Study Guide 1. Part One Identifying Accounting Terms. Answers. Column II. Column I

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1 Study Guide Name Identifying Accounting Terms Identifying Account Concepts and Practices Analyzing How Transactions Change an Accounting Equation Analyzing How Transactions Change Owner s Equity in an Accounting Equation Part One Identifying Accounting Terms Directions: Select the one term in Column I that best fits each definition in Column II. Print the letter identifying your choice in the Answers column. Column I Column II A. account. The process of planning, recording, analyzing, and interpreting financial information. (p. 6) B. account balance 2. A planned process designed to compile financial data and summarize the results in accounting records and reports. (p. 6) C. account title 3. Financial reports that summarize the financial condition and operations of a business. (p. 6) D. accounting 4. A formal report that shows what an individual owns, what an individual owes, and the difference between the two. (p. 7) E. accounting equation 5. Anything of value that is owned. (p. 7) F. accounting system 6. An amount owed. (p. 7) G. asset 7. The difference between personal assets and personal liabilities. (p. 7) H. business ethics 8. The difference between assets and liabilities. (p. 7) I. business plan 9. The principles of right and wrong that guide an individual in making decisions. (p. 8) J. capital account 0. The use of ethics in making business decisions. (p. 8) K. creditor. A business that performs an activity for a fee. (p. 0) L. equities 2. A business owned by one person. (p. 0) M. equity 3. A formal written document that describes the nature of a business and how it will operate. (p. 0) N. ethics 4. Generally Accepted Accounting Principles. The standards and rules that accountants follow while recording and reporting financial activities. (p. ) O. expense 5. Financial rights to the assets of a business. (p. 3) P. financial statements 6. The amount remaining after the value of all liabilities is subtracted from the value of all assets. (p. 3) Q. GAAP 7. The equation showing the relationship among assets, liabilities, and owner s equity. (p. 3) R. liability 8. Any business activity that changes assets, liabilities, or owner s equity. (p. 4) S. net worth statement 9. A record that summarizes all the transactions pertaining to a single item in the accounting equation. (p. 4) T. owner s equity 20. The name given to an account. (p. 4) U. personal net worth 2. The difference between the increases and decreases in an account. (p. 4) Total Perfect Score 27 Pts. 8 Pts. 0 Pts. 2 Pts. 65 Pts. Your Score Answers D F P S G R U M N H Y V I Q L T E Z A C B Chapter Starting a Proprietorship: Changes That Affect the Accounting Equation

2 Column I Column II Answers V. proprietorship W. revenue X. sale on account 22. An account used to summarize the owner s equity in a business. (p. 4) 23. A person or business to whom a liability is owed. (p. 6) 24. An increase in equity resulting from the sale of goods or services. (p. 8) J K W Y. service business Z. transaction 25. A sale for which payment will be received at a later date. (p. 8) 26. The cost of goods or services used to operate a business. (p. 9) X O AA. withdrawals 27. Assets taken from the business for the owner s personal use (p. 20) 27. AA Part Two Identifying Account Concepts and Practices Directions: Place a T for True or an F for False in the Answers column to show whether each of the following statements is true or false.. Accounting is the language of business. (p. 6) 2. A creditor would favor a positive net worth. (p. 7) 3. The principles of right and wrong that guide an individual in making personal decisions is called business ethics. (p. 8) 4. Keeping personal and business records separate is an application of the business entity concept. (p. ) 5. Generally Accepted Accounting Principles, GAAP, allows for flexibility in reporting. (p. ) 6. Recording business costs in terms of hours required to complete projects is an application of the unit of measurement concept. (p. ) 7. Assets such as cash and supplies have value because they can be used to acquire other assets or be used to operate a business. (p. 3) 8. The relationship among assets, liabilities, and owner s equity can be written as an equation. (p. 3) 9. The accounting equation does not have to be in balance to be correct. (p. 3) 0. When a company pays insurance premiums in advance to an insurer, it records the payment as a liability because the insurer owes future coverage. (p. 5). When items are bought and paid for later, this is referred to as buying on account. (p. 6) 2. When cash is paid on account, a liability is increased. (p. 6) 3. When cash is received from a sale, the total amount of both assets and owner s equity is increased. (p. 8) 4. The accounting concept Realization of Revenue is applied when revenue is recorded at the time goods or services are sold. (p. 8) 5. When cash is paid for expenses, the business has more equity. (p. 9) 6. If two amounts are recorded on the same side of the accounting equation, the equation will no longer be in balance. (p. 20) 7. When a company receives cash from a customer for a prior sale, the transaction increases the cash account balance and increases the accounts receivable balance. (p. 20) 8. A withdrawal decreases owner s equity. (p. 20) Answers. T 2. T 3. F 4. T 5. F 6. F 7. T 8. T 9. F 0. F. T 2. F 3. T 4. T 5. F 6. F 7. F 8. T 2 Working Papers TE

