accounting chapter 4
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Which principle dictates that efforts (expenses) be recorded with accomplishments (revenues)?
- Expense recognition principle.
The generally accepted accounting principle which dictates that revenue be recognized in the accounting period in which it is earned is the:
- revenue recognition principle.
The expense recognition principle requires that expenses be recognized in the same period that they are paid. (T/F)
If revenues are recognized only when a customer pays, what method of accounting is being used?
What are some statements about accrual based accounting
- A.Companies record events that change a company's financial statements in the periods in which the events occur.
- B.Companies recognize revenue in the period in which it is earned.
- C.This basis is in accord with generally accepted accounting principles.
What are the three major types of adjusting entries
Prepaid revenues, accrued revenues, accrued expenses
Why are adjusting entries neccessary
- -to ensure that the expense recognition principle is followed.
- -to enable financial statements to be in conformity with GAAP
- -to bring the general ledger accounts in line with the budget.
Cash received which is recorded as a debit to a Cash account and a credit to a liability account before revenue is earned is called:
an unearned revenue.
- Accrued revenue is revenue earned but not yet collected. Cash received before revenue is earned is an unearned revenue.
Accrual basis accounting
recognizes the revenue when the service or product is provided regardless of when the payment is made.
Book value is equal to cost minus accumulated depreciation. (T/F)
Which of the following is not a typical example of a prepaid expense?
A.Supplies B.Insurance C.Rent D.Wages
The difference between an asset's cost and its accumulated depreciation is called
Payments received in advance of services provided are recorded as
Adjustments for unearned revenues:
decrease liabilities and increase revenues.
Adjustments for prepaid expenses:
- decrease assets and increase expenses.
At the end of the fiscal year, the usual adjusting entry for accrued salaries owed to employees was omitted. Which of the following statements is true?
A.Salary Expense for the year is overstated. B.Liabilities at the end of the year are understated.
C.Assets at the end of the year are understated.
D.Stockholders' equity at the end of the year is understated.
B.Liabilities at the end of the year are understated.
Correct! The adjusting entry would debit (increase) Salaries Expenses and credit (increase) Salaries Payable, a liability. Not recording this entry will understate expenses and liabilities.
On August 1, Luang Corporation signed a $30,000, 14%, 2-year note to help finance renovations being made to the corporation headquarters. Assuming interest is accrued only when the year ends on December 31, the appropriate journal entry would be
A.debit Interest Expense $1,750; credit Interest Payable $1,750.
Sara works for a sports franchise which pays wages and salaries earned on a monthly basis. A new accountant was hired by the sports franchise in late May. Due to inexperience, the new accountant failed to accrue Saira's salary for May. What is the impact on the May 31 financial statements of the sports franchise?
Expenses understated; income overstated.
- The failure to accrue salaries expense and a liability for salaries payable results in understating expenses and liabilities and overstating net income and retained earnings; there is no impact on assets.
A company lends $15,000 at 8% interest for 3 months on June 1. If adjusting entries are written on June 30, how much will be credited to Interest Revenue?
Correct! The formula is Principal X Rate X Time or $15,000 X 8% X (1/12) since interest is stated in an annual rate yielding a value of $100.
What is the adjusted trial balance
- An adjusted trial balance proves the equality of the total debit balances and the total credit balances in the ledger after all adjustments are made.
- B.The adjusted trial balance provides the primary basis for the preparation of financial statements.
- D.The company prepares the adjusted trial balance after it has journalized and posted the adjusting entries.
Which types of accounts will appear in the post-closing trial balance?
What is the closing process
- Net income or net loss is transferred to Retained Earnings.
The closing entry process consists of closing
All of the following are required steps in the accounting cycle except:
A.journalizing and posting closing entries. B.preparing an adjusted trial balance. C.preparing a post-closing trial balance. D.preparing a worksheet.
D preparing a worksheet
Which of the following is not included in the computation of net cash provided by operating activities?
A.Cash received from customers.
C.Payment of rent.
D.Purchase of insurance.
The worksheet, used as an aid in the preparation of adjusting entries and the financial statements, consists of how many debit/credit columns?
Which of the following is acceptable under IFRS but not GAAP?
A.Accrual basis accounting.
B.Depreciation based on revaluation of assets. C.Revenue recognition.
D.Comparative financial statements.
B.Depreciation based on revaluation of assets.
Which of the following is not included in the IFRS definition of income?
D.Gain on disposal of plant asset.
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