Accounting-Chapter # 3-Business Transactions and the Accounting Equation

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True/False- Applying Accounting Concepts

Indicate whether the sentence or statement is true or false.

After each transaction, the basic accounting equation should remain in balance.

A business transaction affects at least two accounts.

“Assets + Liabilities = Owner’s Equity” is another way to express the basic accounting equation.

The increases and decreases causes by business transactions are recorded in specific accounts.

The free enterprise system is based on the right to own property.

One of the purposes of accounting is to provide financial information about property and the rights to that property.

The owner’s claims to the assets of a business are liabilities

A creditor has a financial claim to the assets of a business.

An account is a record of only the increases in the balance of a specific item such as cash or equipment.

10.

The total financial claims do not have to equal the total cost of the property.

Multiple Choice-Accounting Classifications

Identify the letter of the choice that best completes the statement or answers the question.

11.

If the creditor’s financial claim to property totals $1,000 and the owner’s financial claim to property totals $11,000, the property value is

a.	$10,000	c.	$12,000
b.	$11,000	d.	$1,000

12.

The account Accounts Receivable is an example of a(n)

a.	asset	c.	owner’s equity
b.	liability	d.	none of the above

13.

All of the following account names are asset names except

a.	office furniture	c.	cash in bank
b.	accounts payable	d.	equipment

14.

A business transaction that involves a purchase on account is considered to be a(n)

a.	cash transaction	c.	investment by the owner
b.	credit transaction	d.	expense transaction

15.

Each of the following is a business expense except a payment for

a.	advertising	c.	utility bills
b.	monthly rent	d.	equipment

16.

The purchase of a desk on account will increase Office Furniture and will also increase

a.	cash in bank	c.	accounts receivable
b.	accounts payable	d.	Marie Krabish, Capital

17.

The word equities refers to claims against the assets of a business by

a.	both creditors and owners	c.	owners only
b.	creditors only	d.	customers only

18.

If Paul Abdou deposits $30,000 in a checking account in the name of his business, the two accounts affected are

a.	cash in bank and computer equipment	c.	cash in bank and Paul Abdou, Capital
b.	cash in bank and accounts receivable	d.	Cash in bank and accounts payable

Problem 3-Completion

Directions: Tracy Migre, a certified public accountant, has completed the following transactions. Ms. Migre’s assets, liabilities, and owner’s equity account titles and balances as shown in the table on the accompanying handout.

Answers should follow the following format:

ACCOUNT1 + OR - AMOUNT OF INCREASE OR DECREASE, ACCOUNT2 + OR - AMOUNT OF INCREASE OR DECREASE (Example: cash + 800, capital + 800)

Write the accounts in order as they appear on the accompanying handout.

**DO NOT USE THE DOLLAR SIGN or COMMA in the amounts).

19.

Owner invested additional cash in the business, $5000.

20.

Paid the telephone bill, $600.

21.

Wrote a check to a creditor as partial payment on account, $500.

22.

Bought supplies on account, $150.

23.

Received a check for accounting services, $300

24.

Owner invested office equipment in the business, $2,500.

25.

Completed accounting services and agreed to accept payment later, $900.

26.

Withdrew cash from the business for personal use, $2000.

27.

Received a check as partial payment on account, $450.

Part E-Matching

Section 1-Thinking Critically

Directions: Salam Optical is owned by Ali Salam. The transactions below all took place on April 15. Use the following codes to describe each transaction.

a.	Increases an asset and increases a liability	d.	Increases an asset and increases owner’s equity
b.	Increases an asset and decreases an asset	e.	decreases an asset and decreases owner’s equity
c.	Decreases an asset and decreases a liability

28.

Salam bought equipment for use in the business with cash, $1850.00.

29.

Received cash for an eye exam.

30.

Paid wages for optical assistants.

31.

Made a part payment on account for office furniture purchased earlier.

32.

Billed a client for replacement eyeglasses.

Section 2-Analyzing Transactions:

Directions: Classify the following account names by identifying the proper classification code.

a.	assets
b.	liabilities
c.	owner’s equity

33.

Accounts Receivable

34.

Computer Equipment

35.

Accounts Payable

36.

Cash in the bank

37.

Office Supplies

38.

Roberta Saba, Capital

39.

Repair Tools

Section 3-Accounting Vocabulary

Directions: Identify the letter of choice that best completes the statement or answers the question.

a.	account	k.	expenses
b.	accounting equation	l.	financial claims
c.	accounts payable	m.	investments
d.	accounts receivable	n.	liabilities
e.	asset	o.	on account
f.	business transaction	p.	owner’s equity
g.	capital	q.	property
h.	credit	r.	property rights
i.	creditor	s.	revenue
j.	equity	t.	withdrawal

40.

_________ are the prices paid for goods or services used to operate a business.

41.

“Assets = Liabilities + Owner’s Equity” is called a ____________.

42.

Income earned from the sale of goods and services is called ___________.

43.

An economic event that causes a change in assets, liabilities, or owner’s equity is called a(n) __________.

44.

_______________is the amount of money owed to a business’ creditors.

45.

The owner’s investment in the business is represented by the __________ account.

46.

The total amount of money to be received in the future for goods or services sold on credit is the ____________.

47.

Anything of value that is owned or controlled by an individual or a business is called _____________.

48.

The debts of a business are called its ____________.

49.

When an owner takes cash or other assets out of a business for personal use, the transaction is called a(n) _____________.

50.

Any property or item of value owned by a business is a(n) __________.