3 Name Date Class Part Three Analyzing How Transactions Change an Accounting Equation Directions: For each of the following transactions, select the two accounts in the accounting equation that are changed. Decide if each account is increased or decreased. Place a + in the column if the account is increased. Place a in the column if the account is decreased. Transactions 2. Received cash from owner Nicole McGraw as an investment. (p. 4) 3 4. Paid cash for supplies. (p. 5) 5 6. Paid cash for insurance. (p. 5) 7 8. Bought supplies on account from Hyde Park Office Supplies. (p. 6) 9 0. Paid cash on account to Hyde Park Office Supplies. (p. 6) Trans. No Cash Supplies Assets 5 Liabilities Owner s Equity Prepaid Insurance 5 Accts. Pay. Hyde Park Office supplies 2 2 Nicole McGraw, Capital Chapter Starting a Proprietorship: Changes That Affect the Accounting Equation 3

4 Part Four Analyzing How Transactions Change Owner s Equity in an Accounting Equation Directions: For each of the following transactions, select the two accounts in the accounting equation that are changed. Decide if each account is increased or decreased. Place a + in the column if the account is increased. Place a in the column if the account is decreased. Transactions 2. Received cash from sales. (p. 8) 3 4. Sold services on account to New U Fitness. (p. 8) 5 6. Paid cash for rent. (p. 9) 7 8. Paid cash for telephone bill. (p. 9) 9 0. Received cash on account from New U Fitness. (p. 20) 2. Paid cash to owner A. Conrad for personal use. (p. 20) Trans. No. Cash Assets 5 Liabilities Owner s Equity Accts. Rec. New U Fitness Supplies Prepaid Insurance 5 Accts. Pay. Hardcore Fitness supplies A. Conrad, Capital Working Papers TE

5 9 L A C C A P I T A B A L A N C 20 C C O U N T 6 6 E X P E B N T L A C C O U R A T N S E E Q U I T I E L I T Y 7 R E V E O U N T C C O U O M P O I T Y C C O U I A B Q 4 N U E 8 U S I N E S S P L A N U I D N T T I T L G N 0 N S A C T I O R E S T R E D I T O N T R W N T I P R I A P R I E R V N T E R E S T T O I N E P R E N E U R S S S E T H I C S I P A S E T H D R N C W E A B L U S Across. A record that summarizes all the transactions pertaining to a single item in the accounting equation. 2. An increase in equity resulting from the sale of goods or services. 5. An account used to summarize the owner s equity in a business. 8. Anything of value that is owned.. Any business activity that changes assets, liabilities, or owner s equity. 3. The name given to an account. 4. An amount paid for the use of money for a period of time. 5. The cost of goods or services used to operate a business. 7. Someone who owns, operates, and takes the risk of a business venture. 8. The principles of right and wrong that guide an individual in making decisions. 9. An amount owed. 20. A formal written document that describes the nature of a business and how it will operate. Down. The difference between the increases and decreases in an account. 3. The difference between assets and liabilities. 4. Assets taken from the business for the owner s personal use. 6. The process of planning, recording, analyzing, and interpreting financial information. 7. Interest paid on an original amount deposited in a bank plus any interest that has been paid. 9. A business that performs an activity for a fee. 0. A business owned by one person. 2. A person or business to whom a liability is owed. 6. Financial rights to the assets of a business. Chapter Starting a Proprietorship: Changes That Affect the Accounting Equation 5

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7 Name Date Class - WORK TOGETHER, p. 9 Completing a net worth statement Megan Finder Net Worth Statement Current Date Assets Cash Scooter 2, Total Assets 2, Liabilities Jaycee Auto River College Total Liabilities, Net Worth, Chapter Starting a Proprietorship: Changes That Affect the Accounting Equation 7

8 - ON YOUR OWN, p. 9 Completing a net worth statement Anthony Clement Net Worth Statement Current Date Assets Cash, Camera Total Assets, Liabilities Kelley Electronics Vista Travel Total Liabilities Net Worth, Working Papers TE

9 Name Date Class -2 WORK TOGETHER, p. 7 Determining how transactions change an accounting equation Trans. No. Assets 5 Liabilities Owner s Equity Chapter Starting a Proprietorship: Changes That Affect the Accounting Equation 9

10 -2 ON YOUR OWN, p. 7 Determining how transactions change an accounting equation Trans. No. Assets 5 Liabilities Owner s Equity Working Papers TE

