Business 1A

Steps of the adjusting process in which they are performed. So like what do you do to make an adjustment?

1. Determine what the current balance is. 2. Determine what the correct balance should be. 3. Record an adjusting entry.

The steps to completing a worksheet

1. Enter unadjusted trial balance 2. Enter adjustments 3. Prepare adjusted trial balance 4. Sort (adjusted) trial balance amounts to financial statements 5. Total financial statement columns 6. Compute net income or loss and add to the Balance Sheet columns

List the order in which financial payments are prepared.

1. Income statement 2. Statement of owners equity 3. Balance Sheet 4. Statement of cash flows

Steps involved in adjusting entries

1. Prepare an unadjusted trial balance 2. Journalize and post adjusting entries 3. Prepare an adjusted trial balance 4. Prepare financial statements

Trial Balance

A list of accounts and their balances at a point in time.

Work Sheet

A useful tool in working with accounting information.

A contra account is an account that is linked with another (report/account/statement) It has an (opposite/similar) balance and is (added/subtracted) to/from the other accounts balance.

Account, opposite, subtracted

Accounts included in a post-closing trial balance

Accounts Receivable Salaries Expense Goodwill Land Salaries Payable

Examples of Current Liabilities

Accounts payable, notes payable (due in 3 months, Taxes payable, and unearned rent.

A business completed $400 service that had not been billed nor recorded as of the end of an accounting period. The required adjusting entry would be to debit the (accounts receivable/unearned rev./cash/service rev.) account and (dr./cr.) the (Cash/service rev./ accounts receivable/unearned rev.) accounts.

Accounts receivable, credit, service rev.

Facts about the Accumulated depreciation account

Accumulates the total depreciation taken on an asset since its purchase. Is a contra account Is subtracted from its plant asset on the income statement. Allows the original cost of the asset to remain in the plant asset.

Straightline depreciation

Allocates equal amounts of plant assets net cost to depreciation during its useful life.

Income Summary

An account whose balance equals net income or loss. An account used during the closing process. A temporary account. An account that contains a credit for the sum of all revenues.

Accrual basis accounting is defined as

An accounting system uses the matching principle to determine when to recognize revenues and expenses. An accounting system which is consistent with generally accepted accounting principles.

Accrual basis accounting

Applies adjustments so that revenues are recognized when services and products are delivered, and expenses are when incurred. (matched with revenue).

What defines a long-term investment?

Are referred to as noncurrent investments. Notes receivable and stock and bond investments are assets that are expected to be held for more than one year.

Accounts included on the post-trial balance sheet

Asset accounts Liability accounts Permanent accounts

In order to prepare a balance sheet using the account balances on an adjusted trail balance, all of the (expenses/assets) and their debit balances are transferred to the balance sheet as well as (liabilities/revenues) and their (cr/dr) balances.

Assets, liabilities, credit.

What is the book value of an asset?

Book value is the original cost of an asset minus its accumulated depreciation.

Examples of long term assets

Buildings, land, equipment, vehicles.

What is and isn't affected in adjusting journal entries

Cash is never affected Income statement is always affected Balance Sheet is always affected

Things about the accounting cycle

Contains steps for closing and adjusting accounts. Contains 10 steps. Is a series of steps repeated each accounting period.

A 12 month insurance policy was bought on Dec. 1 for $4,800 and the prepaid insurance was initially increased for the payment. The adjusting journal entry on Dec. 31 is?

Credit to prepaid insurance for $400 Debit to insurance expense for $400

The journal entry to close all of a company's expense accounts would include a (dr/cr) to each expense account and a corresponding (dr/cr) to the income (statement/summary) account.

Credit, debit, summary.

The income summary account is (credited, debited) for the sum of all revenue accounts and is (debited, credited) for all expense accounts and its balance will be transferred to the (retained earnings, cash) account.

Credited, debited, retained earnings.

Order of categories on a classified balance sheet

Current Assets Long-term investments Plant assets Intangible assets Current liabilities Long-term liabilities

Correct adjusting entry to recognize depreciation expense on a building.

Debit Depreciation expense, credit accumulated depreciation.

By the end of an accounting period employees have earned salaries of $500. They won't be paid until the next accounting period. What is the proper adjusting entry.

Debit salaries expense for $500.

Long term Liabilities

Debts of a business that are not due to be settled within one year.

On Dec. 28 a company completed $600 of catering services. Dec. 31 the customer had not been billed nor had the transaction been recorded. What adjusting entry would we do?

Dr. Accounts Receivable for $600.

A 12 month insurance policy was purchased for $4,800 and the Prepaid Insurance account was initially increased for the payment. The required adjusting journal entry includes.

Dr. to insurance expense of $400 Cr. to prepaid insurance of $400

The closing process takes place at the (beginning/end) of an accounting period, after the (adjusted/unadjusted) trail balance is prepared and (after/before) the financial statements are prepared.

End, adjusted, after

By the end of the accounting period, employees have earned salaries of $650, but they will not be paid until the next pay period. To require adjusting entry would debit the salaries (expense/payable) account and (dr/cr) the salaries (payable/unearned/expense).

