Consider the following accounting terms and definitions, and match each term to the definition:
1. Accounting equation
3. Balance sheet
5. Income statement
7. Net income
8. Net loss
10. Statement of cash flows
11. Statement of retained
a. An economic resource that is expected to be of benefit
in the future
b. Debts that are owed to creditors
c. Excess of total expenses over total revenues
d. Excess of total revenues over total expenses
e. The basic tool of accounting, stated as
Assets = Liabilities + Equity
f. Decreases in equity that occur in the course of selling
goods or services
g. Increases in equity that occur in the course of selling
goods or services
h. Reports on a business’s cash receipts and cash payments
during a period
i. Reports on an entity’s assets, liabilities, and stockholders’
equity as of a specific date
j. Reports on an entity’s revenues, expenses, and net
income or loss for the period
k. Reports how the company’s retained earnings balance
changed from the beginning to the end of the period
The correct option is matched as follows:
The accounting equation is the general tool of accounting, which measures the resources and their claim.
Income statement is the part of the financial statements issued by the entity at the end of the period, which exhibits the revenues and expenses of the business for the period.
Statement of retained earnings is the part of the financial statements issued by the entity at the end of the period, which exhibits the change in the beginning balance of retained earnings
Amos Sharp recently opened his own accounting firm on October 1, which he operates as a corporation. The name of the new entity is Amos Sharp, CPA. Sharp experienced the following events during the organizing phase of the new business and its first month of operations in 2018. Oct. 5 Sharp deposited $45,000 in a new business bank account titled Amos Sharp, CPA. The business issued common stock to Sharp. 6 Paid $300 cash for letterhead stationery for new office. 7 Purchased office furniture for the office on account, $6,500. 10 Consulted with tax client and received $3,300 for services rendered. 11 Paid utilities, $340. 12 Finished tax hearings on behalf of a client and submitted a bill for accounting services, $16,000. 18 Paid office rent, $1,800. 25 Received amount due from client that was billed on October 12. 27 Paid full amount of Accounts Payable created on October 7. 31 Cash dividends of $3,800 were paid to stockholders. Requirements 1. Analyze the effects of the events on the accounting equation of Amos Sharp, CPA. Use a format similar to Exhibit 1-6. 2. Prepare the following financial statements: a. Income statement. b. Statement of retained earnings. c. Balance sheet.
Tiny Town Kennel earns service revenue by caring for the pets of customers. Tiny
Town Kennel is organized as a corporation. During the past month, Tiny Town
Kennel has the following transactions:
a. Received $520 cash for service revenue earned.
b. Paid $325 cash for salaries expense.
c. Received a $1,000 contribution in exchange for common stock.
d. Earned $640 for service revenue, but the customer has not paid Tiny Town
e. Received utility bill of $85, which will be paid next month.
f. Cash dividends of $100 were paid to stockholders.
Indicate the effects of the business transactions on the accounting equation for Tiny
Town Kennel. Transaction (a) is answered as a guide.
Increase asset (Cash); Increase equity (Service Revenue)
Identifying accounts on the financial statements Consider the following accounts: a. Accounts Payable b. Cash c. Common Stock d. Accounts Receivable e. Rent Expense f. Service Revenue g. Office Supplies h. Dividends i. Land j. Salaries Expense Identify the financial statement (or statements) that each account would appear on. Use I for Income Statement, RE for Statement of Retained Earnings, B for Balance Sheet, and C for Statement of Cash Flows.
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