🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →
Log in
HomeTextbook Notes300,000CA170,000

ACCT1001 Chapter Notes - Chapter 3: Accrual, Revenue Recognition, Fiscal Year

65 views7 pages
orchidwombat391
23 Jan 2019
School
George Brown College
Department
ACCT
Course
ACCT1001
Professor
Winston Marcellin

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

Document Summary

Lo1: explain accrual basis accounting, and when to recognize revenues and expenses. Adjusting the accounts: timing issues, selecting an accounting time period, accrual vs cash basis of accounting, revenue and expense recognition, basics of adjusting entries, types of adjusting entries, prepayments and accruals, adjusted trial balance and financial statements. Time periods: the economic life of a business can be divided into time periods, generally a month, quarter, or year, permitted by the periodicity concept. Interim periods: periods of less than one year. Accrual vs cash basis accounting: accrual basis, events are recorded in the period when they occur, not when the cash is paid or received. In accordance with generally accepted accounting principles: cash basis, revenue recorded when cash is received, expenses recorded when cash is paid. Adjusting entries - prepayments: prepaid expenses, expenses paid in cash and recorded as assets before they are used or consumed, unearned revenues, cash received and recorded as a liability before revenue earned.

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers

Related Documents

ACCT207 Lecture Notes - Lecture 4: Earnings Management, Uptodate, Retained Earnings
lemonserval609
PSYC 4039 Chapter : Electrical Brain Stimulation
azuremammoth471
ACBU 2222 Chapter Notes - Chapter 3: Financial Statement, Calendar Year, Trial Balance
carminebear339

Related Questions

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

NEEDS ANSWERES ASAP

Question 17

A three column form of account is so named because it hascolumns for

debit, credit, and balance.

debit, credit, and date.

debit, credit, and account name.

debit, credit, and reference.

3 points

Question 18

The first step in designing a computerized accounting system isthe creation of the

general ledger.

general journal.

trial balance.

chart of accounts.

3 points

Question 19

Chik Chik Company showed the following balances at the end ofits first year:

Cash

$ 6,000

Prepaid insurance

$ 9,400

Accounts receivable

$ 7,000

Accounts payable

$ 5,600

Notes payable

$ 8,400

Common stock

$ 2,800

Dividends

$ 1,400

Revenues

$ 44,000

Expenses

$ 35,000

What did Chik Chik Company show as total credits on its trialbalance?

$51,400

$60,800

$62,200

$70,200

3 points

Question 20

Which of the following time periods would notbe referred to as an interim period?

Monthly

Quarterly

Semi-annually

Annually

3 points

Question 21

Crue Company had the following transactions during the calendaryear:
Sales of $4,800 on account
Collected $2,000 for services to be performed in the followingyear
Paid $1,625 cash in salaries
Purchased airline tickets for $250 in December for a trip to takeplace in the following year
What is Crue's current net income using accrual accounting?

$2,925.

$3,175.

$4,925.

$5,175.

3 points

Question 22

If an adjusting entry is not made for an accruedrevenue,

revenues will be overstated.

assets will be overstated.

stockholders' equity will be understated.

expenses will be understated

The following events occurredin August and September:

8/1 YOU filed a charter withthe State of Louisiana to form the YOUR Accounting Corporation. Thecharter authorizes you to issue 5000 shares of $2 par common stock.The state charged you a $75 fee to file the charter. Since yourbusiness is not yet approved, you had to pay this fee usingpersonal funds.

9/1 You received your charterfrom the State of Louisiana and officially opened yourbusiness. Your first order of business was to become ashareholder of YOUR Accounting Corp. To do this, you purchased 500shares of common stock by issuing a check to YOUR Accounting Corpfor $10,000. You used this money to open a checking account atFirst Funds Bank.

9/1 You rented an office forYOUR Accounting Corp. The monthly rent is $500, with the firstmonth’s rent due immediately. You issue check #100 to OfficeBuilders for the first month’s rent.

