ACCTMIS 2200 Lecture Notes - Lecture 2: Accrual, Financial Statement

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19 Jan 2017

School

Ohio State University

Department

Accounting and Management Info

Course

ACCTMIS 2200

Professor

Marc Smith

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ACCTMIS 2200 Full Course Notes

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Accrual accounting-based on gaap: realization principle, matching concept. The earnings process is considered complete when goods are sold or when services are performed. The realization principle states that you should recognize revenue: When the product or service has been delivered to the customer and cash has been received or a receivable has been generated that has reasonable assurance of collectability. Accrual accounting must be used by all companies who sell securities (stock) to the public. Cash accounting can be used by any company who does not sell stock to the public. Cash accounting is also used by individuals to account for their personal finances. If a company who does not sell stock to the public attempts to get a bank loan, they are typically required to present their financial statements using accrual accounting. This is typically required because cash accounting can be easily manipulated and thus lead to misleading financial statements.

Related Questions

10 Which of the following criteria is not a condition for the revenue recognition principle? a. The accounting entity receives the customer's payment in cash before revenue can be recognized b. The accounting entity has performed or substantially performed by providing goods or services to the customer c. In exchange for the accounting entity's performance the customer has promised to pay in cash or in a form and an amount that is measurable d. Where the accounting entity has received a promise to pay from its customer, collection is reasonably assured e. None of the above The correct answer is 'a'.

1. Using accrual accounting, revenues are recorded

a. when cash is received without regard to when the services are performed or products have been delivered to customers.

b. when a service has been performed or products have been delivered to customers without regard to when cash is received.

c. when cash is received at the time services are performed or products have been delivered to customers only if cash is received.

d.after the services are performed or products have been delivered to customers.

2. Deferred revenue is revenue that is

a. earned and the cash has been received.

b. earned but the cash has not been received.

c. not earned and the cash has not been received.

d. not earned but the cash has been received.

3. Adjusting entries always include

a. only income statement accounts.

b. only balance sheet accounts the cash account.

c. at least one income statement account and one balance sheet account.

4. Which of the following is considered to be an accrued expense?

a. a computer technician has installed the latest software updates and was paid on the same day

b. a computer technician has been paid in advance to install software updates as they become available

c. a computer technician has just signed an agreement with you regarding pricing for future work

d. a computer technician has installed the latest software updates, but you have not received an invoice or made payment

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Question 23

If a resource has been consumed but a bill hasnot been received at the end of the accountingperiod, then

		an expense should be recorded when the bill is received.
		an expense should be recorded when the cash is paid out.
		an adjusting entry should be made recognizing the expense.
		it is optional whether to record the expense before the bill isreceived.

3 points

Question 24

Prepaid expenses are

		paid and recorded in an asset account before they are used orconsumed.
		paid and recorded in an asset account after they are used orconsumed.
		incurred but not yet paid or recorded.
		incurred and already paid or recorded.

3 points

Question 25

If a business has received cash in advance of services performedand credits a liability account, the adjusting entry needed afterthe services are performed will be

		debit Unearned Service Revenue and credit Cash.
		debit Unearned Service Revenue and credit Service Revenue.
		debit Unearned Service Revenue and credit Prepaid Expense.
		debit Unearned Service Revenue and credit AccountsReceivable.

3 points

Question 26

The preparation of adjusting entries is

		straight forward because the accounts that need adjustment willbe out of balance.
		often an involved process requiring the skills of aprofessional.
		only required for accounts that do not have a normalbalance.
		optional when financial statements are prepared.

3 points

Question 27

On January 1 of the current year, Doolittle Company purchasedfurniture for $7,560. The company expects to use the furniture for3 years. The asset has no salvage value. The book value of thefurniture at December 31of this year is

		$0.
		$2,520.
		$5,040.
		$7,560.

3 points

Question 28

Husker Du Supplies Inc. purchased a 12-month insurance policy onMarch 1 of the current year for $1,800. At March 31, the adjustingjournal entry to record expiration of this asset will include a

		debit to Prepaid Insurance and a credit to Cash for $1,800.
		debit to Prepaid Insurance and a credit to Insurance Expense for$200.
		debit to Insurance Expense and a credit to Prepaid Insurance for$150.
		debit to Insurance Expense and a credit to Cash for $150.

ACCTMIS 2200 Lecture Notes - Lecture 2: Accrual, Financial Statement

ACCTMIS 2200 Full Course Notes

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