D102 Financial Accounting - Set 1 - Part 2

Correct Answer: Debit accounts receivable

When sales are made on account, accounts receivable is debited to reflect the increase in the amount owed to the company.

Correct Answer: Debit dividends, Credit retained earnings

Dividends are recorded as a debit because they reduce equity, and cash is credited because it is used to pay the dividends.

Correct Answer: Issuing common stock

Repaying a loan is a financing activity, as it involves reducing the company's debt by using cash.

Correct Answer: Debit accounts receivable

Under the allowance method, bad debt expense is debited, and the allowance for doubtful accounts is credited to reflect the estimated uncollectible amounts.

Correct Answer: At the beginning of the accounting period

Closing entries are made at the end of the accounting period to close temporary accounts (revenues, expenses, and dividends) to retained earnings.

Correct Answer: To close all accounts

Adjusting entries ensure that revenues and expenses are recorded in the correct accounting period according to the accrual accounting method.

Correct Answer: Debit cash, Credit common stock

When common stock is issued for cash, the cash account is debited, and the common stock account is credited to reflect the equity issued.

Correct Answer: Liabilities decrease

When dividends are declared, the company incurs a liability to pay shareholders, which increases the dividends payable account.

Correct Answer: As a liability

Prepaid expenses are classified as assets because they represent future economic benefits for expenses already paid but not yet incurred.

Correct Answer: Debit accumulated depreciation, Credit depreciation expense

Depreciation expense is debited to allocate the cost of an asset, and accumulated depreciation is credited to reduce the asset's book value.

Correct Answer: Sales - Cost of Goods Sold - Operating Expenses

Net income is calculated by subtracting the cost of goods sold and operating expenses from total sales.

Correct Answer: As an asset

Unearned revenue is classified as a liability because it represents an obligation to deliver goods or services in the future.

Correct Answer: Debit cash, Credit expense

When a company pays for an expense in cash, the expense account is debited, and cash is credited to reflect the payment.

Correct Answer: Net income Total Revenue

Earnings per share (EPS) is calculated by dividing net income by the number of shares outstanding, representing the company's profit per share.

Correct Answer: Debit salaries expense, Credit cash

Accrued salaries are recorded by debiting salaries expense to recognize the cost and crediting salaries payable to reflect the obligation to pay in the future.

Correct Answer: An account that increases an asset's value

A contra-asset account is used to reduce the value of an associated asset account, such as accumulated depreciation offsetting property, plant, and equipment.

Correct Answer: Debit accounts payable, Credit sales

Sales discounts are recorded by debiting sales discounts to reflect the reduction in revenue and crediting accounts receivable for the discounted amount.

Correct Answer: To summarize all transactions for the period

A trial balance is used to verify that the total debits and credits in the general ledger are equal, ensuring the accuracy of the accounts before preparing financial statements.

Correct Answer: A statement that reports total sales and total expenses

A multiple-step income statement provides a detailed breakdown of gross profit, operating income, and net income, allowing for a more comprehensive analysis of the company's profitability.

Correct Answer: Debit cash, Credit sales

When a credit sale is made, accounts receivable is debited to record the amount due, and sales are credited to reflect the revenue earned.