ACTG123 Chapter 7 - 10

Question 1

Is done by transferring the amounts of debit and credits in a recorded journal entry to the ledger accounts. The purpose of it is to classify the effects of transactions on specific A/L/E/I/E in order to provide more meaningful information.

Answer 1

Posting

Question 2

Preparation of the _____ ________ creates a starting point for the preparation of the FS, it is also prepared to check the equality of total debits and total credits in the ledger

Answer 2

Trial Balance

Question 3

Prepared before adjusting entries are made, must be equal to proceed to next step

Answer 3

Unadjusted Trial Balance

Question 4

Prepared after adjusting entries but before the FS are prepared.

Answer 4

Adjusted Trial Balance

Question 5

Prepared after the closing process

Answer 5

Post-Closing Trial Balance

Question 6

• Journalizing or Posting one-half of an entry, w/o a debit or credit vice versa
• Recording one part of an entry for a different amount than the other part
• Trans placement error on one side of an entry
• Trans position error on one side of an entry

Answer 6

Errors revealed by a trial balance

Question 7

• Omitting entirely the entry for a transaction
• Journalizing or posting an entry twice
• Using a wrong account with the same normal Bal. as the correct account
• Wrong computation with same erroneous amount posted to both the debit and credit sides

Answer 7

Errors NOT revealed by a trial balance

Question 8

Are made prior to the preparation of FS to update certain account so that they reflect correct balances as of the designated time

Answer 8

Adjusting Entries

Question 9

• To take up unrecorded income and expense of the period
• To split mixed accounts into their real and nominal accounts

Answer 9

Purpose of Adjusting Entries

Question 10

• Cost that provides economic benefits over several accounting periods but cannot be directly associated with the earning of revenues are recognized as expenses over the periods where the economic benefits are consumed
• Concept of Recog of Depreciation Expense applies to this, Expenditure to acquire equipment is initially recorded as asset. However, because of this expenditure cannot be directly associated with sales, the expenditure is recognized as expense over the periods the equipment is used

Answer 10

The Concept of Systematic and rational allocation

Question 11

• Cost that produces no future economic benefits or an asset that ceases to provide future economic benefits is recognized immediately as an expense
• Application of this concept is the recognition of debts expense, Ex. AR is immediately charged as bad debt expense because it ceased to provide future economic benefits

Answer 11

The Concept of Immediate Recognition

Question 12

Accounts that are not closed at the end of the accounting period. These are extended to the next accounting period. It includes BLS Accounts, except “Owners Drawings”, Unexpired portion

Answer 12

Real Accounts (Permanent Accounts)

Question 13

Accounts that are closed at the end of the accounting period. These are extended to the next accounting period. It includes IS Accounts, Drawings account, clearing accounts and suspense accounts, Expired portion

Answer 13

Nominal Accounts (Temporary Accounts)

Question 14

An account used temporarily to store amounts that will eventually be transferred to another account. Ex. The Bal of “Inc Summary” is closed to the “owner’s capital” before FS are prepared.

Answer 14

Clearing Account

Question 15

An account used temporarily to store discrepancies in the accounts pending their analysis and permanent classification. Ex The ”Cash shortage or overage” is closed to a receivable or loss (for shortages) or payable or gain (for overages)

Answer 15

Suspended Account

Question 16

Accounts that have both real & nominal account components. THESE ACCOUNTS ARE SUBJECT TO ADJUSTMENT, It includes unadjusted prepayments “Prepaid Assets” and deferrals “Unearned Income” that have both expired and unexpired components

Answer 16

Mixed Accounts

Question 17

Adv. Collections of income are Initially credited to a liability account. The earned portion at the end of the period is recog as Income

Answer 17

Liability method

Question 18

Adv. Collections of income are Initially credited to an income account, The unearned portion at the end of the period is recog as liability

Answer 18

Income method

Question 19

First 9 mos. of the 1 yr. rent in advance covering the months of Apr 1 to Dec 31, 20x1
ex. (10,000 rent per mos. x 9 mos. = 90,000)

Answer 19

Earned portion (used up)

Question 20

The remaining 3 mos. covering Jan 1 to March 31, 20x2
ex. (10,000 rent per mos. x 3 mos. = 30,000)

Answer 20

Unearned portion (unused)

