Chapter 9, Before Moving On - Sage 50 Flashcards
Explain the concept of matching revenues with expenses in a specific accounting period.
Matching revenues with expenses in a specific accounting period is done to provide an accurate picture of the financial health of a company.
The matching concept is a Generally Accepted Accounting Principle in Canada.
There are two major ways to match revenues & expenses.
What are the two major ways to match revenues & expenses?
- When a product is sold or a service is rendered, the cost of the goods sold or service rendered is expensed. - When costs (e.g., insurance, taxes, etc.) cannot be directly related to the product sold (Cost of Goods Sold) or service rendered, these costs are expensed in the accounting period usually (monthly) when they contribute to revenue earned.
What kind of adjustment is required to Prepaid Expenses at the end of an accounting period.
The adjustment that is required to Prepaid Expenses at the end of an accounting period is to allocate the portion of the prepaid expense that is used up to the expense during the accounting period;
e.g., monthly, quarterly, etc. The expense amount is then deducted from the asset (Prepaid Expense).
This process matches revenues with expenses.
What are accrued expenses?
Give at least two examples.
Accrued expenses are expenses that have occurred, but where the cost has not been recorded in an accounting period.
Example, salaries/wages, automotive gasoline costs, hydro and water costs are incurred on a daily basis but may not be paid until a later date.
At the end of an accounting period, these unpaid expenses must be recorded (accrued) with an adjusting entry for proper matching to revenues earned in the period.
What is accrued interest?
is interest income earned but not received (an asset account Interest Receivable) or interest expense incurred but not paid (a liability account Interest Payable).
Why is it necessary to make an adjustment to this account (accrued interest) at the end of the accounting period?
for proper matching of revenue and expenses.
Name two major reasons for backing up data files before doing the year-end closing in Sage 50 Accounting.
- Data errors may occur during year-end closing procedures.
- Payroll errors may occur and a backup device will allow you to make changes and print T4 slips again.
- Year-end audit adjustments can be made on the backup copy to print revised financial statements.
What is the benefit of using recurring entries?
-they reduce the amount of work you enter to record transactions that occur on a regular or random basis.
