M7, M8, F2 M1 Flashcards
Accrual basis
in accordance with U.S. Gaap and matches revenues with expesnes. In order to properly mathc revenus with expenses in the periods in which they occur. It is sometime necessary to defer or accrue rev or expenses
If reveneue is deferred you D Cash and Credit
Unearned revenue
Prepaid expense over time your asset (prepaid expense goes down) but what goes up?
Expense
An entity must assess whether revenues have been earned prior to the cash being received. If so, revenues must be accrued by recording a
Accounts receivable
If expenses have been deferred the appropriate entry is what?
D Prepaid C Cash
When an error correction is discovered in the current year it must be corrected in that financial by a changing estimate. True or False
False. An adjusting entry may be required in this case to ensure that the financial statements are in accordance with the accrual basis of accounting
Expenses that have been incurred prior to the cash being paid by recording what entry?
D Expense, C Accrued Liability
What are the rules for recording adjusting journal entries
Adjusting JEs must be recorded by the end of the entity’s fiscal year before the preparation of financial statements, the JEs NEVER involve the cash account, ALL adjusting entries will hit one income statement account and one balance sheet account
True or False: Disclosures of accounting policies is an integral part of the financial statments
True
The summary of significant account policies includes disclosure of the following:
Criteria for which investments are cash equivalents, Special revenue recognition issues (long term construction contract, franchising, leasing operations) basis of consolidation, depreciation methods, amortization of intangibles, inventory pricing, use of estimates, fiscal year definition
The summary of significant account policies includes disclosure of the following:
Criteria for which investments are cash equivalents, Special revenue recognition issues (long term construction contract, franchising, leasing operations) basis of consolidation, depreciation methods, amortization of intangibles, inventory pricing, use of estimates, fiscal year definition. Other notes to include
Some examples of other notes to include for financial statements
related party disclosure, discontinued segment, outside ordinary course of business
Footnotes should include what description?
The entity’s major products or services and its principal markets, including the location of those markets. information about stockholder equity as well as any other information about significant asset or liability accounts
Paying rent in advance is an example of what kind of expense?
Prepaid Expense
State the reasons as to why concentrations due to vulnerability would need to be disclosed
concentration exists (a lot of focus on a particular customer, supplier, lender, grantor, contributor) , entity vulnerable, could cause the entity severe impact. so if you had like a lot of your money tied into just 1 investment.
When recognizing revenue over time there are two methods you can use, what are the?
Input method and output method
Define Input Method
The input method is the most common and is very similar to the
percentage of completion approach. The input method recognizes revenue based
on satisfying the performance obligation relative to the total performance
obligation to be performed, such as recognizing revenue on construction project as
costs are incurred relative to the total estimated cost to finish the project. The input method is used when the costs being tracked are things like costs
incurred, labor hours, machine hours, etc
True or False: The Input Method is very similar to the percentage of completion approach
True The input method is the most common and is very similar to the
percentage of completion approach.
Define Output Method
The output method recognizes revenue based on the value transferred to the
customer relative to the total value to be transferred. These are things such as
units produced or delivered, milestones reached, etc.
What are examples of the output method
Units produced, milestones reached
True or False; Advances affect accrual basis expense
False: advances affect cash flow but do not affect accrual basis expense. So for example if sales are given an advance of 15000 per month, the advance is expensed and is not part of your accrual calculation for commissions expense accrued for the month, quarter etc.
A bookkeeping error that is discovered in the current year for the prior year it should be corrected in the opening balance of retained earnings because
If the current year is the ONLY year that is being presented (and there are no comparable years) then there are no prior period restatements for this error. The error would just be adjusted om the opening balance of retained earnings
A change in the method of depreciation is now considered to be both a change in accounting method and a change in
Estimate. These changes should be accounted for as changes in estimate and handled prospectively. No retroactive or retrospective calculations should be made and no adjustments should be made to retained earnings.
True or False: A change from LIFO to FIFO for inventory valuation costing is a change in accounting principle
True
