Chapter 3 Flashcards
What states that we record revenue in the period in which we provide goods and services to customers?
The Revenue recognition principle
What states that we record expenses in the same period as the revenues that they help to generate?
The matching principle
Which statement best describes when expenses should be recorded?
a. Expenses are recorded when paid.
b. Expenses are recorded the day a company promises to pay.
c. Expenses are recorded when the cost is used to help produce revenue.
d. None of the above
c. Expenses are recorded when the cost is used to help produce revenue.
When is revenue recognized on an accrual basis?
When the goods and services are provided to customers
When is revenue recognized on a cash basis?
When cash is received
When are expanses recognized on an accrual basis?
In the period costs are used to help produce revenue
When are expenses recognized an a cash basis?
When cash is paid
Is accrual basis or cash basis apart of GAAP?
Accrual basis is apart of GAAP
What is the difference between accrual-basis accounting and cash-basis accounting?
Timing
Which of the following would be recorded as an expense under accrual-basis accounting?
a. The company purchases office supplies with cash and does not use the supplies.
b. The company uses utilities in the current period but does not pay cash.
c. The company provides services to customers for cash.
d. The company purchases equipment by borrowing from the bank.
b. The company uses utilities in the current period but does not pay cash
Which of the following would be recorded as an expense under cash-basis accounting?
a. The company purchases office supplies with cash and does not use the supplies.
b. The company uses utilities in the current period but does not pay cash.
c. The company provides services to customers for cash.
d. The company purchases equipment by borrowing from the bank.
a. The company purchases office supplies with cash and does not use the supplies.
List the 4 types of adjusting entries
- Prepaid Expenses
- Deferred Revenue
- Accrued Expenses
- Accrued Revenue
What are the costs of assets acquired in one period that will be recorded as an expense in a future period?
Prepaid Expenses
Fill in the Blank:
For a prepaid expense adjusting entry the debit is an ______ account and the credit is an _____ account
The debit is an expense account and the credit is an asset account
What is the formula to find Interest?
Principle account x rate x how many months
Which of the following is recorded with an adjusting entry associated with a prepaid expense?
a. Credit an asset
b. Debit a liability
c. Credit an expense
d. Debit an asset
a. Credit an asset
On December 1st you paid $6,000 for rent in advance. By the end of the year you have $5,500 prepaid rent remaining.
- How much prepaid rent expired?
- Make the journal entry
- Make the adjusting entry
- $500
- 12/1 Prepaid Rent $6,000
Cash $6,000 - 12/31 Rent Expense $500
Prepaid Rent $500
On December 6th you purchase supplies on account for $2,300. By the end of the year you have $1,300 remaining supplies.
- How much supplies was used?
- Make the journal entry
- Make the adjusting entry
- $1,000
- 12/6 Supplies $2,300
Accounts Payable $2,300 - 12/31 Supplies Expense $1,000
Supplies $1,000
If a prepaid expense says “Remaining equipment cost to be allocated” while dealing with equipment what is it?
Depreciation
On December 1st you purchase equipment for $24,000. By the end of the year $23,600 of the remaining equipment cost is to be allocated.
- How much of the equipment cost is to be allocated?
- Make the journal entry
- Make the adjusting entry
- $400
- 12/1 Equipment $24,000
Cash $24,000 - 12/31 Depreciation Expense $400
Accumulated Depreciation $400
What occur when a company receives cash in advance from customers?
Deferred Revenue
Fill in the Blank:
For a deferred revenue adjusting entry the debit is a _____ account and the credit is a ______ account
The debit is a liability account and the credit is a revenue account
On December 23rd you receive $600 in advance from a customer for products or services to be provided in the future. By the end of the year $400 of the deferred revenue remains.
- How much of the services were provided?
- Make the initial journal entry
- Make the adjusting entry
- $200
- 12/23 Cash $600
Deferred Revenue $600 - 12/31 Deferred Revenue $200
Service Revenue $200
What are recorded when a company has a cost that is used to help produce revenue but hasn’t yet paid cash for that cost?
Accrued Expenses
Fill in the Blank:
For an accrued expense adjusting entry the debit is an ______ account and credit a ______ account
The debit is an expense account and the credit is a liability account
By the end of the year, $300 in salaries have been earned by employees but not paid. By January 4th employees were paid $700.
- How much additional salaries did the employee’s earn?
- Make the adjusting journal entry
- $400
- 1/4/18 Salaries Payable $300
Salaries Expense $400
Cash $700
If a company pays an employee $100 per day for a five-day work week that runs from Monday to Friday, and December 31 is a Tuesday, what is the amount of the salaries adjustment, assuming that Friday is payday?
a. $500
b. $400
c. $300
d. $200
d. $200
By the end of the year, one month of interest has been charged for borrowing $10,000 at 12% interest. One year later you paid $1,200 for internet.
