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ADM 1340 Lecture Notes - Lecture 7: Accrual, Deferral, Financial Statement

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lemongoat262
31 Jan 2019
School
University of Ottawa
Department
Administration
Course
ADM 1340
Professor
Qiu Chen

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6

ADM 1340 Lecture 6: Chapter 4: Accrual Accounting

7

ADM 1340 Lecture Notes - Lecture 7: Accrual, Deferral, Financial Statement

8

ADM 1340 Lecture Notes - Lecture 8: Retained Earnings, Net Income

Document Summary

Adjusting entries - these are accounting journal entries that convert a company"s accounting records to the accrual basis of accounting. They are required at the end of each accounting period to get the revenues and expenses into the right period . An adjusting journal entry is typically made just prior to issuing a company"s financial statements https://www. accountingcoach. com/adjusting-entries/explanation/2. Some events are not recorded daily e. g. wages, depreciation. Prepayment : cash that has been paid out or received when adjusting entries have been established. Accrual : cash that has not yet been paid or receive during the process is making. Prepaid expenses : an expenditure paid for in one accounting period, but for which the underlying asset will not be consumed until a future period https://www. lapasserelle. com/online_courses/accounting/prepayments_and_accruals/index. html. Unearned revenues: cash received and recorded as a liability before revenue is earned. Accrued expenses - an accrued expense is an accounting expense recognized in the books before it is paid for.

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Related Questions

On 4/10/17 I posted a question for accounting. I was able tolocate informatin for the first question not the second. I believethat I have the correct information I just like to cross referenceit. I have no faith in myself with accounting.

Thanks

Tremor Co had the following transactions in the last two monthsof its fiscal year ended May 31

Apr 1 Paid 2,450 cash to an accounting firm for futureconsulting services.

Apr 1 Paid 3,600 cash for 12 months of insurance through March31 of the next year

Apr 30 Received 8,500 cash for furture services to be providedto a customer

May 1 Paid 4,450 cash for future newspaper advertising

May 23 Received 10,450 cash for future services to be providedto a customer

May 31 Of the consulting services paid for on April 1, $2,000worth has been performed

May 31 A portion of the insurance paid for on April 1 hasexpired. No adjustment was made in April to Prepaid Insurance

May 31 Services worth 4,600 are not yet provided to the customerwho paid on April 30

May 31 Of the advertising paid for on May 31 2,050 worth is notyet used

May 31 The company has performed 5,500 of services that thecustomer paid for on May 23

1) Prepare entries for these transactions under the method thatrecords prepaid expenses and unearned revenues in the balance sheetaccounts. Also prepare adjusting entries at the end of theyear.

2) Prepare entries for these transactions under the method thatrecords prepaid expenses and unearned revenues in income statementaccounts. Also prepare adjusting entries at the end of theyear.

3) Explain why the alternative sets of entries in parts 1 and 2do not result in different financial statement amounts

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

Cactus Company’s annual accounting year ends on June 30. Assumeit is June 30, and all of the entries except the followingadjusting journal entries have been made:

a.

The company earned service revenue of $1,900 on a special jobthat was completed June 29. Collection will be made during July; noentry has been recorded.
b.

On March 31, Cactus paid a six-month premium for propertyinsurance in the amount of $3,180 for coverage starting on thatdate. Cash was credited and Prepaid Insurance was debited for thisamount.
c.

At June 30, wages of $890 were earned by employees but not yetpaid. The employees will be paid on the next payroll date, which isJuly 15.
d.

On June 1, Cactus collected two months’ revenue of $440. At thatdate, Cactus debited Cash and credited Unearned Revenue for $440.One-half of it has now been earned but not yet recorded.
e. Depreciation of $1,490 must berecognized on a service truck purchased on July 1 of the previousyear.
f.

Cash of $4,140 was collected on May 1 for services to berendered evenly over the next year beginning on May 1. UnearnedRevenue was credited when the cash was received. Some of it has nowbeen earned but not yet recorded.
g.

The company owes interest of $590 on a bank loan taken out onFebruary 1. The interest will be paid when the loan is repaid nextyear on January 31.
h.

The income after all adjustments except income taxes was$31,000. The company’s federal income tax rate is 25%. Compute andrecord income tax expense.

Required:
1.

Determine the accounting equation effects of each requiredadjustment.

2.

Give the adjusting journal entry required for each transactionat June 30. (If no entry is required for atransaction/event, select "No Journal Entry Required" in the firstaccount field.)