acct test 2 Flashcards
Dividends are closed to the Retained Earnings account during the end-of-period closing process
true
One effect of recognizing deprecation is to decrease net income
true
Three months before its year-end, a company signed a $250,000, 12%, 8-month note. Principal and interest will be paid at maturity. No interest should be accrued at year-end because the company has no obligation to pay the interest until the note matures
false
Question Content Area
A worksheet facilitates the preparation of the income statement and retained earnings statement, but not the balance sheet
false
When an expense is incurred prior to the payment of cash for that expense, an adjustment that increases an expense account and increases a liability is prepared.
true
A cost can be an asset or expense depending on whether or not the future economic benefits have expired.
true
Adjusting entries are recorded at the end of each accounting period so that net income is accurately reflected in the financial statements for the period
true
When a company recognizes the portion of supplies used during a year, the effect is a decrease in net income
true
the balance in the account, Rent Collected in Advance, is reported as a liability on the balance sheet of the landlord
true
Adjusting entries are prepared using the accrual basis of accounting for preparing financial statements
true
When is revenue recorded during cash basis accounting
When cash is received, regardless of when revenue is earned
When are expenses recorded during cash basis accounting
When cash is paid, regardless of when the expense occured
What type of accounting is required by GAAP when preparing financial statements
``Accrual Basis of accounting
Three key principles of the Accrual Basis of Accounting
Revenue recognition, expense recognition( matching) , time period
Revenue is recorded in a period when a company satisfies its performance
obligation (i.e., company performs a service or delivers a product) regardless
of when cash is received
Revenue recognition principle
Expenses are recorded when incurred regardless of when cash is paid
Expense recognition/ matching
Accrual accounting requires that we assign revenues and expenses to the
proper time/accounting period,
Time period assumption
When are accounts required to be adjusted, if it spans longer than 1 accounting period
At the end of an accounting period
What is the purpose of adjusting journal entries
To make sure revenues/ expenses are recorded in proper time period
All accrual accounting journal entries will affect
at least one income statement accounting and one balance sheet account
What is never affected by adjusting entries
cash
The Expense Recognition (matching) Principle requires companies to
systematically assign or allocate the cost of these assets (PPE) as expense to
each period in which they are used. This process is called
Depreciation
What type of adjustment is a PPE ajustment
deferral
Adjustment to record depreciation increases an expense and decreases the
value of assets by using a contra-asset account called
Accumulated depreciation
How does the adjusted deferral look in a journal entry
Depreciation expense $$
Accumulated Depreciation $$
The unused portion of a long-lived asset is reported on the balance sheet at
its
Book value
What is the formula for book value
Historical Cost - Accumulated depreciation
an account that has a
normal balance opposite of the balance in its related account.
Contrasset
Equipment has a normal debit balance, and the Accumulated
Depreciation for Equipment has a normal credit balance.
What type of relation is this
contra asset
Is land a depreciable asset
NO
How do we calculate Annual depreciation expense
(Historical Cost - Salvage Value) / Estimated useful life
How do companies check to make sure debits = credits, after AJE
Adjusted trial balance
What is the order financial statements are prepared in
Income statements, retained earning, balance, statement of cash flow
Balance sheets are _________ accounts in that their balances are carried forward from the current accounting period to future accounting periods. We do not clost balance sheet accounts
Permanent
Revenues, expenses, gains, losses, and dividends are used to collect the activities for only _____ period. This makes them a ______ account
One, temporary
What is the balance of a temporary account at the start of a new accounting period
Zero Balance
First step of closing entries
Close revenue and gain accounts
to income summary.
Second step of closing entries
Close expense and loss accounts
to income summary
Third step to closing entries
Close income summary to
retained earnings (RE).
Fourth step in closing entries
Close dividends to RE
RE XXX
Dividends XXX
Dividends summary
Income Summary xx
RE xx
(If there is Net Income)
Or
RE xx
income Summary xx
(If there is Net Loss)
Close income summary to RE
Income Summary xx
Expense/Loss x
Close expense and loss accounts to income summary
Revenue/Gain xx
Income Summary xx
Close revenue and gain accounts
to income summary
