esercizi chapter 2 Flashcards
what is a prepaid expense
reduction of an asset and the recognition of the expense
what is a accrued expense
is an accounting expense recognized in the books before its paid for. it’s a liability and usually current
what’s a deferred revenue
is advance payment or unearned revenue, recorded on the recipient’s balance sheet as a liability , until the services have been rendered or products have been delivered.
component of owner’s/shareholder’s equity
- retained ernings
- oustanding shares
-treasury stocks (Treasury stock refers to the number of stocks that have been repurchased from the shareholders and investors by the company. The amount of treasury stock is deducted from the company’s total equity to get the number of shares that are available to investors.) - additional paid in-capital (The additional paid-in capital refers to the amount of money that shareholders have paid to acquire stock above the stated par value of the stock. It is calculated by getting the difference between the par value of common stock and the par value of preferred stock, the selling price, and the number of newly sold shares.)
accrued wages
liability. failing to record a liability for accrued wages will understate wage expense, which leads to an overstatement of net income. retained earnings and owner’s equity are overstated. assets are unaffected
Which of the following statements is most accurate?
A. Accrued revenue arises when a company receives cash prior to earning the revenue.
B. A valuation adjustment for an asset converts its historical cost to its depreciated value.
C. Accrued expenses arise when a company incurs expenses that have not yet been paid as of the end of the accounting period.
Ans: C.
The principle of accrual accounting requires that revenue is recorded when the firm earns it and expenses are recorded as the firm incurs them, regardless of whether cash has actually been paid.
Accrued expense—the firm owes cash for expenses it has incurred. Expense increase and a liability for accrued expenses increases as well. The liability decreases when the firm pays cash to satisfy it.
A is incorrect. Accrued revenue arises when a company receives cash before it provides a good or service to customers.
B is incorrect. A valuation adjustment for an asset converts its historical cost to current market value.
Under IFRS, which of the following financial statement elements most accurately represents inflows of economic resources to a company?
A. Assets.
B. Equity.
C. Revenues.
Ans: B.
The financial statement elements under International Financial Reporting Standards (IFRS) are: Assets, Liabilities, Owners’ Equity, Revenue, and Expenses. Revenues are inflows of economic resources.
A is incorrect. Assets are the firm’s economic resources.
C is incorrect. Equity is the owners’ residual claim of a firm’s resources, which is the amount by which assets exceed liabilities.
Which of the following is least likely to be classified as a financial statement element? A. Asset.
B. Revenue. C. Net income.
Ans: C.
Net income is not an element of the financial statements, but the net result of revenues less expenses. The elements are: assets, liabilities, owners’ equity, revenue and expenses.
total asset formula
Total assets = liabilities + owner’s equity.
ending retained earnings formula
Ending retained earnings = beginning retained earnings + net income – dividends.
owners equity formulas
asset - liabilities
Owners equity = contributed capital + ending retained earnings.
what will create if the revenue are recognized before the cash is received
will result in the creation of an accounts receivables, an asset, whereas when the cash is received before the revenue is recognized a liability, unearned revenue, is created.
Revenue is recognized before the cash is received
Cash is received
What is the effect on the accounting equation when a company’s Board of Directors declares a cash dividend?
A. Assets decrease and owners’ equity decreases.
B. Liabilities increase and owners’ equity decreases.
C. There is no effect on the accounting equation until the dividend is paid.
Ans: B.
The company would create (increase) a liability for dividends payable and deduct the same amount from its retained earnings, thus decreasing owners’ equity.
1.Which of the following is least likely to be a general feature underlying the preparation of financial statements within the IFRS Conceptual Framework?
A. Matching.
B. Materiality. C. Accrual basis.
A
The general features for preparing financial statements are stated in IAS No. 1:
· Fair presentation
· Going concernbasis
· Accrual basis
· Consistency
· Materiality
· Aggregation
· No offsetting
· Reporting frequency (must be at least annually)
· Comparative information
