Accounting 8

Question 1

Accrual accounting

Answer 1

Attempting to record revenue and expenses when they happen (ties into time period concept)

Question 2

Adjusting entries

Answer 2

An journal entry that assigns revenues and expenses to it’s appropriate fiscal period, ultimately bringing true value to the balance sheet.

Question 3

Time period concept

Answer 3

A principle suggesting that accounting takes place over fiscal periods
-ties into accrual accounting

Question 4

Revenue Recognition principle

Answer 4

A principle suggesting that accountants should record revenue as soon as it earned
-ties into income statement

Question 5

Matching principle

Answer 5

A principle suggesting that accountants should record expenses that are related to the revenue when recorded
-ties into income statement

Question 6

Cost principle

Answer 6

A principle suggesting that assets should be recorded at their original price (purchased price)
-ties into balance sheet

Question 7

Conservatism principle

Answer 7

A principle suggests that assets should be neither overstated or understated
-ties into balance sheet
-balances the relationship between cost and fair value principles

Question 8

Overstate

Answer 8

Worth less than stated

Question 9

Understate

Answer 9

Worth more than stated

Question 10

Fair value principle

Answer 10

After some time, your assets can be changed so that they match market values
-ties into balance sheet

Question 11

Prepaid expense

Answer 11

An item paid for in advance, but one where the benefits extend into the future. Insurance is most common

Question 12

Nominal account

Answer 12

Accounts that get deducted back to 0 at the start of every fiscal period.

Question 13

Real account

Answer 13

Accounts that maintain their value at the start of a fiscal period

Question 14

Closing

Answer 14

The process of resetting certain ledger accounts

Question 15

Depreciation

Answer 15

The wasting away of an asset

Question 16

Straight value Depreciation

Answer 16

When an asset depreciates over a steady rate

Question 17

Accumulated depreciation

Answer 17

An account used to keep track of declining asset values
-a contra account

Question 18

Contra account

Answer 18

An account used to reduce the value of an account for it has the opposite value of said account but is still the same type (debit/credit)

Question 19

Valuation account

Answer 19

An account that is used together with an asset account to show its net value

Question 20

Straight line depreciation equation

Answer 20

(original cost - salvage cost)
_____________________________
depreciation years

Question 21

Declining balance method of depreciation equation

Answer 21

1st year: Original cost x depreciation rate.

2nd: Book value (undepreciated capital cost) x depreciation rate

Question 22

Book Value/Net value

Answer 22

The current value of an asset

Question 23

How do you get book value?

Answer 23

Take the original value and subtract the accumulated depreciation value and you get the next book value.

Question 24

Why do we do adjustiung entries? (use IFRS principles and matching principle)

Answer 24

We adjust entries so that they reflect a company’s financial position more accurately. This is mainly because of the matching principle and time period concept because some assets such as insurance may not be entirely used up and are passed down to the next year. For the most concise financial information, we must adjust these entries.

Question 25

Why do we use the accumulated depreciation account?

Answer 25

You want to keep things at the cost value according to the objectivity principle, a fundamental accounting principle where financial information/records must be recorded based on verifiable evidence to ensure trustworthiness.

Question 26

In a closing balance, what happens when the values are on the inside?

Answer 26

Net loss

Question 27

In a closing balance, what happens when the values are on the outside?

Answer 27

net profit

Question 28

steps in preparing a worksheet

Answer 28

1. fill in heading
   2.enter account balances from general ledger
   3.recording the adjusting entries for relevancy
2. extend accounts to their proper statements
   -include updates in adjustments
   a) balance sheet (a,l,e)
   b)Income statement (Rev, exp,
3. balance the worksheet

Question 29

Outer Ring (performed by accounting clerks)

Answer 29

• Transactions Occur
• Record them in General Journal
• Post to the Ledger
• Prepare Trial Balance and Financial Statements

Question 30

Inner ring (performed by accoutants)

Answer 30

• Prepare Worksheet
• Formal Statements prepared
• Ledger Accounts Adjusted and Closed
• Post-Closing Trial Balance prepared

Question 31

why does the first year rule exist?

Answer 31

Helps allow companies buy things late in the year so that they avoid tax

Question 32

Supply adjustment dr/cr

Answer 32

Debit supplies expense
Credit supplies

Question 33

Prepaid Insurance dr/cr

Answer 33

Debit insurance expense
Credit Prepaid insurance

Question 34

Unearned revenue dr/cr

Answer 34

Debit Revenue
Credit unearned revenue (a liability on the balance sheet)

Question 35

Late invoice dr/cr

Answer 35

Debit __ expense
Credit Account payable

Question 36

Depreciation dr/cr

Answer 36

Debit depreciation expense
Credit Accumulated depreciation