Chapter 8

Question 1

accrual accounting

Answer 1

• to record revenue and expenses when they happen, not when the payment is received

Question 2

adjusting entry

Answer 2

• a journal entry that brings a balance sheet account (A or L) up to date and matches it with a corresponding REVENUE or EXPENSE account in the year it happened

Question 3

the four adjusting entry

Answer 3

1. supplies
2. prepaird expenses
3. late arriving purchase invoices
4. unearned revenue

Question 4

worksheet

Answer 4

• an informal business paper used to organize and plan the information for the financial statements

Question 5

supplies

adjusting entries

Answer 5

• supplies that get used up over a period of time, damaged, stolen
  debit = supplies expense
  credit = supples

Question 6

prepaid expense

adjusting entries

Answer 6

• an item paid for in advance, but one where the benefits extend into the future
  e.g.
  debit = insurance expense
  credit = prepaid insurance

count months

Question 7

late-arriving purchase invocies

adjusting entries

Answer 7

• financial statements are prepared a few weeks after the fiscal year end to allow late invoices to arrive
  debit = expense account
  credit = A/P

Question 8

unearned revenue

adjusting entries

Answer 8

• services you have been paid for inadvance but have not yet provided the service
• you can’t record this as revenue yet b/c you haven’t done the work
• liability

Question 9

real accounts

Answer 9

• the balance stays and carries forward into the next fiscal period

accounts: assets, liabilities, capital accounts

Question 10

nominal accounts

Answer 10

• the balances are brough to 0 and are “closed”
• the balance DO NOT carry forward to the next fiscal period

accounts: revenue, expenses + drawings

Question 11

income summary

Answer 11

temporary and only used in closing entries

Question 12

closing an account

Answer 12

cause it to have no balance

Question 13

depreciation

Answer 13

• the allocation of the cost of an asset over its useful like
• the cost is an estimate
• the value of asset decreasing overtime is an expense

Question 14

straight-line depreciation

Answer 14

(original cost - estimated salvage value) / # of years useful

= depreciation for one year

Question 15

salvage value

Answer 15

the amount it’s estimated to be worth at the end

Question 16

accounts for depreciation

adjusting entries

Answer 16

debit = depreciation expense
credit = accumulated depreciation

acc depr is contra acc
appears with asset on balance sheet

Question 17

declining balance depreciation

Answer 17

• calculating depreciation using a predetermined percentage
• used by CRA
• some assets depreciate faster in the early years of use
• higher depreciation expense in early years helps offset the cost to acquire the asset

Question 18

equation for declining balance

Answer 18

initial value/book value x rate = adjusting entry amount (expense)

Question 19

50% rule

Answer 19

• this rule is enforced for the CRA when an asset is purchased part way through the year
• only 50% of the asset’s cost is depreciated in its first year, regardless of when it was purchased
• first year only
• (initial value x rate) /2 or times 50%