Chapter III Flashcards
time period assumption
periodicity assumption
Accountants divide econ life of business into artificial time periods
interim periods
Monthly and quarterly time periods
Fiscal Year
Accounting time period that is one year in length
Calendar Year
January 1 to December 31
Time period assumption states that:
A. Rev should be recognized in acc period in which it is earned.
B. Exp should be matched with rev.
C. Econ life of business can be divided into artificial time periods.
D. Fiscal year should correspond with calendar year.
C
accrual-basis accounting
- Trans recorded in periods in which events occur.
- Companies recognize rev when they perform services (rather than when they receive cash).
- Exp recognized when incurred (rather than when paid).
Cash-Basis Accounting
- Rev recorded when cash is received.
- Exp recorded when cash is paid.
- not in accordance with (GAAP).
revenue recognition principle
Recognize rev in acc period in which performance obligation is satisfied.
expense recognition principle
Match exp with rev in period when comp makes efforts to generate those rev.
“Let the expenses follow the revenues.”
What is false?
A. Events changing comp’s fin statemt are recorded in periods in which events occur.
B. Rev is recognized in period in which performance obligation is satisfied.
C. Accrual basis of accounting is in accordance with GAAP.
D. Rev is recorded only when cash is received and exp are recorded only when cash is paid.
D
Adjusting Entries
- Ensure Rev recognition and exp recognition principles are followed.
- Necessary bec trial balance may not contain up-to-date and complete data.
- Required every time comp prepares fin statements.
- Will include 1 income statemt acc and 1 balance sheet acc.
Adjusting entries are made to ensure that:
A. exp are recognized in period in which they are incurred.
B. rev are recorded in period in which services are performed.
C. balance sheet and income statement acc have correct balances at the end of acc period.
D. all of the above.
D
Deferrals:
(a) . Prepaid expenses:
(b) . Unearned revenues:
(a) Expenses paid in cash before they are used or consumed. (Cash payment before exp recorded)
(b) Cash received before services are performed.
Accruals:
(a) Accrued revenues:
(b) Accrued expenses:
(a) Rev for services performed but not yet received in cash or recorded.
(b) Exp incurred but not yet paid in cash or recorded.
Deferrals
Exp or rev recognized at a date later than point when cash was originally exchanged
Prepaid expenses
- Payments of exp will benefit more than 1 acc period.
- CASH payment before Exp recorded.
- Ex: insurance, supplies, advertising, rent, equipment, buildings.
- Dr. exp acc and Cr. asset acc
Depreciation
- Process of allocating cost of asset to expense over its useful life.
- No attempt to report actual change in value of asset.
Accumulated Depreciation
- Contra asset account (credit)
- LESS: accumulated depreciation
- Dr. depre exp and Cr. accumulated Depre - equip
Unearned revenues
- Receipt of cash recorded as a liability because service has not been performed.
- CASH receipt before Rev recorded.
- Ex: Rent, Airline tickets, Magazine subscriptions, Customer deposits.
- Dr. lia acc and Cr. rev acc
Accrued revenues
- Rev recorded before CASH receipt
- Ex: Rent, Interest, Service performed
- Dr. asset acc and Cr. rev acc
Accrued expenses
- Expense recorded before Cash payment
- Ex: Interest, Taxes, Salaries
- Dr. exp acc and Cr. lia acc
Book value
difference between cost of depreciable asset and its accumulated depreciation
- The revenue recognition principle states that:
(a) revenue should be recognized in the accounting
period in which a performance obligation is satisfied.
(b) expenses should be matched with revenues.
(c) the economic life of a business can be divided
into artificial time periods.
(d) the fiscal year should correspond with the calendar year.
A
- The time period assumption states that:
(a) companies must wait until the calendar year is
completed to prepare financial statements.
(b) companies use the fiscal year to report financial
information.
(c) the economic life of a business can be divided
into artificial time periods.
(d) companies record information in the time period
in which the events occur.
C
- Which about accrual basis of accounting is false?
(a) Events that change a company’s fin statemt are recorded in the periods in which the events occur.
(b) Revenue is recognized in the period in which services are performed.
(c) This basis is in accord with generally accepted
accounting principles.
