1) On January 1, 2015, Davin Avenue Associates, Inc. purchased a copier for $6,000 cash and decided to depreciate it over 5 years. What amounts associated with the copier will appear on Davin’s financial statements for the year ending December 31, 2015? Income Statement Statement of Cash Flows a. ($ 1,200) ($ 6,000) b. ($ 1,200) $ 0 c. ($ 6,000) $ 0 d. $ 0 ($ 1,200)
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
1) On January 1, 2015, Davin Avenue Associates, Inc. purchased a copier for $6,000 cash and decided to
Income Statement Statement of
a. ($ 1,200) ($ 6,000)
b. ($ 1,200) $ 0
c. ($ 6,000) $ 0
d. $ 0 ($ 1,200)
2) Which of the following concepts is important to accrual accounting?
a. Time period, because accrual accounting divides earnings into time periods
b. Monetary unit, because inflation is a big factor in the environment
c. Cash basis, because if cash is not received, revenue is not accrued
d. Entity concept, because personal transactions must be separated from business transactions
3. Which of the following statements does not present financial information based on the accrual basis of accounting?
a. Balance Sheet
b. Income Statement
c. Statement of Retained Earnings
d. Statement of Cash Flows
4. Harvest Catering is a local catering service. Conceptually, when should Harvest recognize revenue from its catering service?
a. At the date the customer places the order
b. At the date the meals are served
c. At the date the invoice is mailed to the customer
d. At the date the customer's payment is received
5. When is revenue from the sale of merchandise normally recognized?
a. On the date the sale is made.
b. When the customer pays for the merchandise.
c. Either on the date on which the sale occurs, or the date on which the customer pays
d. When the merchandise is sold, if sold for cash, or when payment is received, if sold on credit
6. Carl and Stefanie each invest $15,000 in a business and are given shares of stock in Thibeau Industries as evidence of their ownership interests. For this transaction, identify the effect on the
a. Assets increase and liabilities increase.
b. Assets increase and
c. Liabilities increase and stockholders’ equity decreases.
d. Liabilities decrease and assets decrease.
7. Land is purchased on credit. For this transaction, identify the effect on the accounting equation.
a. Assets increase and liabilities increase.
b. Assets increase and owners’ equity increases.
c. Liabilities increase and owners’ equity decreases.
d. Liabilities decrease and assets decrease.
8. Services are provided for customers who are sent bills for the amount they owe. For this transaction, identify the effect on the accounting equation.
a. Assets increase and liabilities increase.
b. Assets increase and stockholders’ equity increases.
c. Liabilities increase and stockholders’ equity decreases.
d. Liabilities decrease and assets decrease.
9. Blecker Corp. made cash sales to customers. What effect does this transaction have on the accounting equation?
a. Liabilities increase and stockholders’ equity increases.
b. There is no effect on the accounting equation as one asset account increases while another asset account decreases.
c. Assets increase and liabilities increase.
d. Assets increase and stockholders’ equity increases.
10. During May, Aniston, Inc. purchased office supplies for cash. The supplies will be used in June. What effect does this purchase transaction have on the accounting equation?
a. Assets increase and stockholders’ equity decreases.
b. Assets increase and liabilities increase.
c. Assets decrease and liabilities decrease.
d. There is no effect on the accounting equation as one asset account increases while another asset account decreases.
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