9/2 You then went to the Applestore and purchased a new computer system for your business. YourMac Pro cost $2700 and your new printer cost $450. You set up a30-day account with Apple to make this purchase.

9/3 You ordered business cardsand stationary from Marketing Media on account. The order totaled$250 and will be shipped FOB Destination. (Record all purchases ofsupplies in the Supplies on Hand account).

9/4 You decided to purchase anew vehicle for your business. Upon visiting Pro-Auto, you decideon a new SUV at a cost of $55,000. This vehicle will be used 100%for business purposes. You finance the vehicle with Pig E Bank at arate of 5% for 6 years. Your first monthly payment is due onOctober 4.

NOTE: You will need to create a loan amortization schedule todetermine the amount of the monthly note and the interest expensefor each month. You can use a website such as www.bankrate.com tocreate the schedule. When recording your journal entries, round allamounts to the nearest dollar.

9/5 You went to the KEM Supplyto purchase supplies for your business at a cost of $600. KEMopened a customer charge account for you. The payment terms on youraccount will be 2/10, net 30. The time period for determining thepayment amount begins on the purchase date.

9/6 You purchased a one-yearauto insurance policy from InsureMart for $1200. InsureMart willsend you a bill for the policy. YOUR Accounting Corporationcapitalizes all insurance policies on the date of purchase andrecords the necessary expense at year-end as an adjustingentry.

9/10 Your firstclient, Red Fische, came in today needing assistance with filingthe appropriate paperwork to start his new seafood restaurant. Youissued invoice #1 to Red Fische and he paid you an initial $2,000Engagement Fee. Red Fische also agreed to contract with you toprovide accounting services for $2,500 per month.

9/12 You issue check#101 to YOUR Accounting Corp to establish a $500 Petty Cash Fund.You will use this account to make small cash purchases.

9/12 You reimburseyourself for the filing fees associated with forming yourcorporation.

9/14 You paid KEM Supply by issuingcheck #102

9/15 You hire anadministrative assistant, Mandi Handi, she will be paid a monthlysalary of $1500. You have decided that all pay periods will end onthe last day of the month and that checks will be issued on the5th of each month.

NOTE: Assume the following rates when preparing the payroll:federal income tax 15%, state income tax 5%, and FICA 7.65%.

YOUR Accounting Corp. has state and federal unemployment insurancerates of 1% (FUTA) and 2% (SUTA) on the first $7,700 of wages peremployee. The employer FICA rate is 7.65%.

9/16 Marketing Mediadelivered your business cards and stationary. Check #103 was issuedto pay for the supplies.

9/20 You visited anew client, Anita Cooke, to set up a Quickbooks accounting systemfor her new business, Cooking For You. You gave Anita and invoice#2 for the Engagement Fee and she paid you by issuing a check inthe amount of $2,000. Anita also agreed to a monthly fee of $1,500for you to handle her ongoing accounting needs.

9/22 You purchased$50 of fuel for your new SUV from Get ‘n Go. You charged this toyour Get ‘n Go account.

9/30 Mandi sentpro-rated invoices, #3 & #4 , to Red Fische and Cooking For Youfor Monthly Accounting Services. The payment terms are 1/10, net30.

9/30 You accruedinterest on the Pig E. Bank note. Accrue interest based on thenumber of days in the month.

9/30 You computedand accrued the payroll for September.

9/30 You receivedmonthly bills for the following:

Max Power Company - $100, terms n/30

WaterWorks #1 - $20, terms n/30.

Assignment #1: For the Monthof September

· In proper General Journal format, record the transactions for themonth; include descriptions of each transaction with your journalentry. Use only the accounts shown in the chart of accounts.

· Post the journal entries for the month to the general ledgeraccounts, use appropriate posting references.

· Prepare a trial balance for the period ending September 30.

o Using proper format,create your trial balance in Microsoft Excel. Do not use any trialbalance templates. Include all accounts from the chart of accounts.Even those with zero balances. Your accounts in the trial balanceshould be in the exact order shown in the chart of accounts.