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Exam 4: The Accounting System: Concepts and Applications

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Question 41

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Owner's equity is sometimes referred to as residual equity because creditors have ____________________ legal claim to the assets of a business.

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Question 42

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The entity concept means the business is considered separate from the owners.

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Question 43

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If an entrepreneur starts a business with $20 000 of their own money, what is the effect on the accounting equation?

What are revenues and expenses and how is the accounting equation expanded to record these items?

Briefly explain the purpose of end-of-period adjustments.

Which of the following best describes an asset?

Which of the following best describes an application of the entity concept?

Which of the following best describes an application of historical cost?

The _________________________ is presented as Assets = Liabilities + Owner's Equity.

Depreciation is the part of the cost of a physical asset allocated as an expense to each time period in which the asset is used.

A business purchased a desk for $250. Another store had the same desk priced at $300. The historical cost concept would dictate that the business record $300 as the cost of the desk.

Example 4.1 The following information applies to the following questions. The accountant for Big Stores has compiled the following information about the business and its accounts: $\begin{array} { l r l r } \text { Cash } & \$ 1000 & \text { Inventory } & \$ 10000 \\\text { Revenues } & 5000 & \text { Expenses } & 3000 \\\text { Accounts Payable } & 3000 & \text { Equipment } & 15000 \\\text { Wages Payable } & 2000 & \text { Notes payable } & 12000\end{array}$ -Refer to Example 4.1. How much net income did Big Stores have for the year?

Example 4.1 The following information applies to the following questions. The accountant for Big Stores has compiled the following information about the business and its accounts: $\begin{array} { l r l r } \text { Cash } & \$ 1000 & \text { Inventory } & \$ 10000 \\\text { Revenues } & 5000 & \text { Expenses } & 3000 \\\text { Accounts Payable } & 3000 & \text { Equipment } & 15000 \\\text { Wages Payable } & 2000 & \text { Notes payable } & 12000\end{array}$ -Refer to Example 4.1. Using the accounting equation, what is the amount of owner's equity reported on Big Stores' balance sheet?

The principle that the entity is able to continue as a viable entity for the foreseeable future is known as:

A business' resources less the amount of creditor's claims are referred to as the dual effect of transactions.

A business purchased a desk for $250. Another store had the same desk priced at $300. The historical cost concept would dictate that the business record $250 as the cost of the desk.

____________________ are the prices a business charged to its customers for goods or services provided during a specific time period.

GAAP enables external users to instruct the issuing business on how to prepare their financial statements to meet the needs of the external user.

Example 4.1 The following information applies to the following questions. The accountant for Big Stores has compiled the following information about the business and its accounts: $\begin{array} { l r l r } \text { Cash } & \$ 1000 & \text { Inventory } & \$ 10000 \\\text { Revenues } & 5000 & \text { Expenses } & 3000 \\\text { Accounts Payable } & 3000 & \text { Equipment } & 15000 \\\text { Wages Payable } & 2000 & \text { Notes payable } & 12000\end{array}$ -Refer to Example 4.1. What is the total amount of assets belonging to Big Stores?

An employee could be a creditor of the business for any salary earned but not yet paid for.