Revenue and Accounts Receivable

Question 1

Balance Sheet shows:

Answer 1

The financial picture at a specific point in time (i.e. one month)

Question 2

Income statement shows:

Answer 2

Changes in retained earnings over a period of time (i.e. quarter)

Question 3

Cash flow statement shows:

Answer 3

Tracks cash over a period of time, reconciles net income to actual cash account

Question 4

Historical cost vs. Fair Market Cost

Answer 4

Historical Cost is what the asset originally cost; Fair market cost is the value of the asset today

Question 5

Capitalizing an Expense:

Answer 5

Spreading the cost reporting of capital equipment over the useful life of that equipment

Question 6

How is depreciated treated on a cash flow statement?

Answer 6

Depreciation expenses are added back to the operating cash (Capital expenditures are deducted)

Question 7

Depreciation vs Amortization

Answer 7

Depreciation spreads the cost or accounts for the decreasing value of an asset. Amortization spreads the cost of an expense that is not associated with a tangible asset (i.e. insurance)

Question 8

What is listed on The Balance Sheet?

Answer 8

Assets, Liabilities and Stockholder’s Equity

Question 9

What is listed on the Statement of Cash Flows?

Answer 9

Detailed cash inflows and outflows from operating, investing, and financing activities over a specific period of time.

Question 10

What are the four types of financial statements?

Answer 10

Balance Sheet, Statement of Cash Flows, Statement of Owner’s Equity, and Income Statement

Question 11

What are the dual purposes of an adjusting journal entry?

Answer 11

1. To make the income statement report proper revenues and expenses
2. To make the balance sheet report proper assets and liabilities

Question 12

Define Matching Principle:

Answer 12

The matching principle requires that expenses incurred in producing revenues be recorded and deducted from the revenues they generated during the accounting period.

Question 13

Define Deferred Items:

Answer 13

Adjusting entries involving data previously recorded in accounts.

Question 14

Deferred items consist of what two types of adjusting entries?

Answer 14

Asset/Expense adjustments and Liability/Revenue adjustments

Question 15

Define Accrued Items:

Answer 15

Adjusting entries relating to activity on which no data have been previously recorded in accounts.

Question 16

Accrued items consist of which two types of adjusting entries?

Answer 16

1. Asset/revenue adjustment

2. Liability/expense adjustment

Question 17

Deferred items vs Accrued items

Answer 17

Deferred items generally consist of prepaid expense,(i.e. supplies or work paid in advance) Accrued items generally consist of postpaid expense (unpaid salary or not-yet billed service)

Question 18

Summarize the accounting cycle

Answer 18

1. Analyze each transaction.
2. Record each transaction in a journal (ordered by date).
3. Transfer each transaction to the accounts affected in the ledger.
   (The ledger is a set of accounts ordered by account number.)
4. Summarize the transactions in the form of financial statements:

Question 19

Net Income = Revenues - Expenses

Answer 19

Net Income = Revenues - Expenses

Question 20

Revenues _________ Owner’s Equity .

Answer 20

Increase

Question 21

Expenses _______ Owner’s Equity.

Answer 21

decrease

Question 22

a. Income Statement:

Answer 22

Shows the net income (profit) of the company.

Question 23

b. Owner’s Equity Statement:

Answer 23

Shows the owner’s claim in the business.

Question 24

c. Balance Sheet:

Answer 24

Shows the financial position of the company.

Question 25

d. Cash Flow Statement:

Answer 25

Shows where cash came from and where it went during the period.

Question 26

When a transaction occurs, the first place it is recorded is in the _______.

Answer 26

Journal

Question 27

After each transaction is entered in the journal, it is posted to the ______.

Answer 27

ledger.

Question 28

Finally, a ______ ________ is prepared in order to prove that debits = credits.

Answer 28

trial balance

Question 29

The _______ is a chronological record (in date order) of the transactions in a business.

Answer 29

journal

Question 30

The ______ is a collection of separate accounts (think of it as one page for Cash, one page for Accounts Receivable and so on).

Answer 30

ledger

Question 31

The ledger is in ______ order.

Answer 31

account

Question 32

In terms of information management, we need a historical record of transactions, both by date (the _____) and by account (the ________).

Answer 32

journal, ledger

Question 33

What is the Normal Balance for Asset accounts

Answer 33

Debit

Question 34

What is the Normal Balance for Liabilities accounts

Answer 34

Credit

Question 35

What is the Normal Balance for Capital accounts

Answer 35

Credit

Question 36

What is the Normal Balance for Withdrawal accounts

Answer 36

Debit

Question 37

What is the Normal Balance for Income accounts

Answer 37

Credit

Question 38

What is the Normal Balance for Expense Accounts

Answer 38

Debit

Question 39

The _____ account (in this case, Cash) is entered first; the _____ account (Service Revenue) is indented.

Answer 39

debit, credit

Question 40

It would incorrect to say that Cash has 2 balances–a debit balance and a credit. Perform a _______ of credits from debits to arrive at the final total.

Answer 40

subtraction