03

Question 1

What is the purpose of an unadjusted trial balance?

Answer 1

• Ensure the general ledger is in balance before adjusting accounts.
• Lists all general ledger accounts and balances
• Reviewed to determine adjustments needed

Question 2

What is the role of adjusting entries?

Answer 2

• Ensure accurate measurement of period’s revenues and expenses.
• Usually affect 1 balance sheet account and 1 income statement account
• Almost never affect cash

Question 3

How do you allocate unearned revenue to revenue?

Answer 3

• Amounts received in advance recorded as liabilities.
• Adjusted when the revenue is earned (e.g. prepaid membership).

Question 4

What are prepaid expenses?

Answer 4

• Payments for assets used over time (e.g. insurance, rent, supplies).
• Recognised as expense as the asset is used up.

Question 5

How is depreciation recorded?

Answer 5

• Allocation of asset cost to accounting periods.
• Recorded via a contra asset account (Accumulated Depreciation)
• Uses straight-line depreciation formula.

Question 6

How are accrued revenues recorded?

Answer 6

• Recognised when services or products are delivered but cash is not yet received.
• Increases both an asset (Receivable) and revenue account.

Question 7

What are accrued expenses?

Answer 7

• Expenses recognised before the payment is made (e.g. wages, interest).
• Increases both a liability (Payable) and an expense account.

Question 8

How is income before taxes calculated?

Answer 8

• Revenue minus all operating and non-operating expenses.
• Example formula: $7,600 - $5,580 (operating expenses) = $2,020

Question 9

How is income tax expense calculated?

Answer 9

• Income before taxes multiplied by tax rate.
• Example: Income of $2,020 x 25% = $505 tax expense.

Question 10

What is the process for closing temporary accounts?

Answer 10

• Happens at the end of the accounting period.

1. Close revenue accounts (debit revenue, credit Retained Earnings).
2. Close expense accounts (credit expense, debit Retained Earnings).

but what is it?

Question 11

What does the post-closing trial balance show?

Answer 11

• Prepared after closing entries.
• Only contains balance sheet (permanent) accounts.
• Temporary accounts (revenues, expenses) have zero balances.