Module 3

Question 1

What is the period of time financial statements are tied to called?

Answer 1

accounting cycle

Question 2

What are the four steps of the accounting cycle?

Answer 2

1. Record transactions in the accounting record / analyze transactions and prepare (and post) entries
2. Prepare (and post) accounting adjustments
3. Prepare financial statements
4. Close the books (set up for next cycle/period)

Question 3

What is the FSET?

Answer 3

financial statement effects template

Question 4

What does the FSET do?

Answer 4

captures the transaction and its effects on the four financial statements

Question 5

How is the balance sheet broken down on the FSET?

Answer 5

Cash Asset + Noncash Asset = Liabilities + Contributed Capital + Earned Capital

Question 6

How is the income statement broken down on the FSET?

Answer 6

Revenues - Expenses = Net Income

Question 7

What is net income tied to on the FSET?

Answer 7

Earned Capital

Question 8

What is a T-account used for?

Answer 8

to reflect increases & decreases in individual accounts

Question 9

Which side is increases & which side is decreases in an ASSET T-account?

Answer 9

LEFT = increases (debit)
RIGHT = decreases (credit)

Question 10

Which side is increases & which side is decreases in a LIABILITIES T-account?

Answer 10

LEFT = decreases (debit)
RIGHT = increases (credit)

Question 11

Which side is increases & which side is decreases in an EQUITIES T-account?

Answer 11

LEFT = decreases (debit)
RIGHT = increases (credit)

Question 12

What do journal entries reflect?

Answer 12

increases and decreases to accounts using the language of debits and credits

Question 13

Give an example(s) of a cash asset on an FSET.

Answer 13

Cash and cash equivalents

Question 14

Give an example(s) of noncash assets on an FSET.

Answer 14

• Accounts receivable, less allowance
• Acquired intangible assets, net
• Deferred tax assets
• Goodwill
• Inventories
• Long-term marketable securities
• Other current assets
• Property, plant, and equipment (PPE), net
• Short-term investments
• Supplies
• Prepaid expenses
• Long-term investments
• Equipment
• Buildings
• Land

Question 15

Give an example(s) of liabilities on an FSET.

Answer 15

• Accounts payable
• Accrued expenses
• Unearned revenue
• Bonds payable
• Taxes payable
• Current portion of long-term debt
• Deferred revenue
• Long-term debt
• Other noncurrent liabilities

Question 16

Give an example(s) of contributed capital on an FSET.

Answer 16

Common stock and additional paid-in capital

Question 17

Give an example(s) of earned capital on an FSET.

Answer 17

Retained earnings

Question 18

Give an example(s) of revenues on an FSET.

Answer 18

• Sales revenue
• Fee revenue
• Interest revenue
• Rent revenue
• Service revenue

Question 19

Give an example(s) of expenses on an FSET.

Answer 19

• cost of sales/COGS
• wages expense
• rent expense
• interest expense
• depreciation expense
• advertising expense
• insurance expense
• repair expense
• income tax expense
• research and development
• selling, general and administrative

Question 20

Explain accrual accounting

Answer 20

recognizing revenue when products and services are deliveredat an amount expected to be received (even if not received in cash) AND recording expenses when incurred

(accounting adjustments are commonly called accruals)

Question 21

List the four types of accounting adjustmenst (accruals)

Answer 21

• Prepaid expenses
• Unearned revenues
• Accrued expenses
• Accrued revenues

Question 22

What do prepaid expenses reflect?

Answer 22

advance cash payments that will ultimately becomeexpenses

An example is the payment for radio advertising that will not be aired until sometime in the future

Question 23

Whatdo unearned revenues reflect?

Answer 23

cash received fromcustomers before any services or goods are provided

an example is cash received from patrons for tickets to an upcoming concert

Question 24

What do accrued expenses reflect?

Answer 24

expenses incurred and recognized on the income statement even though they are not yet paid in cash

an example is wages to employees who have performed work but have not yet been paid

Question 25

What do accrued revenues reflect?

Answer 25

revenues earned and recognized on the income statement even though cash is not yet received

examples include sales on credit and revenue earned under a long-term contract

Question 26

In which accounting adjustments is cash paid or received BEFORE expenses or revenues are recognized?

Answer 26

prepaid expenses & unearned revenues

Question 27

In which accounting adjustments is cash paid or received AFTER expenses or revenues are recognized?

Answer 27

accrued expenses & accrued revenues

Question 28

What is the order to financial statement preparation?

Answer 28

1. Income statement - then uses net income number and dividend info to update the retained earnings account
2. Balance sheet (using the updated retained earnings account & remaining balance sheet accounts)
3. Statement of stockholders’ equity
4. Statement of cash flows

Question 29

What accounts can be classified as permanent accounts?

Answer 29

balance sheet accounts (i.e., assets, liabilities, and equities)

Question 30

What accounts can be classified as temporary accounts?

Answer 30

income statement accounts (i.e., revenues & expenses) AND the dividend account

(because their balances are zero at the start of each accounting period)

Question 31

What does the closing process refer to?

Answer 31

Closing the books, or zeroing out, the temporary accounts by transferringtheir ending balances to retained earnings