RECITATION 2 (L07)

Question 1

Unadjusted Trial Balance

• Definition
• Purpose

Answer 1

Definition:

• A list of all accounts and their balances before any adjusting entries are made.
• It is used to ensure that the total debits equal the total credits in the accounting records, providing a snapshot of the financial position at a specific point in time.

Purpose:
To verify the accuracy of the initial recording of transactions, serving as the foundation

• for making adjusting entries
• before preparing the financial statements.

Question 2

Net Income

Answer 2

• Net Income = Total Revenue − Total Expenses
• Profit / Loss
  (General ledger, last 2 segments)

Question 3

Allocating
Unearned Revenue to Revenue

• In May, customers prepaid $300 for a three-month membership (June, July and Aug) to an online health program.
• One month of this prepaid membership was earned in June.

Answer 3

Question 4

Allocating
Assets to Expenses — Prepaid Insurance

• One month of Jana Juice’s insurance expired during June.
• The original payment was $800 covering June through September.
  ($800 / 4 months = $200)

Answer 4

Question 5

Allocating
Assets to Expenses — Depreciation

• Jana Juice’s equipment originally cost $10,200 and was expected to benefit the company for 5 years.
• Depreciation expense = $10,200 / 5 years × 1/12 = $170

Answer 5

Question 6

Accounting Adjustments (3)

Answer 6

Accounting adjustments,

• also known as adjusting entries,
• are entries made in the general ledger at the end of an accounting period
• to ensure that financial statements accurately reflect the economic transactions of the business.

Question 7

Statement of Cash Flows

Answer 7

• Three main sections:
  Operating activities,
  Investing activities,
  Financing activities.
• Net change in cash
  should reconcile with the change in the cash balance on the balance sheet.
• Prepared for a specific period, often annually or quarterly.

Format

Question 8

Preparing a Statement of Cashflows

Answer 8