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AFM101 Chapter Notes - Chapter 4: General Ledger, Trial Balance, Retained Earnings

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lilacmouse857
7 Jun 2018
School
University of Waterloo
Department
Accounting & Financial Management
Course
AFM101
Professor
Donna Psutka

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AFM 101 - Chapter 4 Notes
ADJUSTING REVENUES AND EXPENSES
Accounting Cycle
• = the process used by entities to analyze and record transactions, adjust the records at the end
of the period, prepare financial statements, and prepare the records for the next cycle
• During the period: analyze transactions, record journal entries in the general ledger, post
amounts to the general ledger;
Purpose of Adjustments
• Adjusting entries = entries necessary at the end of the accounting period to identify and record
all revenues (revenue principle) and expenses (matching process) of that period
• Companies wait until the end of the accounting period to adjust their accounts because
adjusting it daily would be very costly and time-consuming
• Adjusting journal entries involves one account on the statement of financial position and one
account on the statement of earnings
• Cash is never adjusted
Types of Adjustments
• There are 4 types of adjustments (2 in which cash was already received or paid and 2 which cash
WILL be received or paid). Each of these adjustments involve two entries:
o One entry to record the cash receipt or payment during the period
o One entry to record the revenue or expense in the proper period through an adjusting
entry prepared at the end of the period
DURING THE PERIOD:
• Analyze transactions
• Record journal entries in the GL
• Post amounts to the GL
AT THE END OF THE PERIOD:
• Prepare a trial balance
• Analyze account balances
• Record and post adjustments to
revenue, expense, and related
statement of financial position accounts
• Prepare an adjusted trial balance
• Close revenues, gains,
expenses, and losses to
Retained Earnings
• Prepare a post-closing
trial balance
• Prepare a complete set of
financial statements
• Disseminate (spread)
statements to users
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Document Summary

During the period: analyze transactions, record journal entries in the gl. Post amounts to the gl: close revenues, gains, expenses, and losses to. Retained earnings: prepare a post-closing trial balance. Prepare a trial balance: analyze account balances, record and post adjustments to revenue, expense, and related statement of financial position accounts. Prepare an adjusted trial balance: prepare a complete set of financial statements, disseminate (spread) statements to users. Types of adjustments: there are 4 types of adjustments (2 in which cash was already received or paid and 2 which cash. Adjusting entries that increase revenues: deferred revenues: previously recorded liabilities created when cash was received in advance, must be reduced to the actual amount of revenue earned during the period, ex. Deferred ticket revenue: during the period, cash (+a) Deferred fee revenue (+l: end of period, deferred fee revenue (-l)

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Related Questions

The proper sequence for the steps in the accounting cycle is as follows:

 

  1. analyze and record transactions, post-transaction to the ledger, prepare a trial balance, prepare financial statements, journalize closing entries, analyze adjustment data and prepare to adjust entries

  2. prepare a trial balance, analyze adjustment data, prepare to adjust entries,  prepare financial statements, journalize closing entries and post to the ledger, analyze and record transactions, post transactions to the ledger

  3. analyze and record transactions, post transactions to the ledger, prepare a trial balance, analyze adjustment data, prepare to adjust entries,  prepare financial statements, journalize closing entries and post to the ledger

  4. prepare financial statements, journalize closing entries and post to the ledger, analyze and record transactions, post transactions to the ledger, prepare a trial balance, analyze adjustment data, prepare to adjust entries.

1- The requirement that only transaction data capable of beingexpressed in terms of money be included in the accounting recordsrelates to the
Answer

A. cost principle.

B. monetary unit assumption.

C. economic entity assumption.

D. both a and b above.


2- Transactions are initially recorded in the
Answer

A. general ledger.

B. trial balance.

C. general journal.

D. balance sheet.


3- The proper sequence for the accounting cycle is
Answer

A. analyze, journalize, post, adjust, prepare statements,close.

B. post, journalize, analyze, prepare statements, close,adjust.

C. prepare statements, journalize, post, adjust, close,analyze.

D. journalize, post, close, prepare statements, adjust,analyze.


4- In preparing closing entries, which of the following columns ofthe worksheet are the most helpful?
Answer

A. The Adjusted Trial Balance columns

B. The Income Statement columns

C. The Balance Sheet columns

D. The Adjustments column
QUESTION 1

Accounting is an information and measurement system thatidentifies, records, and communicates relevant, reliable, andcomparable information about an organization's businessactivities.
True
False

QUESTION 2

We use the accounting equation to identify what a company ownsand owes. The accounting equation is:
Assets = Liabilities + Equity
Assets = Liabilities – Equity
Assets = Liabilities + Revenues
Equity = Liabilities + Revenues
QUESTION 3

______ are beliefs that distinguish right from wrong. Thesebeliefs are accepted standards of gauging good and dishonestbehavior.
Accounting Standards
Ethics
Generally Accepted Accounting Principles
FASB
QUESTION 4

The _____ is a collection of all accounts within a company’saccounting system.
General Journal
Chart of Accounts
General Ledger
Balance Sheet
QUESTION 5

We use the accounting equation to identify what a company ownsand owes. _____ are resources a company owns or controls, _____ areclaims creditors have against a company’s assets, and _____ is theowner’s claim on a company’s assets.