11 Name Date Class -3 WORK TOGETHER, p. 22 Determining how transactions change an accounting equation Trans. No. Cash Assets 5 Liabilities Owner s Equity Accts. Rec. Harmon Co. Supplies Prepaid Insurance 5 Accts. Pay. Corona Supplies Nathaniel Conrad, Capital Chapter Starting a Proprietorship: Changes That Affect the Accounting Equation

12 -3 ON YOUR OWN, p. 22 Determining how transactions change an accounting equation Trans. No. Cash Assets 5 Liabilities Owner s Equity Accts. Rec. Bethany Center Supplies Prepaid Insurance 5 Accts. Pay. McGrew Supplies Bryan Arnett, Capital Working Papers TE

13 Name Date Class - APPLICATION PROBLEM (LO2), p. 25 Preparing a net worth statement Lauren Juliana Net Worth Statement Today s Date Assets Cash Jewelry Total Assets 4, , , Liabilities Knapp College Ashley s Boutique Buzz Electronics Total Liabilities 0,98.00, , Owner s Equity (Net Worth) 3,87.00 Assets 2 Liabilities 5 Net Worth Chapter Starting a Proprietorship: Changes That Affect the Accounting Equation 3

14 -2 APPLICATION PROBLEM (LO4), p. 25 Completing the accounting equation Assets = Liabilities Owner s Equity 5,650,475 4,75,000 5,000 6,000 5,300 2,000 3,300 2,000 5,000 7,000 25,000 69,000 56,000 7,625,875 5,750 35,000 3,000 22,000 6,000 3,500 2,500 43,650 39,000 4,650 7,000 2,800 4,200 42,000 25,000 7,000 8,750 2,980 5,770 7,000 47,000 24,000 67,000 35,000 32,000 73,000 4,000 32,000 00,700 93,000 7,700 49,325 39,305 0,020 24,050 2,250 2,800 4 Working Papers TE

15 Name Date Class -3 APPLICATION PROBLEM (LO4, 5), p. 26 Determining how transactions change an accounting equation Trans. No. Beg. Bal Owner s Assets = Liabilities Equity Prepaid Accts. Pay. Accts. Pay. Bethany Cash Supplies Insurance = Knapp Co. Hickman Mowing Hartman, Capital 0 5, ,000 5, ,000 2,800,800 3, , , , , ,700,000, , , , ,000 5,000, ,000,000, ,000,000, ,000,000 3,700,000, ,000 Chapter Starting a Proprietorship: Changes That Affect the Accounting Equation 5

16 -4 APPLICATION PROBLEM (LO4, 5, 6), p. 26 Determining how revenue, expense, and withdrawal transactions change an accounting equation Trans. No. Beg. Bal Assets = Liabilities Owner s Equity Accts. Rec. Accts. Pay. Eden Wedding Prepaid Shutter Shannon Cash Planners Supplies Insurance = Supplies O Bryan, Capital , (expense) (withdrawal) , , , (revenue) , (expense) , (revenue) , (revenue) , (expense) ,290, ,290 6 Working Papers TE

17 Name Date Class -M MASTERY PROBLEM (LO4, 5, 6), p. 27 Determining how transactions change an accounting equation Trans. No. Beg. Bal Assets = Liabilities Owner s Equity Accts. Pay. Accts. Rec. Prepaid Paws & Peter Gentry, Cash Dr. Shephard Supplies Insurance = Claws Co. Capital 2, ,300, (expense) 2, ,300, (investment) 2, ,625,050 3, , , , , , , , , ,300, (expense) ,300,625,050 (revenue) 00, , ,575 2, (revenue) ,575 2, (expense) ,575 2, ,575 2, , ,50,375 2, ,375 2, (revenue) ,375 2, (withdrawal) 2, ,375 2,85 Chapter Starting a Proprietorship: Changes That Affect the Accounting Equation 7

18 -C CHALLENGE PROBLEM (LO4, 5, 6), p. 28 Determining how transactions change an accounting equation. Trans. No. Beg. Bal Assets = Liabilities Owner s Equity Accts. Pay. Accts. Rec. Prepaid Ashley Tech Linda Liu, Cash 4Kids Daycare Supplies Insurance = Services Capital 7,542,265, ,45 7, (withdrawal) 7,542, , ,542, ,370 6,837 Business Entity Concept: Personal financials are kept separate from business no effect 7,542, ,370 6, ,47, ,245 6,837 7, (expense) 2. a. The owner of a business can withdraw assets from that business for personal use because the assets belong to the owner through the business. However, the owner must be careful to leave enough cash in the business for daily operations. b. The owner may withdraw assets other than cash if the business does not have sufficient cash for the owner to withdraw or if the owner has a use for other assets owned by the business. 8 Working Papers TE