Acct2051 Exam 1
The dual effects concept can be best described as follows:
When one records a transaction in the accounting system, at least 2 effects on the basic accounting equation will result
Journal Entry
Debits must = Credits
PP&E
Non-current Asset
Accounts Payable
Liability
Taxes Payable
Liability
Wages Payable
Liability
Expense
to decrease shareholder's equity immediately
Accounts Receivable
Asset
Cash
Asset
Intangible assets (acquired externally)
Asset
Inventory
Asset
Long-Term Investments
Asset
Prepaid Expenses
Asset
Short term-investment
Asset
Accounting Equation
Assets = Liabilities + Owner's Equity
Accrued Expenses
Cash is paid or received after expenses or revenues are recognized
Accrued Revenues
Cash is paid or received after expenses or revenues are recognized
Prepaid Expense
Cash is paid or received before expenses or revenues are recognized
Unearned Revenues
Cash is paid or received before expenses or revenues are recognized
Revenues are recognized if they are both
Earned, Realized
Which of the following describes how assets are listed on the balance sheet?
From most liquid to least liquid
Debits
Left
If a publicly traded company is trying to maximize its perceived value to decision makers external to the corporation, the company is most likely to understate which of the following on the balance sheet?
Liabilities
Matching Principle
Recognizes expenses when incurred; recording of expenses in the same time period as the related revenues are recognized
Accrual basis of accounting
Revenue is recognized when earned. Costs should be recognized as expenses in the period in which the related revenues are recognized.
Credits
Right
Contributed Capital
Shareholder's equity
Retained Earnings
Shareholder's equity
Cash basis of accounting
Transactions are recorded (recognized) when cash is received or disbursed. The comparison of cash inflows and outflows during a period rests on the chronology rather than causality
All income statement accounts
begin the next period with zero balances
Assets with a long life span...
can have their cost spread out over the life of the asset
Balance sheet accounts
carry over from period to period and are called permanent accounts
Cost Recovery
concept by which some purchases of goods or services are recorded as assets (capitalized) and expired/consumed later, because the costs are expected to be recovered in future periods
capitalize
purchases of goods or services are recorded as assets and "expired" later because the goods or services are expected to provide benefits in future periods
Deferrals
receipts of assets or payments of cash in advance of revenue or expense recognition
Revenue Recognition Principle
recognizes revenues when earned
Capitalization
recording the purchase as a long-term asset and then delay the recognition of the expense
The closing process
refers to the 'zeroing out' of revenue and expense accounts by transferring their ending balances to retained earnings
Accruals
revenues earned or expenses incurred that have not been previously recorded