QUESTION 6

In double entry accounting a credit to an asset account willrepresent an increase in the asset account balance; and a debitwill represent a decrease in the asset account balance.
True
False
QUESTION 7

The purchase of supplies on credit will ____ assets and ____liabilities.
Increase, decrease
Decrease, increase
Decrease, decrease
Increase, increase
QUESTION 8

During the accounting cycle, we analyze transactions toprepare statements.
True
False
QUESTION 9

The supplies account for a company has a $1,000 debit balanceat the beginning of the year. Supplies of $2,000 were purchasedduring the year and debited to the Supplies account. A December 31physical count shows $500 of supplies remaining at the end of theyear. Assume no other adjusting entries are made during the year.Using the 3-step process for creating adjusting entries, calculatethe adjustment amount for supplies (no journal entry isrequired).
$1,000 adjustment
$2,000 adjustment
$2,500 adjustment
$3,000 adjustment
QUESTION 10

During the accounting cycle, to complete step 7 youwould:
Prepare post-closing trial balance--Test clerical accuracy ofthe closing procedures.
Prepare adjusted trial balance--Summarize adjusted ledgeraccounts and amounts.
Prepare statements--Use adjusted trial balance to preparefinancial statements.
Close--Journalize and post entries to close temporaryaccounts.
QUESTION 11

The three financial statements that should be prepared duringthe accounting cycle are the:
Balance sheet, adjusted trial balance, income statement
Balance sheet, unadjusted trial balance, Statement of Owner’sEquity
Income statement, adjusted trial balance, Statement of Owner’sEquity
Balance sheet, Income statement, Statement of Owner’sEquity

QUESTION 12

An optional working paper, which is not a required report oran accounting record, but is used to prepare a company's unadjustedtrial balance, adjusting entries, adjusted trial balance, andfinancial statements is a(n):
Adjusted trial balance
Worksheet
Post-closing trial balance
Unadjusted trial balance
General ledger
QUESTION 13

The two goals for completing the closing process are:
To identify accounts for closing and record the closingentries
To journalize and post transactions
To post transactions and prepare post-closing trialbalance
To reset revenues, expenses, and withdrawal account balancesto zero at the end of each period, and help summarize an accountingperiod’s revenues and expenses.
QUESTION 14

Fill in the Blank: The _____ describes a company’s financialposition – by the types and amounts of assets, liabilities, andequity -- at a point in time.

QUESTION 15

Return on Assets is useful in evaluating management, analyzingand forecasting profits, and planning activities.
True
False

QUESTION 16

The Income Statement:
Identifies cash inflows (receipts) and cash outflows(payments) over a period-of-time.
Summarize adjusted ledger accounts and amounts
Describes a company’s revenues and expenses along with theresulting net income or net loss -- over a period-of-time due toearnings activities
Resets revenues, expenses, and withdrawal account balances tozero at the end of each period.
QUESTION 17

An internal control system consists of the policies andprocedures used to:
Protect assets and Ensure reliable accounting
Urge adherence to company policies and Promote efficientoperations
All of the above
None of the above.
QUESTION 18

The cost-benefit principle is the second limitation of_______.
Bank reconciliations
Petty cash controls
Voucher system of controls
Internal controls
QUESTION 19

The Unadjusted Trial Balance columns of a company's work sheetshows the Store Supplies account with a balance of $750. TheAdjustments columns shows a credit of $425 for supplies used duringthe period. The amount shown as Store Supplies in the Balance Sheetcolumns of the work sheet is:
$325 debit
$325 credit
$425 debit
$425 credit
QUESTION 20

A company shows a $600 balance in Prepaid Rent in theUnadjusted Trial Balance columns of the work sheet. The Adjustmentscolumns show expired rent of $200. This adjusting entry resultsin:
$200 decrease to net income
$200 increase to net income
$200 different between the debit and credit columns of theUnadjusted Trial Balance
An error in the Balance Sheet

QUESTION 21

This semester we have discussed four major financialstatements. List the 4 financial statements and describe them. Makesure to include how they flow together.

QUESTION 22

Explain the purpose of adjusting entries at the end of aperiod.