Accounting - Ch. 4, 7, 8, & 11

Why is it necessary to make general journal entries for the ledger balance side of the bank reconciliation?

Some things we didn't notice until we got the bank statement.

Gross Pay

Total amount of an employee's pay before any deductions

Explain what is meant by unearned revenue. Why is it treated as a liability?

Unearned Revenue - occurs when cash is received in advance for goods that will be delivered for services that will be performed later. It's a liability equal to the revenue earned until the delivery of a good or service. p.498

Explain the difference between gross earnings and net earnings for a payroll period.

While gross payroll refers to the total amount of money the company pays out for its employees during a pay period, net payroll refers to the money that employees receive from the company after it deducts the required withholding's.

Bank Reconciliation

A process by which an accountant determines whether and why there is a difference between the balance shown on the bank statement and the balance of the Cash account in the business's general ledger.

How many copies are made of a Form W-2? Who uses the copies of the W-2 form?

At least 4 copies: 1) Employer sends to the Social Security Administration 2) Employer gives to employee to be attached to the employee's individual federal income tax return. 3) Employer gives to employee to be kept for his or her personal records. 4) Employer keeps this copy as a record of payments made

Internal control is a system of policies and procedures designed to:

a. Protect assets against fraud & waste b. Provide for accurate accounting data c. Promote efficient operations d. Encourage adherence to manage policies

Assume that a college receives $84,000 for one semester's dormitory rent in advance and an entry is made debiting Cash and crediting Unearned Rent. At the end of the year, $68,000 of the rent has been earned. What adjusting entry would be made?

Cash 84,000 Unearned Rent 84,000 Unearned Rent 16,000 Cash 16,000

On a work sheet, where will the amount of the ending merchandise inventory be recorded?

Credited to Merchandise Inventory p. 508

What is the purpose of adjusting entries?

Entries that bring the books up to date at the end of the fiscal period. Update certain ledger accounts so that they are accurate. Needed to make sure that the expenses recorded match up or compare with the revenues for the same period of time.

What is the difference between an employee and an independent contractor? List two examples of an independent contractor.

Examples: advisor, editor, expert, translator, project managers, corporate trainers, actors, writers, directors, conductors, DJs, bands, musicians, comedians, web developers, and programmers. Independent contractor - someone you hire for a specific job, a specific amount of time and you cannot control them. May chose his or her means of doing the work.

What taxes are employers accounting for that increase the debit to Payroll Tax Expense?

FICA, Federal unemployment and state unemployment.

Statement of Owner's Equity

Financial statement showing the activity in the owner's equity, or Capital account, over the financial period.

Balance Sheet

Financial statement showing the financial position of an organization on a given date, such as June 30 or December 31. The balance sheet lists the balances in the asset, liability and owner's equity accounts.

Income Statement

Financial statement showing the results of business transactions involving revenue and expense accounts over a period of time

Net pay

Gross pay - Deductions

Why is it necessary to make an adjustment if wages for work performed for the pay period Monday through Friday are paid on Friday and the accounting period ends on a Wednesday?

If you don't, wages expense would be too low and liabilities (wages payable) would be low. Wouldn't have complied with the matching concept.

Why is it necessary to adjust the Merchandise Inventory account under a periodic inventory system?

It's necessary because it closes the Merchandise Inventory account for the year. The adjustment for merchandise inventory under the periodic inventory system requires two adjusting entries. In the first adjusting entry (to remove the beginning inventory), debit Income Summary and credit Merchandise Inventory. In the second adjusting entry (to enter the ending inventory), debit Merchandise Inventory and credit Income Summary.

Explain how payroll fraud can be prevented.

Mandatory vacations', use cash payments or checks minimally, increase use of direct deposit, employees must physically sign and show proper ID to receive paychecks, cross-reference the payroll roster for duplicate addresses or SS numbers, conduct a thorough pre-employment reference check for all payroll personnel, compare payroll expense per the payroll register to the actual amounts paid. Also compare amounts to payroll deposits made. Outsource payroll administration.

Using the perpetual inventory system, what account is debited when a business finds that its physical count of inventory is greater than the recorded amount?

Merchandise Inventory Perpetual means continuous. This is a system where a business keeps continuous, moment-to-moment records of the number, value and type of inventories that it has at the business. I think inventory. p. 508

On the Income Summary line of a work sheet, $126, 220 appears in the Income Statement Debit column and $123,300 appears in the Income Statement Credit column. Which figure represents the beginning inventory?

$123,300 because it's lower. Example: Say Company XYZ produces 5,000 units during the course of a year and sells 2,000 units. The following year, Company XYZ will have a beginning inventory of 3,000 units.

Define depreciation as it relates to a van you bought for your business.

An expense based on the expectation that an asset will gradually decline in usefulness due to time, wear and tear, or obsolescence.

Why must employers maintain employees' individual earnings records?

Because just in case the employee files for unemployment they need to make sure that they were not wrongfully terminated or unfairly treated.

What is the purpose of the payroll register?

Payroll register - a manual or computerized schedule prepared for each payroll period listing the earnings, deductions, and net pay for each employee.

What is the purpose of Form 941? How often is it prepared, and what are the due dates?

Reconcile payroll deposits, April 30, July 31, October 31, and January 31.

List three required deductions and four voluntary deductions from an employee's total earnings.

Required deductions - social security tax, federal tax, FICA, and Medicare. Voluntary deductions - health insurance, dental insurance, life insurance, long-term care insurance, professional association membership dues. Possible required deductions are federal income taxes, state income taxes, social security tax, and Medicare taxes. Possible voluntary deductions are medical insurance premiums, union dues.

Why is it necessary to journalize and post adjusting entries?

The worksheet is not a journal. Entries must be journalized so that the ledger accounts that have been adjusted can be updated.