Chapter 4 Flashcards
Periodicity Assumption
economic life of business can be divided into artificial periods
Expense recognition principal
recognize expenses in the period that efforts are made to generate revenue
Revenue recognition principal
Recognize revenue in the period in which the performance
Revenue and Expense Recognition
In accordance with generally accepted accounting principles. (GAAP)
Deferrals: Pre-paid expenses
exp. paid in cash before they are used or consumed
assets overstated; exp. understated
exp. increase; decrease assets or increase contrassets
Deferrals: Unearned revenues
Cash received before services are performed
liabilities overstated; revenues understated
decrease liabilities; increase revenue
Accruals: Accrued revenues
Revenues for services performed but not yet received in cash or recorded
assets understated; revenues understated
Increase assets; Increase revenues
Accruals: Accrued expenses
Expenses incurred but not yet paid in cash or recorded
exp. understated; liabilities understated
increase exp; increase liabilities
On January 2nd 2022. Heretic Adventures receives $45,000 from a customer to perform entertainment services for the next three years. Which is the appropriate adjustment for December 31st, 2022?
a. decreased unearned revenue $15,000; Increased service revenue $15,000
b. Increased service revenue $15,000; Increase cash $15,000
c. Increased Unearned Revenue $15,000; Increase cash $15,000
d. decrease service revenue $15,000; increase unearned revenue $15,000
a. decreased unearned revenue $15,000; Increased service revenue $15,000
Happy Maids has an opening balance in its supplies account of $1,600 and purchases $1,800 of supplies during the year. A year-end physical counts shows $1,200 in supplies inventory. Which is the appropriate adjustment at year-end?
a. Increase supplies $1,800; decrease supplies expense $1,800
b. increase supplies expense $2,200; Decrease supplies $2,200
c. increase supplies $1,200; decrease cash $1,200
d. increase supplies expense $3,400l decrease supplies $3,400
b. increase supplies expense $2,200; Decrease supplies $2,200
Starshine Industries employs a five-day workweek (Monday-Friday) and a September 30 year-end. Normal weekly wages amount to $25,000. If September 30 ends on a Wednesday, what is the appropriate entry on October 2, the next payday for Starshine?
a. increase salaries and wages expense by 15,000; decrease cash by 15,000
b. increase salaries and wages expense by 10,000; decrease salaries and wagers payable by 15,000; decrease cash by 25,000
c. increase salaries and wages payable by 10,000; decrease cash by 10,000
d. increase salaries and wages expense by 15,000; decrease salaries and wages payable by 10,000; decrease cash by 25,000
b. increase salaries and wages expense by 10,000; decrease salaries and wagers payable by 15,000; decrease cash by 25,000
On November 1, 2022, Cherry Industries, which uses a calendar year as its fiscal year, signs a $12,000, 7%, six-month note payable. When the company pays the note and the entire amount of interest on May 1, 2023, it will:
a. Decrease Notes Payable $12,420; Decrease Cash $12,420.
B. Decrease Notes Payable $12,000; Increase Interest Expense $420; Decrease Cash $12,420.
C. Decrease Notes Payable $12,840; Decrease Cash $12,840.
D. Decrease Notes Payable $12,000; Increase Interest Expense $280; Decrease Interest Payable $140; Decrease Cash $12,420.
B. Decrease Notes Payable $12,000; Increase Interest Expense $420; Decrease Cash $12,420
On July 1, The Knit Shop paid $9,000 to Townsend Realty for six months’ rent beginning July 1. Prepaid Rent was increased to the full amount. If financial statements are prepared on July 31, the adjustment Knit Shop will make is:
A. increase Rent Expense $9,000; decrease Prepaid Rent $1,500.
B. increase Rent Expense $9,000; decrease Prepaid Rent $6,000.
C. increase Prepaid Rent $1,500; decrease Rent Expense $1,500.
D. increase Rent Expense, $1,500; decrease Prepaid Rent, $1,500.
D. increase Rent Expense, $1,500; decrease Prepaid Rent, $1,500.
