D102 Financial Accounting - Set 3 - Part 2

Correct Answer: An increase in liabilities

A debit to accounts payable decreases the amount owed to creditors.

Correct Answer: Depreciation expense

Depreciation expense is debited, and accumulated depreciation is credited as a contra-asset account.

Correct Answer: Income statement

The balance sheet provides a snapshot of a companys financial position at a specific date.

Correct Answer: Directly into the inventory account

In the periodic system, purchases are recorded in a temporary purchases account, which is later adjusted.

Correct Answer: Tangible asset

Goodwill is an intangible asset that arises when a company purchases another company at a premium.

Correct Answer: Accounts receivable

Supplies (an asset) are debited to increase the account, and accounts payable (a liability) is credited.

Correct Answer: Debit cash, credit accounts payable

Paying off accounts payable reduces the liability (debit) and reduces cash (credit).

Correct Answer: Cash

Cash is debited because it is received, while unearned revenue is credited to recognize the liability.

Correct Answer: Increases assets

One asset (cash) increases, while another (accounts receivable) decreases, with no net effect on total assets.

Correct Answer: As an operating expense

Cost of goods sold is an expense that represents the cost of producing goods sold by a company.

Correct Answer: Income statement

The income statement shows revenues, expenses, and net income or loss over a period.

Correct Answer: Debit retained earnings, credit cash

Declaring dividends creates a liability (dividends payable) and reduces retained earnings through dividends.

Correct Answer: Debit cash, credit accounts receivable

Cash increases (debit) and accounts receivable decreases (credit) when the customer pays on account.

Correct Answer: Debit cash, credit machinery

Purchasing machinery increases the asset account (machinery) and decreases cash.

Correct Answer: Accounts receivable

Retained earnings are a component of stockholders' equity, representing accumulated profits not distributed as dividends.

Correct Answer: Debit prepaid rent, credit cash

Prepaid rent is an asset that increases (debit), and cash decreases (credit) when rent is paid in advance.

Correct Answer: The periodic system updates inventory constantly, and the perpetual system updates inventory at the end of the period

The periodic system records inventory purchases and sales at the end of the accounting period, while the perpetual system continuously updates inventory.

Correct Answer: To report revenues and expenses for the year

The statement of retained earnings shows how retained earnings changed over the accounting period due to net income and dividends.

Correct Answer: As revenue

Sales tax is collected on behalf of the government, and the amount collected is reported as a liability until it is remitted.

Correct Answer: Accounts receivable decreases

Bad debt expense is recorded by increasing the allowance for doubtful accounts, which is a contra-asset account that reduces accounts receivable.