33:010:272 Lecture 3: Week 3 - Part 1 - 02_06_2019

54 views3 pages

peargiraffe909

7 Feb 2019

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Explain the accrual basis of accounting and the reasons for adjusting entries. Accountants divide the econometric life of a business into artificial time periods (time. Monthly and quarterly time periods are called interim periods. Most large companies must prepare both quarterly and annual financial statements. Fiscal year does not have to be a calendar year. Transactions recorded in the periods in which events occur. Companies recognize revenues when they perform services (rather than when they receive cash) Expenses are recognized when incurred (rather than when paid) Revenues are recorded when cash is received. Expenses are recorded when cash is paid. Cash-basis accounting is not in accordance with generally accepted accounting principles (gaap) Recognize revenue in the accounting period in which the performance obligation is satisfied. Recognize revenue in the period in which it is earned. Revenues result from the business activities entered into for the purpose of earning income.

Related Questions

1. Undercash-basis accounting, when is revenue recorded? When is itrecorded under accrual-basis accounting?

2. Under accrualaccounting, when is revenue considered earned?

3. If amembership represents an advance payment for services provided,when is it recognized as revenue under the accrual basis, and whatis it called?

4. Why isinsurance expense spread over multiple periods even though thepolicy coverage is paid in advance?

5. At the end ofthe month for Silverâs Gym, what entries need to be made under thecash basis of accounting for wages that have not yet been paid?What entries need to be made under the accrual method?

6. Why is itimportant to match expenses and revenues to reflect the performanceof a business over a particular time period?

7. When mightthe use of cash basis accounting overstate the actual profitsearned by Silverâs gym? When might it understate the actual profitsearned?

8. Which basisof accounting is in accordance with GAAP for large companies?

puceeagle823

1. Which of the following identifies the proper order of theaccounting cycle?

A. Analyze, Journalize, Unadjusted Trial Balance

B. Analyze, Post, Unadjusted Trial Balance

C. Journalize, Post, Adjusted Trial Balance

D. Unadjusted Trial Balance, Adjusted Trial Balance, Close

E. Adjusted Trial Balance, Adjustments, Financial Statements

2. Interim financial statements refer to financial reports:

A. That cover less than one year, usually spanning one, three orsix-month periods

B. That are prepared before any adjustments have beenrecorded

C. That show the assets above the liabilities and theliabilities above the equity

D. Where revenues are reported on the income statement when cashis received and expenses are reported when cash is paid

E. Where the adjustment process is used to assign revenues tothe periods in which they are earned and to match expenses withrevenues

3. The accounting principle that requires revenue to be reportedwhen earned is the:

A. Matching principle

B. Revenue recognition principle

C. Time period principle

D. Accrual reporting principle

E. Going-concern principle

4. Adjusting entries:

A. Affect only income statement accounts

B. Affect only balance sheet accounts

C. Affect both income statement and balance sheet accounts

D. Affect only cash flow statement accounts

E. Affect only equity accounts

5. The system of preparing financial statements based onrecognizing revenues when the cash is received and reportingexpenses when the cash is paid is called:

A. Accrual basis accounting

B. Operating cycle accounting

C. Cash basis accounting

D. Revenue recognition accounting

E. Current basis accounting

6. If throughout an accounting period the fees for legalservices paid in advance by clients are recorded in an accountcalled Unearned Legal Fees, the end-of-period adjusting entry torecord the portion of those fees that has been earned is:

A. Debit Cash and credit Legal Fees Earned

B. Debit Cash and credit Unearned Legal Fees

C. Debit Unearned Legal Fees and credit Legal Fees Earned

D. Debit Legal Fees Earned and credit Unearned Legal Fees

E. Debit Unearned Legal Fees and credit Accounts Receivable

7. A company had no office supplies available at the beginningof the year. During the year, the company purchased $250 worth ofoffice supplies. On December 31, $75 worth of office suppliesremained. How much should the company report as office suppliesexpense for the year? A. $75 B. $125 C. $175 D. $250 E. $325 8. OnJanuary 1 a company purchased a five-year insurance policy for$1,800 with coverage starting immediately. If the purchase wasrecorded in the Prepaid Insurance account and the company recordsadjustments only at year-end, the adjusting entry at the end of thefirst year is:

A. Debit Prepaid Insurance, $1,800; credit Cash, $1,800

B. Debit Prepaid Insurance, $1,440; credit Insurance Expense,$1,440

C. Debit Prepaid Insurance, $360; credit Insurance Expense,$360

D. Debit Insurance Expense, $360; credit Prepaid Insurance,$360

E. Debit Insurance Expense, $360; credit Prepaid Insurance,$1,440

9. Unearned revenue is reported on the financial statementsas:

A. A revenue on the balance sheet

B. A liability on the balance sheet

C. An unearned revenue on the income statement

D. An asset on the balance sheet

E. An operating activity on the statement of cash flows

10. Which of the following assets is not depreciated?

A. Store fixtures

B. Computers

C. Land

D. Buildings

E. Vehicles

11. On April 30, 2011, a three-year insurance policy waspurchased for $18,000 with coverage to begin immediately. What isthe amount of insurance expense that would appear on the company'sincome statement for the year ended December 31, 2011? A. $500 B.$4,000 C. $6,000 D. $14,000 E. $18,000 12. Expenses incurred butunpaid that are recorded during the adjusting process with a debitto an expense and a credit to a liability are:

A. Intangible expenses

B. Prepaid expenses

C. Unearned expenses

D. Net expenses

E. Accrued expenses

13 The difference between the cost of an asset and theaccumulated depreciation for that asset is called

A. Depreciation Expense

B. Unearned Depreciation

C. Prepaid Depreciation

D. Depreciation Value

E. Book Value

14. A company purchased a new truck at a cost of $42,000 on July1, 2011. The truck is estimated to have a useful life of 6 yearsand a salvage value of $3,000. How much depreciation expense willbe recorded for the truck for the year ended December 31, 2011?

A. $3,250

B. $3,500

C. $4,000

D. $6,500

E. $7,000

15. A company's Office Supplies account shows a beginningbalance of $600 and an ending balance of $400. If office suppliesexpense for the year is $3,100, what amount of office supplies waspurchased during the period?

A. $2,700

B. $2,900

C. $3,300

D. $3,500

E. $3,700

chocolatereindeer731

SECTION II: MATCHING (10 possible points)
Please match the numbered terms with their definitions by placingthe letter that identifies the best definition in the blank spacenext to the term. The value of each correct answer is 1point.

____ 1. Accrual Basis

____ 2. Cost Principle

____ 3. Credit

____ 4. Debit

____ 5. Generally Accepted Accounting Principles(GAAP)

____ 6. General Ledger

____ 7. Journal

____ 8. Liquidity

____ 9. Matching Principle

____ 10. Materiality

A. The various methods, rules, practices, and other proceduresthat have evolved over time in response to the need
to regulate the preparation offinancial statements.
B. The magnitude of an omission or misstatement in accountinginformation that will affect the judgment of
someone relying on theinformation.

C. A book, file, hard drive, or other devices containing all ofa companyâs accounts.

D. An entry on the left side of an account.

E. An entry on the right side of an account.

F. A chronological record of transactions, also known as thebook of original entry.

G. The association of revenue ofa period with all of the costs necessary to generate thatrevenue.

H. Assets are recorded at the cost to acquire them.

I. The ability of a company to pay the debts as they comedue.

J. A system of accounting in which revenues are recognized whenearned and expenses are recognized when
incurred.

SECTION III. SHORT ANSWER

1. Explain the difference between internal andexternal users of a corporationâs financial information. Give twoexamples of
internal users and two ofexternal users.

2. How do financial accounting andmanagement accounting differ?

3. What does relevance mean with regard to theuse of accounting information?

4. Briefly explain the purpose of a TrialBalance.

5. Explain briefly the Revenue RecognitionPrinciple. When should a publisher of magazines recognizerevenue?

33:010:272 Lecture 3: Week 3 - Part 1 - 02_06_2019

Document Summary

Get access

Related Documents

33:010:272 Study Guide - Midterm Guide: Financial Statement, Accounts Receivable, Income Statement

33:010:272 Study Guide - Final Guide: Double-Entry Bookkeeping System, Inventory Turnover, Deferral

33:010:272 Study Guide - Midterm Guide: Debits And Credits, Current Liability, Faithful Representation

Related Questions