2-4 Post Adjusting Journal Entries

Question 1

What are some examples of of changes in a company’s economic resources that occur continuously over time?

Answer 1

Interest Accrual

Lease Expense

Question 2

Accrual-basis accounting (required under GAAP) demands the recording of ________ and _________ at the end of each accounting period using revenue and expense recognition principles.

Answer 2

Deferrals

Accruals

Question 3

What is the 5th Step of the Accounting Cycle?

Answer 3

Identify, Record, and Post Adjusting Journal Entries

Question 4

Adjusting Journal Entries

Answer 4

Used to record resource changes that span more than one time period to ensure the accuracy of financial statements

Question 5

Adjusting journal entries generally involve both a…

Answer 5

Permanent and a temporary account

Question 6

When are adjusting journal entries recorded and dated?

Answer 6

The last day of the accounting period

Question 7

What is an account that is not typically affected by adjusting journal entries?

Answer 7

Cahs

Question 8

Deferrals

Answer 8

Recognition of revenues and expenses is DELAYED to future periods, even though the cash flows occur now

Question 9

How is the deferral of revenue is recorded?

Answer 9

A liability

Question 10

How is the deferral of expense is recorded?

Answer 10

An asset

Question 11

Accruals

Answer 11

Recognition of revenues and expenses occurs in the CURRENT accounting period while the cash flows occur in the future

Question 12

How is the accrual of revenue recorded?

Answer 12

An asset

Question 13

How is the accrual of an expense recorded?

Answer 13

A liability

Question 14

Current Asset

Answer 14

Assets reasonably expected to be realized in cash or sold or consumed generally in one year or less

Question 15

Depreciation

Answer 15

A systematic and rational allocation of plant asset cost over its estimated useful life

Question 16

What is the most common way to estimate depreciation?

Answer 16

Straight Line Depreciation

(allocate the cost of an asset evenly over its expected useful life

Question 17

Amortization

Answer 17

A systematic and rational allocation of the cost of an intangible asset over its useful life

Question 18

Leases are assumed to be

Answer 18

Short term leases (payments are recognized as expense on a straight-line basis

Question 19

Deferred Lease

Answer 19

Prepaid Lease Expense

current asset

Question 20

Contract

Answer 20

A legally enforceable agreement between two entities

Question 21

Contract Liability

Answer 21

When cash is received in exchange for a company’s obligation to transfer goods or services in the future under a revenue contract

Question 22

Deferral of Revenue

Answer 22

Process of recognizing deferred revenue at the time of the cash inflow

Question 23

When does a company recognize revenue?

Answer 23

At the point when the performance obligation is satisfied

Question 24

Accrual of Expense

Answer 24

An expense is debited and a liability is credited at the end of the accounting period

Question 25

What are examples of accrued expenses?

Answer 25

Interest, salaries, utilities, rent

Question 26

Net Realizable Value

Answer 26

Amount that the company estimates it will ultimately collect on receivables
(Treated differently than other accrual expenses)

Question 27

Allowance for Doubtful Accounts

Answer 27

Contra-Asset

We credit ADA instead of AR directly because the specific amount of uncollectible accounts is not yet known

Question 28

Interest Calcualtion

Answer 28

Face Value of Note * Annual Interest Rate * Fraction of the Year

Question 29

Accruals of Revenue examples

Answer 29

Unbilled services, commissions, interest

Question 30

Why is revenue unbilled?

Answer 30

It is partially complete or the timing of the invoice process does not coincide with the end of the accounting period