MASTERING ACCOUNTING PRINCIPLES
VOLUME 1- FULL SOLUTIONS GUIDE (10
TH CANADIAN EDITION)
Which accounts appear on a balance sheet?
Common Stock, Equipment, Accounts Payable.
What is included in the heading of a balance sheet?
The company name, the name of the financial statement, and the date line.
What is a correct date line for a Balance Sheet?
December 31, 20xx.
How do you calculate ending retained earnings?
Beginning retained earnings + Net income - Dividends.
What is the order of preparing financial statements?
Income statement, Statement of retained earnings, Balance sheet.
Which accounts belong on the statement of retained earnings?
Retained earnings and dividends.
What do single and double underlines indicate in financial statements?
Single-ruled line denotes addition/subtraction; double underlines indicate final totals.
How does paying salaries affect the accounting equation?
Increase Salaries expense and decrease Equity.
How to record a partial payment on a billed service?
Increase Cash and decrease Accounts Receivable.
How should the purchase of supplies on credit be recorded?
Increase Supplies and increase Accounts Payable.
What effect do dividends have on equity?
Decrease in equity.
What is a rule for entering transactions into the accounting equation?
The accounting equation must always remain in balance.
How should Sally Smith record her initial investment in her business?
Increase Cash; increase Common Stock.
What does an income statement report?
A business's revenues and expenses over a period of time.
What is the framework for responsible environmental behavior in companies called?
Environmental, social, and governance.
What activities include buying and selling long-term assets?
Investing activities.
What items are included in the heading of every financial statement?
The title of the statement, the date or time period, and the company name.
Which accounts appear on an income statement?
Wages expense, rent expense, rent revenue, service revenue.
How to record a payment on a bill for supplies purchased on credit?
Decrease Accounts Payable and decrease Cash.
How should Landen Consulting record a cash payment from a customer?
,Decrease Accounts Receivable and increase Cash.
What type of account is Accounts Receivable?
It is an asset account.
How should ABC Co. record services performed on credit?
Increase Accounts Receivable and increase Revenue.
What happens when a company pays dividends to its shareholders?
Equity decreases.
What happens when cash is decreased?
Dividends account is increased.
What does purchasing supplies on credit mean?
A liability has been incurred.
What happens to the Accounts Payable account when supplies are purchased on credit?
The Accounts Payable account will be increased.
How is a partial payment for baking supplies recorded?
Decrease the accounts payable account and decrease the cash account.
What is recorded when office equipment costing $3,000 is purchased?
Increase Equipment; decrease Cash.
How does Smith Company record a $100 cash purchase of supplies?
Decrease Cash; increase Supplies.
What does the date line of a balance sheet indicate?
It lists one specific day and not a period of time.
How is net income calculated?
Revenues - expenses = net income.
What increases equity by definition?
Owner investments, called stock issuances.
What must always remain in balance when recording transactions?
The accounting equation.
Which accounts affect equity?
Revenues, Expenses, Common stock, Dividends.
What is the most accurate definition of owner investments?
Stock issuances.
What effect do owner investments have on equity?
Increase in equity.
What is equity composed of?
Contributed capital and retained earnings.
What do dividends do to equity?
Dividends cause a decrease in equity.
What are the three sections of the statement of cash flows?
Financing, Operating, Investing.
What does the statement of cash flows identify?
The cash inflows and outflows over a period of time.
What is the return on assets for Boaz Company?
4.5%.
How is return on assets computed?
Net Income divided by Average Total Assets.
What accounts appear on a balance sheet?
,Supplies, Cash, Common stock, Equipment, Accounts payable.
What does the balance sheet report?
The balance of assets, liabilities, and equity at a point in time.
What do higher expenses result in?
Lower total equity.
What is the expanded accounting equation?
Assets = liabilities + common stock + revenues - expenses - dividends.
What is cash accounting?
A method that records transactions only when cash moves.
How should Melton's Door Company record rent payment?
Increase Rent Expenses.
What type of account is accounts payable?
Liability.
How should Bob's Bakery record its utility bill payment?
Increase Expenses and decrease Cash.
How should Mary's Morsels Company record catering services billed?
Increase Accounts Receivable and increase Revenue.
How should Russell's Consulting Services record its service transaction?
Increase both Cash and Accounts Receivable; and increase Revenues.
How should Jack Pickle record his initial investment in the corporation?
Increase Cash by $4,000; Increase Common Stock by $4,000.
What happens when supplies are purchased for cash?
Increase Supplies and decrease Cash.
What does providing a service on credit mean?
The business will receive payment for its services at a later time.
What happens when supplies are purchased on credit?
A liability has been incurred.
How is straight-line depreciation calculated?
Depreciation per year = Cost ÷ Useful Life.
What is the difference between unadjusted and adjusted trial balances?
Unadjusted trial balance is before adjustments; adjusted trial balance is after adjustments.
What are closing entries used for?
To reset temporary accounts (revenues, expenses, dividends) to zero.
