Special Sub-Topic: Bookkeeping Basics
|Which of the following is an example of an asset? |
Prepaid Expenses. Only Prepaid Expenses meets the definition of an asset, that is, the economic resources of a business that are expected to be of benefit in the future. Service revenue is revenue/income, notes payable are a liability, and withdrawals by the owner is a reduction of equity.
|If a single owner manages and owns a business, what do you call this type of organization (in North America)?|
proprietorship. A proprietorship generally has a single owner. A partnership is a business with two or more co-owners; each co-owner is a partner. A corporation is a legal entity separate from its owners. A corporation's owners are called shareholders.
|What is an expense that a business has incurred but has not yet paid?|
Accrued Expense. Accrued expenses include unpaid salaries for employees. For example, if you worked a summer job, then you know that there may be an interval of several days or even a week between the end of your pay period and the date that you receive your paycheck. If an accounting period ends during such an interval, then your employer's salary expense would be accrued for the salary you have earned but have not yet been paid. Prepaid expenses are expenses that are paid in advance. Unearned revenue occurs when cash is received from a customer before work is performed. Accrued revenues have been earned, but payment in cash has not been received.
|What is a seller's request for payment from a sale?|
invoice. When a merchandiser decides to purchase inventory, it sends a purchase order to its supplier. The supplier ships the merchandise and sends an invoice, or bill, to the merchandiser. The merchandiser pays the supplier in accordance with the supply/credit terms, e.g. cash on delivery, 7 dyas after delivery, 30 dyas from end of montgh, etc.
|Which of the following does not have a debit balance?|
Sales. Sales is a revenue account, and like all revenue accounts has a normal credit balance. The other items listed normally have debit balances.
|If total assets equal 3 times liabilities, and owner's equity is $40,000, what are total assets?|
$60,000. Let "L" stand for liabilities. Given that total assets equals 3L and that owner's equity equals $40,000, then according to the accounting equation:
3L = L + $40,000
Subtract L from both sides of the equation.
2L = $40,000
L = $20,000
Total Assets = $20,000 + $40,000
Total Assets = $60,000
|A company in North America purchases merchandise on July 1 for $1,600 with terms 1/10, n/30. If it pays for the merchandise on July 8, what should the entry to record the payment look like?|
credit Purchase Discounts $16. The terms 1/10, n/30 mean that a 1% per cent discount is available if payment is made within 10 days of the invoice date, otherwise the net (total) amount of the invoice is due in 30 days. Since payment is made within the ten day discount period, the journal entry to record the payment is:
Dr Accounts Payable $1,600
Cr Purchase Discounts $16
Cr Cash/Bank Account $1,584
|In North America, which of the following accounts is not a contra account?|
Purchases. A contra account has two distinguishing characteristics: (1) it always has a companion account, and (2) its normal balance is opposite that of the companion account. Only Purchases is a normal account. The other choices are contra accounts.
|If the beginning balance in an owner's equity was $25, the ending balance is $67, net income for the month was $106, and there were no investments by the owner, how much did the owner withdraw for the month?|
$64. $ 25 Beginning balance in owner's equity
$106 + Net Income
$131 = Subtotal
$ 64 - Withdrawals
$ 67 = Ending balance in owner's equity
In general terms the concept may be stated:
Beginning balance + Additions - Reductions = Ending balance
|What does net income equal?|
Revenues - Expenses. In North America, revenues minus expenses equals net income. Assets minus liabilities equals owner's equity. Liabilities plus owner's equity equals assets. Revenues plus expenses has no meaning.
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