No, revenue cannot be recognized until the work is performed  Is the purchase of equipment treated as an expense at the time of purchase? Why or why not? No, the cost needs to be allocated to the years of expected use  Howard Company had a transaction that caused a $5,000 increase in both assets and total liabilities. This transaction could have been a(n): purchase of office equipment for $12,000, paying $7,000 cash and issuing a note payable for the balance.

 Economic events that require recording in the financial statements are called accounting transactions. True  Revenue increases stockholders' equity and should be recorded whenever cash is received from customers. True  Collection on an account receivable will increase both cash and accounts receivable. False  The payment of a liability decreases both cash and accounts payable. True  If total assets are increased, there must be a corresponding increase in liabilities or a decrease in stockholders' equity. False  A new account is opened for each transaction entered into by a business firm. False  The recording process becomes more efficient and informative if all transactions are recorded in one account.

False  For a T account, an account balance is the difference in total dollars between total debit amounts and total credit amounts. True  An account is often referred to as a T-account because of the way it is constructed. True  A debit to an account always indicates an increase in that account. False (only increase if an asset)  If a revenue account is credited, the revenue account is increased. True (positive credit side for revenue)  The normal balance of all accounts is a debit. False (normal balance = side of increase)  Debit and credit can be interpreted to mean "bad" and "good," respectively. False  A credit means that an account has been increased. False  A decrease in a liability account is recorded by a debit. True

 An increase in an asset is recorded by a debit. True  The double-entry system of accounting refers to the placement of a double line at the end of a column of figures. False  A credit balance in a liability account indicates that an error in recording has occurred. False  An account consists of two parts: (1) a left or debit side and (2) a right or credit side False  The normal balance of an asset is a credit. False  The normal balance of the dividend account is a credit. False  Assets are decreased with a credit. True  A debit means that an account has been decreased. False

 A decrease in a liability is recorded by a debit. True  Liabilities are established with debits and decreased with credits. False  The dividends account is a subdivision of the retained earnings account and appears as an expense on the income statement. False (dividends are distribution of $ and not an expense)  Revenues are a subdivision of stockholders' equity. True  Under the double-entry system, revenues must always equal expenses. False  Source documents can provide evidence that a transaction has occurred. True (example: checks)  Prepaid expenses are assets. True  Wages payable is a type of expense. False (wages payable = a liability)  Dividends are classified as an expense. False

 Unearned revenues are classified as liabilities on the balance sheet. True...