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ACCT 001 Lecture Notes - Lecture 21: Accrual, Income Statement, Perpetual Inventory

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School
College of The Sequoias
Department
Accounting (ACCT)
Course
ACCT 001
Professor
lindsay

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Document Summary

The accounting process generates financial reports for both internal and external users. Name as least two user groups form internal and external. Revenue recognition principle-revenue must be recorded in the accounting period which it is earned. Matching principle- expenses must be recorded in the same period as the revenues which they helped produce are recorded. Temporary- all revenue accounts and expense accounts, dividends. Permanent- all asset accounts and liability accounts, sh equity accounts. Only close temporary accounts so because the accounts on a balance sheet are permanent. Liquidity is the ability to pay off short term debt. Solvency is the ability to pay off long term debt. Name the two types of adjusting entries. Claim to future benefits of the firm but does not have a physical or financial embodiment. Name the constraints in presenting financial information to investors. All information can not be recorded (too costly) Conservatism (attempt to not overstate assets or income)

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Related Questions

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 company’s 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 corporation’s 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?

1. Creditors' claims on the assets of a company are called: (Points : 2)
 
Net losses
Expenses
Revenues
Equity
Liabilities
 
2. The primary objective of financial accounting is: (Points : 2)
 
To serve the decision-making needs of internal users
To provide financial statements to help external users analyze and interpret an organization's activities
To monitor and control company activitiesTo provide information on both the costs and benefits of managing products and services
To know what, when and how muchto produce
 
3. Assets created by selling goods and services on credit are: (Points : 2)
 
Accounts payable
Accounts receivable
Liabilities
Expenses
 
4. The debt ratio is used: (Points : 2)
 
To measure the amount of equity relative to the expenses
To reflect the risk associated with a company's debts
Only by banks when a business applies for a loan
To determine how much debt a firm should pay off
 
5. Net Income: (Points : 2)
 
Decreases equity
Represents the amount of assets owners put into a business
Equals assets minus liabilities
Is the excess of revenues over expenses
Represents the owners' claims against assets
 
6. Internal users of accounting information include: (Points : 2)
 
Shareholders
Customers
Creditors
Government regulators
Line Supervisor
 
7. Risk is: (Points : 2)
 
Net income divided by average total assets
The reward for investment
The uncertainty about the expected return that will be earned from an investment
Unrelated to expected return
 
8. An example of an operating activity is: (Points : 2)
 
Paying wages
Purchasing office equipment
Borrowing money from a bank
Selling stock
Paying off a loan
 
9. Which accounting assumption assumes that all accounting information is reported monthly or yearly? (Points : 2)
 
Business entity assumption
Monetary unit assumption
Value assumption
Cost assumption
Time period assumption
 
10. Distributions of assets by a business to its stockholders are called: (Points : 2)
 
Dividends
Expenses
Assets
Retained earnings
Net Income

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