2 Double Entry System

Question 1

6 Accounting Assumptions

Answer 1

1. Economic entity
2. Going concern
3. Time period
4. Monetary unit
5. Cost principle
6. Full disclosure

Question 2

T-Account - what to Dr/Cr

Answer 2

Dr: AED
Assets, Expense, Dividends

Cr: LIC
Liability, Income(Revenue), Capital (Equity)

Question 3

What is accrual accounting?

Answer 3

Records events in period in which they occur, regardless of when cash receipts or payments occur

Impt concepts:
Time-period concept
Revenue recognition principle

Question 4

Adjusting entries:
What are
1. Deferrals
2. Accruals
3. Depreciation

Answer 4

1. Deferrals - cash received/paid IN ADVANCE BEFORE revenues/expenses are earned/incurred
   (eg ABC received payment in Dec for services to be provided in Jan. revenue is DEFEERED & RECOGNIZED in JAN)
2. Accruals - earned/incurred but YET TO receive/pay cash
   (eg HIJ completes service in Dec but will bill client in Jan. Revenue is accrued in Dec)
3. Depreciation - allocation of cost of an asset over its estimated useful life

Question 5

Deferral or Accrual? How to adjust entries?

1. Prepaid Rent
2. Unearned Revenue (Liability)

Answer 5

Deferral: delay - cash first, revenue/expense recorded later

Accural: advance - action first, cash later

1. Prepaid Rent - Deferral
   Dr Prepaid rent
   Cr Cash

Dr Rent expense
Cr Prepaid Rent

2. Unearned Revenue - Accrual
   Dr Cash
   Cr Unearned Revenue

Dr Unearned Revenue
Cr (Service) Revenue

Question 6

How to adjust entry for Accrued Salary?

Answer 6

Dr Salary Expense
Cr Salary Payable

Dr Salary Payable
Cr Cash

Question 7

Depreciation adjusting entry for purchasing equipment?

Answer 7

Dr Equipment
Cr Cash

Dr Depreciation Expense
Cr Accumulated Depreciation (Contra-Asset)