(d) Revenue is recorded only when cash is received,
and expense is recorded only when cash is paid.
B
- Principle or assumption dictating efforts (expenses) be matched with accomplishments (revenues) is:
(a) expense recognition principle.
(b) cost assumption.
(c) time period assumption.
(d) revenue recognition principle.
A
- Adjusting entries are made to ensure that:
(a) expenses are recognized in the period in which
they are incurred.
(b) revenues are recorded in the period in which
services are performed.
(c) balance sheet and income statement accounts have
correct balances at the end of an accounting period.
(d) All the responses above are correct.
D
6. Each of the following is a major type (or category) of adjusting entries except: (a) prepaid expenses. (b) accrued revenues. (c) accrued expenses. (d) recognized revenues.
D
7. Trial balance shows Supplies $1,350 and Supplies Exp $0. If $600 of supplies are on hand at the end of the period, adjusting entry is: (a) Dr. Supplies 600 Cr. Supplies Expense 600 (b) Dr. Supplies 750 Cr. Supplies Expense 750 (c) Dr. Supplies Expense 750 Cr. Supplies 750 (d) Dr. Supplies Expense 600 Cr. Supplies
C
- Adjustments for prepaid expenses:
(a) decrease assets and increase revenues.
(b) decrease expenses and increase assets.
(c) decrease assets and increase expenses.
(d) decrease revenues and increase assets.
C
- Accumulated Depreciation is:
(a) a contra asset account.
(b) an expense account.
(c) a stockholders’ equity account.
(d) a liability account.
A
- Comp depreciation on delivery equip at $1,000 for month of June. Adjusting entry to record this depreciation is:
(a) Dr. Depre Exp 1,000
Cr. Accumulated Depre - comp 1,000
(b) Dr. Depre Exp 1,000
Cr. Equip 1,000
(c) Dr. Depre Exp 1,000
Cr. Accumulated Depre - Equip 1,000
(d) Dr. Equip Exp 1,000
Cr. Accumulated Depre - Equip 1,000
C
- Adjustments for unearned revenues:
(a) decrease liabilities and increase revenues.
(b) have an assets and revenues account relationship.
(c) increase assets and increase revenues.
(d) decrease revenues and decrease assets.
A
- Adjustments for accrued revenues:
(a) have a liabilities and revenues account relationship.
(b) have an assets and revenues account relationship.
(c) decrease assets and revenues.
(d) decrease liabilities and increase revenues.
B
13. Anika earned salary of $400 for last week of Sep. She will be paid on Oct 1. => adjusting entry for Anika’s employer at Sep 30 is: (a) No entry is required. (b) Dr. Salaries and Wages Expense 400 Cr. Salaries and Wages Payable 400 (c) Dr. Salaries and Wages Expense 400 Cr. Cash 400 (d) Dr. Salaries and Wages Payable 400 Cr. Cash 400
B
- Which is incorrect about adjusted trial balance?
(a) It proves equality of total Dr.and total Cr. balances in ledger after all adjustments.
(b) It provides primary basis for the preparation of fin statemt
(c) It lists acc balances segregated by assets and liabilities.
(d) It is prepared after adjusting entries have been journalized and posted.
C
- Trial balance: Supplies $0 and Supplies Exp $1,500. If $800 of supplies are on hand at the end of the period, the adjusting entry is:
(a) Dr. Supplies $800 and Cr. Supplies Exp $800.
(b) Dr. Supplies Exp $800 and Cr. Supplies $800.
(c) Dr. Supplies $700 and Cr. Supplies Exp $700.
(d) Dr. Supplies Exp $700 and Cr. Supplies $700.
- Trial balance: Supplies $0 and Supplies Exp $1,500. If $800 of supplies are on hand at the end of the period, the adjusting entry is:
A
- Neutrality is an ingredient of:
(1) Faithful Representation
(2) Relevance
(a) Yes Yes
(b) No No
(c) Yes No
(d) No Yes
- Neutrality is an ingredient of:
C
- Which item is a constraint in fin acc?
(a) Comparability. (c) Cost.
(b) Materiality. (d) Consistency.
- Which item is a constraint in fin acc?
C
