Quiz 4- Oct. 17

Question 1

Accrued revenue

Answer 1

At the end of an accounting period, there may be revenue that has been earned
but has not been recorded.

The revenue is recorded by increasing an asset account (Accounts Receivable)-DR
and
Increasing (CR) a revenue account (Fees Earned).

-If the adjustment for the accrued revenue ($500) is not recorded, Fees Earned
and the net income will be understated by $500 on the income statement. On
the BALANCE SHEET, assets (Accounts Receivable) and owner’s equity (Chris Clark,
Capital) will be understated by $500.

Question 2

Accrued Expenses

Answer 2

Some types of services used in earning revenues are paid for after the service has
been performed.

For example, wages expense is incurred hour by hour but is paid only daily, weekly, biweekly, or monthly

accrued but unpaid items is an expense and a liability.

If the adjustment for wages ($250) is not recorded, Wages Expense will be understated+, and the net income will be overstated on the income
statement. On the balance sheet, liabilities (Wages Payable) will be understated and owner’s equity (Chris Clark, Capital) will be overstated.

Question 3

Unearned Revenues

Answer 3

unearned revenue is prepaid revenue. This is money paid to a business in advance, before it actually provides goods or services to a client.

Unearned revenue is a liability that will become revenue in a future period.

On the income statement, Rent Revenue and the net income will be understated
AND
balance sheet, liabilities (Unearned Rent) will be overstated , and owner’s
equity will be understated

Question 4

Prepaid Expenses

Answer 4

Prepaid expense refers to the money businesses pay in advance for goods or services they will benefit from in the future.

EX: Supplies
supplies expense account is increased (debited) and supplies account is decreased (credited)

the supplies account has a debit balance of $760. This balance is an asset that will become an expense in a future period

Question 5

Prepaid Insurance

Answer 5

premium payments made to insurers in advance for insurance coverage or services.

insurance expense account is increased (debited) and the prepaid insurance account is decreased (credited)

This balance is an asset that will become an expense in future periods.

income statement, Supplies Expense and Insurance Expense will be understated, net income will be overstated
AND
the balance sheet, Supplies and Prepaid Insurance will be overstated; Capital will also be overstated.

Question 6

Depreciation

Answer 6

the equipment loses its ability to provide useful services. This decrease in usefulness

This periodic expense is called depreciation expense.

entry: increased (debited) for the
amount of depreciation and Accumulated Depreciation is increased (credited).

book value of the asset (or net book value)= Cost of Asset – Accumulated Depreciation of Asset

depreciation is an allocation method= depreciation allocates the cost of a fixed asset to expense over its estimated
life.

Depreciation Expense on the income statement will be understated, and the net income will be overstated
AND
the balance sheet, assets (the book value of Office Equipment) and owner’s equity will be overstated.