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Matching Basic Vocabulary Chapter 1

Match the following accounting principles, accounting assumptions, and qualitative characteristics with their descriptions.

  1. Separate Entity Assumption
  2. Unit of Measure Assumption
  3. Conservatism
  4. Comparability
  5. Consistency
  6. Materiality
  7. Relevance
  8. Reliability
  9. Matching Principle
  10. Historical Cost Principle
  11. Time Period Assumption
  • Matching Principle - ___________ Recognizes expenses in the same period when they are incurred in generating revenues
  • Comparability - ___________ The quality that allows decision makers to analyze two or more companies within an industry and look for similarities and differences.
  • Consistency - ___________ The quality that means that similar accounting methods have been applied over time within a company.
  • Conservatism - ___________ The guideline that suggests accountants should take special care to not overstate revenues.

Retained Earnings Chapter 1

Which of the following would increase retained earnings?

  1. an increase to an expense account.
  2. an increase to a revenue account.
  3. a cash dividend being declared and paid to stockholders.
  4. issuance of additional shares of common stock.

An increase in a Revenue account increases Net Income, which in turn would increase Retained Earnings.

Account Classifications Chapter 1

For each account listed below, choose its classification:

Account Classification
1 Accounts Payable
Correct Incorrect
2 Accounts Receivable
Correct Incorrect
3 Advertising Expense
Correct Incorrect
4 Bonds Payable
Correct Incorrect
5 Building
Correct Incorrect
6 Capital Stock
Correct Incorrect
7 Cash
Correct Incorrect
8 Common Stock
Correct Incorrect
9 Cost of Goods Sold
Correct Incorrect
10 Depreciation Expense
Correct Incorrect
11 Dividends
Correct Incorrect
12 Service Fees Earned
Correct Incorrect
13 Income Tax Expense
Correct Incorrect
14 Interest Expense
Correct Incorrect
15 Interest Payable
Correct Incorrect
16 Interest Revenue
Correct Incorrect
17 Inventory
Correct Incorrect
18 Investments
Correct Incorrect
19 Land
Correct Incorrect
20 Notes Payable
Correct Incorrect
21 Notes Receivable
Correct Incorrect
22 Preferred Stock
Correct Incorrect
23 Prepaid Advertising
Correct Incorrect
24 Prepaid Insurance
Correct Incorrect
25 Prepaid Rent
Correct Incorrect
26 Rent Expense
Correct Incorrect
27 Retained Earnings
Correct Incorrect
28 Salaries Payable
Correct Incorrect
29 Sales Revenue
Correct Incorrect
30 Service Revenue
Correct Incorrect
31 Supplies
Correct Incorrect
32 Unearned Revenue
Correct Incorrect
33 Utilities Payable
Correct Incorrect
34 Wages Expense
Correct Incorrect

Solving for Net Income Chapter 1

December 31 Total Assets Total Liabilities
Year 1 135,000 88,000
Year 2 177,000 92,000

Determine Net Income (or Loss) for Year 2 assuming that dividends paid during the year amounted to $3,000.

Net Income is $41,000.

Tying the Statements Together Chapter 1

A company had the following account balances at the end of its first year of operations. Find the missing amounts.

Net Income 560 Common Stock 1,600
Accounts Payable 500 Retained Earnings 550
Inventory ? Revenue ?
Equipment 1,200 Expenses 1,760
Accounts receivable 700 Cash 1,000
Dividends ? Wages Payable 900
  1. Determine Inventory
  2. Determine Revenue
  3. Determine Dividends
  1. Inventory is 650
  2. Revenue is 2,320
  3. Dividends are 10

Solving for Retained Earnings Chapter 1

At the end of Year 2, a company has a retained earnings balance of 5,700. Compute the missing amounts in the following table.

Year 1 Year 2
Beginning retained earnings 4,500 A
Revenues for the year 16,300 15,200
Expenses for the year B 13,300
Dividends declared 1,000 1,500
(B) Year 1 Expenses (A) Year 2 Beginning retained earnings
1. 13,700 2,300
2. 14,500 5,300
3. 17,500 5,700
4. 19,500 6,100
5. None of the above
Year 1 Expenses Year 2 Beginning retained earnings
2. 14,500 5,300