ACCT 300: Chap 3: ASP

The journal entry consists of all of the following except

columns to keep a running total of the balance in each account.

Orange Company purchased 5 acres of land for a building site, paying $5,000 per acre. The land and building had a fair market value of $6,000 per acre. Orange recorded this with a

debit to Land for $25,000.

A debit balance in Income Summary indicates the company

had a net loss for the period.

In converting cash-basis financial statements to accrual-basis, a company must adjust operating costs for the change in

prepaid and accrued expenses.

The trial balance is used to

verify that debits equal credits.

The basic purpose of the trial balance is to

verify that the total credits equal the total debits.

Aqua Corporation uses the cash basis of accounting to record transactions. Aqua collected $850,000 from its customers during the current year. Customers owed Aqua $50,000 of accounts receivable at the beginning of the year and $90,000 of accounts receivable at the end of the year. What is Aqua's sales revenue for the year converted to the accrual basis of accounting?

$890,000 -Cash Collections from Customers + Ending Accounts Receivable - Beginning Accounts Receivable = Sales Revenue under Accrual Basis of Accounting = $850,000 + $90,000 - $50,000 = $890,000.

Steps in the Accounting Cycle

(1) Record the transactions, events, and arrangements in a journal; (2) post the journal entries to the accounts in the ledger; (3) prepare and post adjusting entries; (4) prepare the financial statements; and (5) prepare and post closing entries for the temporary accounts: revenues, expenses, gains, losses, and dividend accounts.

The final step in the accounting cycle is to

-prepare and post closing entries.

Which of the following is not a type of adjusting entry?

Correction of an error in the general journal -Adjusting entries may be classified into three broad categories: deferrals, accruals, and estimates.

Assume that Jordan Corporation uses a periodic inventory system. Jordan had beginning and ending inventory of $25,000 and $30,000, respectively. Cost of Goods Available for Sale is equal to $90,000. Cost of goods sold is

Cost of Goods Sold = Cost of Goods Available for Sale - Ending Inventory, or $90,000 - $30,000 = $60,000.

Green Company received $55,000 from its shareholders for the purchase of 10,000 shares of its no-par common stock. Which of the following journal entries should be used to record this transaction?

Debit Cash $55,000; credit Common Stock $55,000

Balance Sheet

Most of the financial statements in a company's annual report show the change in financial position over time; however, the __________ shows the financial position at a point in time, usually the end of the period.

Orange Company sells an acre of land and receives a note from the buyer. The journal entry would include a debit to

Notes Receivable.

When are reversing entries prepared and posted?

On the first day of the accounting period

Slate Company uses the cash basis of accounting to record transactions. Slate made $500,000 in payments to its suppliers during the year. Slate's beginning inventory was $20,000, and its ending inventory was $35,000. In addition, Slate had a beginning accounts payable of $50,000 and an ending accounts payable of $70,000. What is Slate's cost of goods sold converted to the accrual basis of accounting?

Payments to Suppliers + Beginning Inventory - Ending Inventory + Ending Accounts Payable - Beginning Accounts Payable = Cost of Goods Sold = $500,000 + $20,000 - $35,000 + $70,000 - $50,000 = $505,000.

Brown Corporation purchased a 1-year insurance policy on March 1 of the current year and paid the entire premium of $3,600 in advance. The payment was recorded to Prepaid Insurance, and Brown uses a calendar year. Which of the following is the correct adjusting entry for this transaction at the end of the current year?

The adjusting entry will recognize $3,000 of the prepaid insurance expired ($3,600 ÷ 12 months × 10 months). The entry will include a debit to Insurance Expense and a credit to Prepaid Insurance.

Green Company's adjusting entry was a debit to Interest Receivable and a credit to Interest Revenue for $500. The correct reversing entry is a

The correct reversing entry is a debit to Interest Revenue and a credit to Interest Receivable for $500. Reversing entries are an exact reverse (accounts and amounts) of an adjusting entry.

The effects of adjusting entries for accrued expenses include

The effect of an adjusting entry for an accrued expense includes an increase in a liability account and an increase in an expense account. An accrued expense records an expense that has been incurred during the period but has not yet been paid.

Which of the following is not a reason for preparing adjusting entries?

To record the purchase of equipment. -Adjusting entries are prepared to match the consumption of prepaid assets against current revenues. Adjusting entries are also prepared to record estimated items, such as depreciation. A company must record adjusting entries so that all revenues and expenses are recorded in the appropriate period and all assets and liabilities have correct ending balances. The purchase of equipment will be recorded during the first step in the accounting cycle, not as an adjusting entry.

The effects of adjusting entries for prepaid expenses include

a decrease in an asset and an increase in an expense.

In converting cash-basis financial statements to accrual-basis, a company must adjust collections from customers for the change in

accounts receivable. -Under cash-basis accounting, a company records revenue when it collects cash from sales. If the company must convert collections from customers to accrual-based revenue, it will add the ending Accounts Receivable balance and subtract the beginning Accounts Receivable balance.

Under _____ accounting, a company records revenues in the accounting period in which they are earned, while _____ accounting records revenues in the accounting period in which cash is received.

accrual-basis; cash-basis -Under accrual-basis accounting, a company records revenues in the accounting period in which they are earned and realized, and it records expenses in the accounting period they are incurred, even though the related cash flows may occur in a different period. Under cash-basis accounting, a company records revenue when it collects cash from sales and records expenses when it pays cash for its operations.

Prior to preparing the organization's financial statements, the accountant prepares a(n)

adjusted trial balance.

Reversing entries should be made for all the following situations except

adjusting entries that deferred revenues by recording them initially as liabilities.

An adjusting entry normally affects

an income statement account and a balance sheet account.

In converting cash-basis financial statements to accrual-basis, a company must adjust payments to suppliers for the change in

inventory and accounts payable.

Transaction

involves the transfer or exchange of resources between the company and another party, such as the purchase of inventory from a supplier or the sale of a product or service to a customer.

An organization will typically utilize a subsidiary ledger to

keep customer accounts up to date. -A company creates subsidiary ledgers that supplement the general ledger to reduce the size of the general ledger, minimize errors, divide the accounting tasks, and keep up-to-date records of its credit customers and suppliers.

The statement of cash flows reports for a period of time the net cash flows from

operating, investing, and financing activities.

A company prepares a worksheet to do all of the following except

substitute for other accounting records. -A company often prepares a worksheet to minimize errors, simplify recording of adjusting and closing entries in the general journal, and make it easier to prepare the financial statements.

On a worksheet, the balance in the Accumulated Depreciation account should be extended to

the Balance Sheet credit column. -The balance in the Accumulated Depreciation account should be extended to the Balance Sheet credit column. Accumulated Depreciation is a contra-asset account with a normal credit balance.

The results of closing entries include all of the following except

they simplify the recording of subsequent transactions related to adjusting entries.

Special journals are used for all of the following reasons except

to track the markup on inventory. -Special journals are used to divide the accounting tasks, reduce the time needed to complete the various accounting activities, and create a chronological listing of similar transactions.