Question 21

Prepayments of expenses are Initially debited to an asset account. The incurred portion at the end of the period is recog as expense, while incurred portion remains as asset

Answer 21

Asset Method

Question 22

Prepayments of expenses are Initially debited to an expense account, The unused portion at the end of the period is recog. as asset, while incurred portion remains as expense

Answer 22

Expense Method

Question 23

First 3 mos. of 1 yr. prepaid insurance covering the mos. of Oct 1 to Dec 31, 20x1
ex. (120,000 x 3mos./12mos = 30,000)

Answer 23

Incurred portion (used up or expired)

Question 24

The remaining 9 mos. of Jan 1 to Sept 30, 20x2
ex. (120,000 x 9mos/12mos = 90,000)

Answer 24

Not yet incurred portion (unused or unexpired

Question 25

- To recognize Income that is already earned but not yet collected - To recognize expense that is already incurred but not yet paid

Answer 25

Accrual

Question 26

- To postpone the Income recognition of an advance collection. It is treated as liability until earned - To postpone the Expense recognition of a prepayment. It is treated as asset until incurred

Answer 26

Deferral

Question 27

Is an analytical device used to facilitate the gathering of data for adjustments.

Answer 27

Worksheet

Question 28

Are end product of the accounting process.

Answer 28

Financial Statements

Question 29

shows information on Asset/Liability/Equity

Answer 29

Statement of Financial Position

Question 30

shows information on Income/Expense and Profit/Loss

Answer 30

Statement of Comprehensive Income

Question 31

To zero out all nominal accounts, so that it will not commingle with the transactions in the next period

Answer 31

Closing Entries

Question 32

All Inc accs. are ________ and all Exp accs. are ________. The resulting bal. is recorded in a clearing account called the _______ _______

Answer 32

debited, credited Income Summary

Question 33

The balance of Income Summary is closed to the ______ _______ account

Answer 33

Owner's Capital

Question 34

Any balance in the _________ _________ account is closed to the _______ __________ account

Answer 34

Owner's drawings Owner's capital

Question 35

DB & CD in _______ _______ are placed here

Answer 35

Closing Entries

Question 36

The amounts in the “Adjusted Trial Balance” are cross footed with the amounts in the “Closing entries” columns. The resulting amounts are then placed in the “post-closing trial balance”

Answer 36

Post-closing Trial Balance

Question 37

Are entries usually made on the first day of the next accounting period to reverse certain adjusting entries in the immediately preceding period.

Answer 37

Reversing Entries

Question 38

1. Accruals for income or expense 2. Prepayments initially recorded using the Expense method 3. Advanced collections initially recorded using the Income method

Answer 38

Adjusting Entries that may be reversed

Question 39

is one that buys and sells goods without changing their physical form

Answer 39

Merchandising Business

Question 40

refers to the goods that a merchandising business has purchased and primarily intended for resale, normally in their original form and without any further processing.

Answer 40

Inventory

Question 41

Inventories are accounted for using

Answer 41

Perpetual Inventory System Periodic Inventory System

Question 42

In laymans terms, the word ''perpetual'' means continuing forever.

Answer 42

Perpetual Inventory System

Question 43

In laymans terms, the word ''periodic'' means occuring or recurring at regular intervals

Answer 43

Periodic Inventory System

Question 44

the account used to record purchases of inventory under the periodic system

Answer 44

Purchases

Question 45

the account used to record the shipping costs incurred in purchases of inventory under the periodic system.

Answer 45

Freight-in

Question 46

the account used to record of purchased goods to the supplier

Answer 46

Purchase returns

Question 47

the account used to record cash discounts availed of on the purchased goods

Answer 47

Purchase discounts

Question 48

include both cash sales and credit sales

Answer 48

Sales

Question 49

the account used to record goods returned by customers

Answer 49

Sales returns

Question 50

the account used to record cash discounts given to customers

Answer 50

Sales discounts

Question 51

is not a formal accounting report that is prepared for external reporting

Answer 51

Statement of COGS and GROSS Profit

Question 52

gives rise to **interest income**

Answer 52

Notes Receivable

Question 53

is earned due to passage of time

Answer 53

Interest Income

Question 54

i = P x r x t

Answer 54

**Interest** equals **Principal** times **rate** times **time**