What are current assets?
Assets that are expected to be used or sold within one year, such as cash and accounts receivable.
What is the formula for Net Working Capital?
Net Working Capital = Current Assets - Current Liabilities.
What does a higher current ratio indicate?
It indicates safer liquidity.
What does the debt ratio measure?
The proportion of total liabilities to total assets; lower values indicate less risk.
What happens to assets and equity when stock is issued?
Assets increase and equity increases.
What is the effect of recording depreciation on assets?
Assets decrease.
, What is a bar chart used for in data visualization?
To compare categories.
What is a line chart used for?
To show trends over time.
What are the three activities involved in accounting?
Identification, Recording, and Communication.
Who are the internal users of accounting data?
Finance, Marketing, Human Resources, and Management.
What questions might internal users of accounting data ask?
Finance: Is cash sufficient to pay dividends? Marketing: What price should be charged for
maximum net income? Human Resources: Can we afford pay raises? Management: Which
product line is most profitable?
Who are the external users of accounting data?
Investors and Creditors.
What questions might external users of accounting data ask?
Investors: Is the company earning satisfactory income? Creditors: Can the company pay its
debts?
What are the building blocks of accounting?
Ethics, Principles, and Assumptions.
What is the significance of ethics in financial reporting?
Effective financial reporting depends on sound ethical behavior to maintain investor confidence.
What major financial scandals raised concerns about accounting ethics?
Enron, WorldCom, HealthSouth, and AIG.
What legislation was passed to improve financial reporting ethics?
The Sarbanes-Oxley Act (SOX).
What are Generally Accepted Accounting Principles (GAAP)?
Standards that are generally accepted and universally practiced for reporting economic events.
What are the primary standard-setting bodies for accounting?
Financial Accounting Standards Board (FASB), Securities and Exchange Commission (SEC),
International Accounting Standards Board (IASB).
What are the two primary qualities that make accounting information useful?
Relevance and Faithful Representation.
What does relevance mean in accounting?
Financial information must be capable of making a difference in a decision.
What does faithful representation mean in accounting?
Numbers and descriptions must accurately reflect what really existed or happened.
What is the Historical Cost Principle?
Assets are recorded at their cost.
What is the Fair Value Principle?
Assets and liabilities should be reported at fair value, the price received to sell an asset or settle a
liability.
What are the four financial statements described in accounting?
The balance sheet, income statement, statement of cash flows, and statement of changes in
equity.
What is the accounting equation?
Assets = Liabilities + Equity.
VOLUME 1- FULL SOLUTIONS GUIDE (10
TH CANADIAN EDITION)
Which accounts appear on a balance sheet?
Common Stock, Equipment, Accounts Payable.
What is included in the heading of a balance sheet?
The company name, the name of the financial statement, and the date line.
What is a correct date line for a Balance Sheet?
December 31, 20xx.
How do you calculate ending retained earnings?
Beginning retained earnings + Net income - Dividends.
What is the order of preparing financial statements?
Income statement, Statement of retained earnings, Balance sheet.
Which accounts belong on the statement of retained earnings?
Retained earnings and dividends.
What do single and double underlines indicate in financial statements?
Single-ruled line denotes addition/subtraction; double underlines indicate final totals.
How does paying salaries affect the accounting equation?
Increase Salaries expense and decrease Equity.
How to record a partial payment on a billed service?
Increase Cash and decrease Accounts Receivable.
How should the purchase of supplies on credit be recorded?
Increase Supplies and increase Accounts Payable.
What effect do dividends have on equity?
Decrease in equity.
What is a rule for entering transactions into the accounting equation?
The accounting equation must always remain in balance.
How should Sally Smith record her initial investment in her business?
Increase Cash; increase Common Stock.
What does an income statement report?
A business's revenues and expenses over a period of time.
What is the framework for responsible environmental behavior in companies called?
Environmental, social, and governance.
What activities include buying and selling long-term assets?
Investing activities.
What items are included in the heading of every financial statement?
The title of the statement, the date or time period, and the company name.
Which accounts appear on an income statement?
Wages expense, rent expense, rent revenue, service revenue.
How to record a payment on a bill for supplies purchased on credit?
Decrease Accounts Payable and decrease Cash.
How should Landen Consulting record a cash payment from a customer?
,Decrease Accounts Receivable and increase Cash.
What type of account is Accounts Receivable?
It is an asset account.
How should ABC Co. record services performed on credit?
Increase Accounts Receivable and increase Revenue.
What happens when a company pays dividends to its shareholders?
Equity decreases.
What happens when cash is decreased?
Dividends account is increased.
What does purchasing supplies on credit mean?
A liability has been incurred.
What happens to the Accounts Payable account when supplies are purchased on credit?
The Accounts Payable account will be increased.
How is a partial payment for baking supplies recorded?
Decrease the accounts payable account and decrease the cash account.
What is recorded when office equipment costing $3,000 is purchased?
