Acct 2121 CHPT 4

Question 1

What are Adjusting Entries?

Answer 1

A journal entry that occurs at the end of an accounting period to record any unrecognized income or expense, may be done monthly or annually depending on the company

Question 2

What are the types of Adjusting entries?

Answer 2

Prepaid expenses, Accruals

Question 3

Why Prepaid expenses?

Answer 3

Have we used any of the prepayments up

Question 4

Why Accruals?

Answer 4

Are there any other expenses or revenues that we still need to record

Question 5

What are Accrual accounting?

Answer 5

requires that revenues and expenses be recorded when a transaction occurs rathe than when money is exchanged, adjusting entries are required

Question 6

What is Cash Basis accounting?

Answer 6

Revenues are recorded when cash is received and expenses are recorded when they are actually paid, method can lead to timing differences and misinformation, Not permitted for use under IFRS or ASPE

Question 7

2 new GAAP Principles?

Answer 7

Revenue Recognition Principle, Matching Principle for expenses

Question 8

What is Revenue Recognition?

Answer 8

Revenue must be recognized in the accounting period in which it is earned, Revenue is recognized in a merchandising company when merchandise is sold and delivered, and in a service company when service is performed

Question 9

What is Expense Recognition?

Answer 9

Expenses are recognized when a decrease in economic resources occurs ( Assets have decreased or liabilities are increased), often coincides with revenue recognition, sometimes known as matching

Question 10

What are Prepaid Expenses?

Answer 10

Cash payments of expenses that will benefit more than one accounting period are recorded as assets, expire with the passage of time or through use, recorded when statements are prepared

Question 11

What are two types of accruals?

Answer 11

Accrued expenses, Accrued revenues

Question 12

What are Accrued expenses?

Answer 12

expenses that have been incurred but not yet paid or recorded

Question 13

What are Accrued revenues?

Answer 13

Revenues that have been earned but not yet received in Cash

Question 14

What is the Adjusted Trial Balance?

Answer 14

is prepared after All adjusting entries have been posted (Total debit balances= Total credit Balances), the main source for preparation of financial statements

Question 15

what order are Financial Statements prepared in?

Answer 15

Statement of income, Statement of changes in equity, Statement of financial position

Question 16

What are closing Entries?

Answer 16

Journal entries performed at the end of the period to shift data from temporary accounts to permanent balance sheet accounts

Question 17

What are the two types of accounts?

Answer 17

Temporary Accounts, permanent Accounts

Question 18

What are in temporary Accounts?

Answer 18

All revenue accounts, All expenses accounts, Dividends declared

Question 19

What are in permanent Accounts?

Answer 19

All assets accounts, All liability Accounts, Shareholders’ equity accounts

Question 20

Why use closing entries?

Answer 20

Allows us to transfer “Net Income” to retained Earnings, Temporary account balances are transferred to Retained Earnings, Produces a zero balance in the temporary accounts to prepare them for the next period’s activity

Question 21

What is The Closing process?

Answer 21

1. Close revenue accounts, 2. Close expense accounts, 3. Close income summary, 4. close dividends Declared account

Question 22

What is close revenue accounts?

Answer 22

Debit each revenue account for its balance and credit Income Summary for total revenue amount

Question 23

What is close expense accounts?

Answer 23

Debit Income Summary for the total expense amount and credit each expense account for its balance

Question 24

what is Close Income Summary?

Answer 24

Debit(or credit) Income Summary for the balance in the account and credit (debit) Retained Earnings

Question 25

what are close Dividends Declared account?

Answer 25

Debit Retained Earnings and credit Dividends Declared account for the balance

Question 26

What is Post-Closing Trial Balance?

Answer 26

Lists all permanent accounts and their balances after all closing entries are journalized and posted, proves the the total credit and debit balances are equal after the closing entries have been made