- What’s your interest per month?
- How much additional interest did you incur?
- Make the adjusting entry
- $100
- $1,100
- 12/1/18 Interest Payable $100
Interest Expense $1,100
Cash $1,200
When you see additional interest does that mean that it is going to be payable or an expense?
It means that it’s going to be an expense
If a company borrowed $20,000 on November 1 at the rate of 6% annually, how much interest expense should be accrued at the year end date of December 31, assuming no accrual has yet been made this year?
a. $1,200
b. $200
c. $600
d. $400
b. $200
What is recorded when a company provides products or services to customers but hasn’t yet received cash?
Accrued Revenue
Fill in the Bank:
For an accrued revenue adjusting entry the debit is an ______ account and the credit is a ______ account
The debit is an asset account and the credit is a revenue account
By the end of the year, services of $700 have been provided to customers but have not yet been billed. From January 8-14th $700 in cash was received from the customers.
- How much revenue was earned?
- Make the original entry
- Make the adjusting entry
- $700
- 12/31/17 Accounts Receivable $700
Service Revenue $700 - 1/8/18 Cash $700
Accounts Receivable $700
An adjusting entry would be needed for which of the following transactions?
a. Accrued salaries
b. Services provided but unbilled
c. Interest accrued on a loan payable
d. All of the above
d. All of the above
Adjusting entries are unnecessary for what two types of transactions?
- Transactions that do not involve the recognition of revenues or expenses
- Transactions in which we receive cash at the same time we record revenue or pay cash at the same time we record an expense
What is considered to be current?
Anything less than a year
What is considered to be long-term?
Anything over a year
Which financial statement would include a line for net income?
a. Income statement
b. Statement of stockholders’ equity
c. Balance sheet
d. Both a and b
d. Both a and b
Which account would NOT be closed during the closing process?
a. Retained Earnings
b. Dividends
c. Interest Expense
d. Interest Revenue
a. Retained Earnings
What lists all account balances after updating for closing entries?
The Post-Closing Trial Balance
Which of the following accounts would you find on a post-closing trial balance?
a. Dividends
b. Retained Earnings
c. Rent Expense
d. Service Revenue
b. Retained Earnings
For each situation, determine the date for which the company recognizes the revenue under accrual-basis accounting:
American Airlines collects cash on June 12 from the sale of a ticket to a customer. The flight occurs on August 16
August 16
For each situation, determine the date for which the company recognizes the revenue under accrual-basis accounting:
A customer purchases sunglasses from Eddie Bauer on January 27 on account. Eddie Bauer receives payment from the customer on February 2
January 27
For each situation, determine the date for which the company recognizes the revenue under accrual-basis accounting:
On March 30, a customer preorders 10 supreme pizzas (without onions) from Pizza Hut for a birthday party. The pizzas are prepared and delivered on April
March 30
For each situation, determine the date for which the company recognizes the revenue under accrual-basis accounting:
A customer pays in advance for a three-month subscription to Sports Illustrated on July 1. Issues are scheduled for delivery each week from July 1 through September 30.
July 1 - September 30
List all the steps in the accounting cycle in proper order:
a. Record and post adjusting entries.
b. Post the transaction to the T-account in the general ledger.
c. Record the transaction.
d. Prepare financial statements (income statement, statement of stockholders’ equity, balance sheet, and statement of cash flows).
e. Record and post closing entries.
f. Prepare a trial balance.
g. Analyze the impact of the transaction on the accounting equation.
h. Assess whether the transaction results in a debit or a credit to the account balance.
i. Use source documents to identify accounts affected by external transactions.
- I
- G
- H
- C
- B
- F
- A
- D
- E
For each item, record the necessary adjusting entry for Huskies Insurance at its year-end of December 31. No adjusting entries were made during the year:
Equipment costing $42,000 is purchased at the beginning of the year for cash. Depreciation on the equipment is $7,000 per year.
12/31 Depreciation Expense $7,000
Accumulated Depreciation $7,000
For each item, record the necessary adjusting entry for Huskies Insurance at its year-end of December 31. No adjusting entries were made during the year:
On October 1, the company receives $16,000 from a customer for a one-year property insurance policy. Deferred Revenue is credited.
16,000/12 = 1,333,333
October - December = 3 months
3 x 1,333.333 = 4,000
12/31 Deferred Revenue $4,000
Service Revenue $4,000
