Accounting Chapter 7
Terms in this set (29)
A balance sheet has three sections: heading, assets, and liabilities.
The owner's capital amount reported on a balance sheet is calculated as: capital account balance plus drawing account balance less net income.
The formula for calculating net income is: total revenue minus total expenses equals net income.
The net income calculated for the income statement and the net income on the work sheet must be the same.
The Adequate Disclosure accounting concept is applied when financial statements contain all information necessary to understand a business's financial condition.
On an income statement, double lines are ruled across both amount columns to indicate that debits equal credits.
For a service business, the revenue reported on an income statement includes components for total expenses and net income.
The formula for calculating the total expenses component percentage is: total expenses divided by total sales equals total expenses component percentage.
The financial condition of a business refers to its financial strength.
The current capital to be reported on a balance sheet is calculated as: the capital account balance plus net income equals current capital.
The owner's equity section of a balance sheet may report different kinds of details about owner's equity, depending on the need of the business.
Component percentages on an income statement are calculated by dividing sales and total expenses by net income.
A component percentage is the percentage relationship between one financial statement item and the total that includes that item.
An income statement reports information over a period of time, indicating the financial progress of a business in earning a net income or net loss.
The Matching Expenses with Revenue accounting concept is applied when the revenue earned and the expenses incurred to earn that revenue are reported in the same fiscal period.
Information needed to prepare an income statement comes from the trial balance columns and the income statement columns of a work sheet.
An amount written in parentheses on a financial statement indicates an estimate.
A balance sheet reports financial information over a specific period of time.
A balance sheet reports financial information on a specific date and includes the assets, liabilities, and owner's equity.
When a business has two different sources of revenue, a separate income statement should be prepared for each kind of revenue.
The date on a monthly income statement prepared on July 31 is written as
For Month Ended July 31, 2015
The amount of net income calculated on an income statement is correct if
it is the same as net income shown on the work sheet
Preparing financial statements at the end of each monthly fiscal period is an application of the accounting concept
Accounting Period Cycle
Information needed to prepare an income statement's revenue section is obtained from a work sheet's Account Title column and
Income Statement Credit Column
A balance sheet reports a business's financial
Condition on a specific date
When preparing a balance sheet, the amount of owner's capital is calculated using amounts obtained from
the work sheet's Balance Sheet columns
The formula for calculating the net income component percentage is
net income divided by total sales equals net income component percentage
Information needed to prepare a balance sheet liabilities section is obtained from a work sheet's Account Title column
Balance Sheet Credit column
Assuring that financial statements contain all information necessary to understand a business's financial condition is an application of the accounting concept