Increase Equipment; decrease Cash.
How does Smith Company record a $100 cash purchase of supplies?
Decrease Cash; increase Supplies.
What does the date line of a balance sheet indicate?
It lists one specific day and not a period of time.
How is net income calculated?
Revenues - expenses = net income.
What increases equity by definition?
Owner investments, called stock issuances.
What must always remain in balance when recording transactions?
The accounting equation.
Which accounts affect equity?
Revenues, Expenses, Common stock, Dividends.
What is the most accurate definition of owner investments?
Stock issuances.
What effect do owner investments have on equity?
Increase in equity.
What is equity composed of?
Contributed capital and retained earnings.
What do dividends do to equity?
Dividends cause a decrease in equity.
What are the three sections of the statement of cash flows?
Financing, Operating, Investing.
What does the statement of cash flows identify?
The cash inflows and outflows over a period of time.
What is the return on assets for Boaz Company?
4.5%.
How is return on assets computed?
Net Income divided by Average Total Assets.
What accounts appear on a balance sheet?
,Supplies, Cash, Common stock, Equipment, Accounts payable.
What does the balance sheet report?
The balance of assets, liabilities, and equity at a point in time.
What do higher expenses result in?
Lower total equity.
What is the expanded accounting equation?
Assets = liabilities + common stock + revenues - expenses - dividends.
What is cash accounting?
A method that records transactions only when cash moves.
How should Melton's Door Company record rent payment?
Increase Rent Expenses.
What type of account is accounts payable?
Liability.
How should Bob's Bakery record its utility bill payment?
Increase Expenses and decrease Cash.
How should Mary's Morsels Company record catering services billed?
Increase Accounts Receivable and increase Revenue.
How should Russell's Consulting Services record its service transaction?
Increase both Cash and Accounts Receivable; and increase Revenues.
How should Jack Pickle record his initial investment in the corporation?
Increase Cash by $4,000; Increase Common Stock by $4,000.
What happens when supplies are purchased for cash?
Increase Supplies and decrease Cash.
What does providing a service on credit mean?
The business will receive payment for its services at a later time.
What happens when supplies are purchased on credit?
A liability has been incurred.
How is straight-line depreciation calculated?
Depreciation per year = Cost ÷ Useful Life.
What is the difference between unadjusted and adjusted trial balances?
Unadjusted trial balance is before adjustments; adjusted trial balance is after adjustments.
What are closing entries used for?
To reset temporary accounts (revenues, expenses, dividends) to zero.
What are current assets?
Assets that are expected to be used or sold within one year, such as cash and accounts receivable.
What is the formula for Net Working Capital?
Net Working Capital = Current Assets - Current Liabilities.
What does a higher current ratio indicate?
It indicates safer liquidity.
What does the debt ratio measure?
The proportion of total liabilities to total assets; lower values indicate less risk.
What happens to assets and equity when stock is issued?
Assets increase and equity increases.
What is the effect of recording depreciation on assets?
Assets decrease.
, What is a bar chart used for in data visualization?
To compare categories.
What is a line chart used for?
To show trends over time.
What are the three activities involved in accounting?
Identification, Recording, and Communication.
Who are the internal users of accounting data?
Finance, Marketing, Human Resources, and Management.
What questions might internal users of accounting data ask?
Finance: Is cash sufficient to pay dividends? Marketing: What price should be charged for
maximum net income? Human Resources: Can we afford pay raises? Management: Which
product line is most profitable?
Who are the external users of accounting data?
Investors and Creditors.
What questions might external users of accounting data ask?
Investors: Is the company earning satisfactory income? Creditors: Can the company pay its
debts?
What are the building blocks of accounting?
Ethics, Principles, and Assumptions.
What is the significance of ethics in financial reporting?
Effective financial reporting depends on sound ethical behavior to maintain investor confidence.
What major financial scandals raised concerns about accounting ethics?
Enron, WorldCom, HealthSouth, and AIG.
What legislation was passed to improve financial reporting ethics?
The Sarbanes-Oxley Act (SOX).
What are Generally Accepted Accounting Principles (GAAP)?
Standards that are generally accepted and universally practiced for reporting economic events.
What are the primary standard-setting bodies for accounting?
Financial Accounting Standards Board (FASB), Securities and Exchange Commission (SEC),
International Accounting Standards Board (IASB).
What are the two primary qualities that make accounting information useful?
Relevance and Faithful Representation.
What does relevance mean in accounting?
Financial information must be capable of making a difference in a decision.
What does faithful representation mean in accounting?
Numbers and descriptions must accurately reflect what really existed or happened.
What is the Historical Cost Principle?
Assets are recorded at their cost.
What is the Fair Value Principle?
Assets and liabilities should be reported at fair value, the price received to sell an asset or settle a
liability.
What are the four financial statements described in accounting?
The balance sheet, income statement, statement of cash flows, and statement of changes in
equity.
What is the accounting equation?
Assets = Liabilities + Equity.
