Chapter 3 Flashcards
What are the two main categories of adjustments?
Accruals and deferrals
Deferrals record revenues and expenses ________ cash is received or paid.
after
What is AJE?
Adjusted journal entry
What is the basic accounting peiod?
One year
Based on accrual accounting, when to accounts need to be adjusted?
At the end of the period.
Accrued revenues is what?
Revenues earned before cash is received.
How often does a company go through an accounting cycle?
Can be monthly, quarterly and/or annually
Accruals record revenues and expenses ________ cash is received or paid.
before
Revenue Recognition Principle. What is it?
Recording revenues when they are earned by providing goods or services to customers.
What is the Depreciation Expense Calculation?
Depreciation Expense per Year = Cost of asset - salvage value of asset / useful life of asset.
Monthly depreciation = Annual depreciation / 12
Pepper Potts pays her assistant a monthly salary of $4,500. Potts pays the assistant on the 1st of each month for the past months work. What adjusted entry is required on September 30th?
Sept. 30th Dr. Salaries Expense $4,500
Cr. Salaries Payable $4,500
True or false. Prepaid expenses are liabilities.
False. Prepaid expenses are assets.
Avengers Inc. purchases a jet on August 1 for $100,000 and is expected to last 5 years. What is the adjusted entry for August 31. What does the adjusted entry look like?
Aug 1 Dr. Equipment $100,000
Cr. Cash $100,000
Aug 31 Dr. Depreciation Expense, Equip. $20,000
Cr. Accumulated Depreciation, Equip. $20,000
What is the calculation for current ratio?
Current ratio = current assets / current liabilities
What is accrual accounting?
Accounting method that records revenues when earned and expenses when incurred without regard to when cash is exchanged.
During the closing process, you must ______ each revenue account for the amount of its _____ balance and then ______ Retained Earnings for the total amount of the ________.
debit, credit; credit, debits
True or false. Unearned revenue is an asset.
False, it is a liability.
Avengers Inc. pays $2000 a month in rent for Avengers Tower. The company prepays 4 months of rent on April 1st. What is the adjusted journal entry?
Apr 1 Dr. Prepaid Rent $8,000
Cr. Cash $8,000
Apr 30 Dr. Rent Expense $2,000
Cr. Prepaid Rent $2,000
What is liquidity?
How quickly an asset can be converted to cash and used to pay off liabilities within the next year.
What are the three ratios to help analyze a company’s debt-paying ability?
Net Working Capital, Current Ratio, and Debt Ratio
During the closing process, you must ______ each expense account for the amount of its ______ balance and then ______ Retained Earnings for the total amount of the ________.
credit, debit; debit, credits
Expense Recognition Principle. What is it?
Recording expenses in the time period they were incurred to produce revenues, thus matching them against the revenues earned during that same period.
A client pays $8,000 in advance to Avengers Inc. on Sept. 15th for services to be done at a later date. Avengers Inc. begins work right away. How is this reflected on the adjusted journal entry as of Sept. 30th?
Sept 15 Dr. Cash $8,000
Cr. Unearned Service Revenue $8,000
Sept 30 Dr. Unearned Service Revenue $4000
Cr. Service Revenue $4000
How is Gross Profit Calculated?
Net Sales - COGS = Gross Profit
