Owners of business firms are the only people who need accounting information.
Transactions that can be measured in dollars and cents are recorded in the financial information system.
The hiring of a new company president is an economic event recorded by the financial information system.
Management of a business enterprise is the major external user of information.
Accounting communicates financial information about a business enterprise to both internal and external users.
Accounting information is used only by external users with a financial interest in a business enterprise.
Financial statements are the major means of communicating accounting information to interested parties.
Bookkeeping and accounting are one and the same because the bookkeeping function includes the accounting process.
The origins of accounting are attributed to Luca Pacioli, a famous mathematician.
The study of accounting will be useful only if a student is interested in working for a profit-oriented business firm.
A new account is opened for each transaction entered into by a business firm.
The recording process becomes more efficient and informative if all transactions are recorded in one account.
When the volume of transactions is large, recording them in tabular form is more efficient than using journals and ledgers.
An account is often referred to as a T-Account because of the way it is constructed.
A debit to an account indicates an increase in that account.
If a revenue account is credited, the revenue account is increased.
The normal balance of all accounts is a debit.
Debit and credit can be interpreted to mean increase and decrease, respectively.
The double-entry system of accounting refers to the placement of a double line at the end of a column of figures.
A credit balance in a liability account indicates that an error in recording has occurred.
The dividends account is a subdivision of the retained earnings account and appears as an expense on the income statement.
Revenues are a subdivision of retained earnings.
Under the double-entry system, revenues must always equal expenses.
Transactions are entered in the ledger first and then they are analyzed in terms of their effect on the accounts.
Business documents can provide evidence that a transaction has occurred.
Each transaction must be analyzed in terms of its effect on the accounts before it can be recorded in a journal.
Transactions are entered in the ledger accounts and then transferred to journals.
All business transactions must be entered first in the general ledger.
A simple journal entry requires only one debit to an account and one credit to an account.
A compound journal entry requires several debits to one account and several credits to one account.
Many business transactions affect more than one time period.
The time period assumption states that the economic life of a business entity can be divided into artificial time periods.
The time period assumption is often referred to as the expense recognition principle.
A company's calendar year and fiscal year are always the same.
Accounting time periods that are one year in length are referred to as interim periods.
Income will always be greater under the cash basis of accounting than under the accrual basis of accounting.
The cash basis of accounting is not in accordance with generally accepted accounting principles.
The expense recognition principle requires that efforts be matched with accomplishments.
Expense recognition is tied to revenue recognition.
The revenue recognition principle dictates that revenue can be recognized in the accounting period in which cash is received.
Adjusting entries are not necessary if the trial balance debit and credit columns balances are equal.
Adjusting entries are often made because some business events are not recorded as they occur.
Adjusting entries are recorded in the general journal but not posted to the accounts in the general ledger.
Revenue received before it is earned and expenses paid before being used or consumed are both initially recorded as liabilities.
Accrued revenues are revenues which have been received but not yet earned.
The book value of a depreciable asset is always equal to its market value because depreciation is a valuation technique.
Accumulated Depreciation is a liability account and has a credit normal account balance.
A liability - revenue account relationship exists with an unearned rent revenue adjusting entry.
The balances of the Depreciation Expense and the Accumulated Depreciation accounts should always be the same.
Unearned revenue is a prepayment that requires an adjusting entry when services are performed.
Asset prepayments become expenses when they expire.
A contra asset account is subtracted from a related account in the balance sheet.
If prepaid costs are initially recorded as an asset, no adjusting entires will be required in the future.
The cost of a depreciable asset less accumulated depreciation reflects the look value of the asset.
Accrued revenues are revenues that have been earned and received before financial statements have been prepared.
An adjusting entry for accrued expenses results in an increase to an expense account and an increase to a liability account.
Accrued expenses are expenses incurred but not yet paid or recorded at the statement date.
Financial statements can be prepared from the information provided by an adjusted trial balance.
The adjusted trial balance is the primary basis for the preparation of financial statement.
The adjusting entry at the end of the period to record an expired cost may be different depending on whether the cost was initially recorded as an asset or an expense.
Rent received in advance and credited to a rent revenue account which is still unearned at the end of the period, will require an adjusting entry crediting a liability account for the amount still unearned.
An adjusting entry requiring a credit to Insurance Expense indicates that the initial transaction was charged to an asset account.
A worksheet is a mandatory form that must be prepared along with an income statement and balance sheet.
If a worksheet is used, financial statements can be prepared before adjusting entries are journalized.
If total credits in the income statement columns of a worksheet exceed total debits, the enterprise has net income.
It is not necessary to prepare formal financial statements if a worksheet has been prepared because financial position and net income are shown on the worksheet.
The adjustments on a worksheet can be posted directly to the accounts in the ledger from the worksheet.
The adjusted trial balance columns of a worksheet are obtained by subtracting the adjustment columns from the trial balance columns.
The balance of the depreciation expense account will appear in the income statement debit column of a worksheet.
Closing entries are unnecessary if the business plans to continue operating in the future and issue financial statements each year.
The Dividends account is closed to the Income Summary account in order to properly determine net income (or loss) for the period.
After closing entries have been journalized and posted, all temporary accounts in the ledger should have zero balances.
Closing revenue and expense accounts to the Income Summary account is an optional bookkeeping procedure.
Closing the Dividends account to Retained Earnings is not necessary if net income is greater than dividends during the period.
The Dividends account is a permanent account whose balance is carried forward to the next accounting period.
Closing entries are journalized after adjusting entires have been journalized.
The amounts appearing on an income statement should agree with the amounts appearing on the post-closing trial balance.
The post-closing trial balance is entered in the first two columns of a worksheet.
A business entity has only one accounting cycle over is economic existence.
The accounting cycle begins at the start of a new accounting period.
Both correcting entries and adjusting entries always affect at least one balance sheet account and one income statement account.
Correcting entries are made any time an error is discovered even though it may not be at the end of an accounting period.