Posted: January 6th, 2017

What is the purpose of the “dividends” account and under what circumstances would this account be increased?

1. Question 3:
   • Proficient:
     • Why are separate “expense” and “revenue” accounts used when all revenues and expenses could be shown directly in the retained earnings account?
     • Describe three examples of transactions that would affect a firm’s income statement. For each transaction, identify if the transaction has a positive or negative effect on the firm’s net income.
   • Distinguished:
     • What is the purpose of the “dividends” account and under what circumstances would this account be increased?
     • Under what circumstances would the “dividends” account be decreased?
2. Question 4:
   • Proficient:
     • Are the following possibilities conceivable in an entry involving only one debit and one credit? Please explain your response for each item. Provide five or six correct responses:
       • Increase a liability and increase an expense.
       • Increase an asset and decrease a liability.
       • Increase revenue and decrease an expense.
       • Decrease an asset and increase another asset.
       • Decrease an asset and increase a liability.
       • Decrease revenue and decrease an asset.
       • Decrease a liability and increase revenue.
   • Distinguished:
     • Correctly identify all of the items.