Expense, credit, payable.

Expense/Matching Principle

Expenses should be matched in the same accounting period as the revenues that are earned as a result of those expenses. Is a major part of the adjusting process.

What is needed in order to figure interest expense?

Fraction of year since last payment Principal amount owed Annual interest rate

For the current year, a business has earned (but not recorded or received) $200 of interest from investments. The required adjusting entry would be to debit the ___ (Unearned rev./Accts, receivable/Cash/Interest Receivable) account and ___(debit/credit) the ___(Interest rev./Cash/Accts. Receivable/Interest Receivable) account.

Interest Receivable, Credit, Interest Revenue.

Post closing trial balance

Is a listing of all permanent accounts and their balances after closing.

Adjusting entry

Is made at the end of an accounting period to reflect a transaction or event that is not recorded yet.

An adjusted trial balance...

Is prepared after adjustments are posted, so new accounts may need to be added.

Things about salaries payable

Is reported on the balance sheet Is a liability account Increased with a credit Reports amounts owed to employees

Plant asset

Is reported on the balance sheet. Its original cost (minus any salvage value) is expensed over its useful life. It has a life within the business greater than one year. Its a tangible long term asset. difficult to convert to cash quickly are property, plant, ad equipment that are tangible

Depreciation

Is the process of allocating the cost of long-term assets over their expected useful life.

Statements about Unearned Revenue

It is a liability Reported on a balance sheet Also called deferred Revenues Refer to cash received in advance of performing a service.

Order of the Accounting Cycle

Journalize transactions into the journal Journalize and post the adjusting entries Prepare the adjusted trial balance Prepare the financial statements Journalize and post closing entries Prepare post-closing trial balance

Facts about contra accounts

Linked with another account Accumulated depreciation is an example opposite of normal balance than its paired account.

Facts about the Classified balance sheet

More useful to decision makers lists current assets in the order of how quickly they can be converted to cash organizes assets and liabilities into important subgroups.

Examples of long-term assets

Notes Receivable due in 2 yrs. Investment in bonds Land held for future expansion

Equity is the (owner's/creditor's/litigator's) claim on the assets of a business. In a proprietorship, this claim is reported in the (assets/liabilities/equities) section of a balance sheet in the (retained earnings/revenue/cash) account.

Owner's, equity, retained earnings.

What is true regarding permanent and temporary accounts?

Permanent accounts are reported on the balance sheet. Temporary accounts are reported on the income statement. Temporary accounts have a balance for only one period only. Permanent accounts will appear on a post-closing trial balance. Retained earnings is a permanent account, but dividends is a temporary account.

A post-closing trail balance is a list of (permanent/temporary) accounts and their balances from the (ledger/journal) (before/after) all (closing/adjusting) entries have been journalized and posted.

Permanent, ledger, after, closing.

Cash basis accounting

Recognizes revenue when cash is received and records expenses when cash is paid.

Facts about permanent accounts

Referred to as a real account. Account's balance is carried into the next accounting period. Is reported on the balance sheet.

Balance Sheet

Report's a business's assets, liabilities, and equity on a specific date.

Income statement

Report's a business's revenues and expenses for a period of time.

Fiscal year

Reporting period of any 12 consecutive months.

Interim Financial Statement

Reports covering 1, 3, 6, months of activity.

Statement of Cash Flows

Reports the inflows and outflows of cash during a period of time.

Things transferred directly to the statement of retained earnings.

Retained earnings and dividends.

Examples of Permanent Accounts

Retained earnings, accounts payable, accumulative depreciation.

$1000 of cash was received in advance for performing services. By the end of the period, $300 had not yet been earned. (Unearned Rev. was increased at the time of the initial cash receipt). What is the adjusting journal entry?

Service Rev. would be credited for $700. Unearned Rev. would be debited for $700.

Plant assets

Special category of prepaid expenses, which refer to long-term tangible assets used to produce and sell products and services.

The process of the closing process is to reset ________ (Temporary/permanent) account balances to zero and to transfer the changes in of all of these accounts to the Retained _____ (Earnings, Summary, Withdraw) accounts.

Temporary, Earnings

The difference between adjusted and unadjusted trial balance.

The adjusted trial balance is prepared after adjusting entries have been recorded and posted.

What to closing an account mean?

To bring the accounts balance to 0.

Intangible assets examples

Trademark, patent, goodwill, franchise, copyright

Natural business year

When reporting period starts when sales are at their lowest.

The dividends account balance will be used in preparing the statement of retained earnings.

Work Sheet and formal financial statements

Current items can be described as those expected to come due within one (month/year) and are listed in order of how (quickly/slowly) they could be converted or paid in cash.

Year and quickly

Formula for interest expense

amount owed x interest rate x fraction of the year since last payment

To close to dividends account

credit dividends the same amount and debit the retained earnings.

A company borrowed $10,000 and 5% interest. The loan has been outstanding for 45 days. The required adjusting entry would be to debit the interest __ (payable, receivable, expense) account and __ (dr, cr) interest ___ (receivable, payable, expense) account.

expense, credit, payable

Book value

or net amount

Current assets include

prepaid insurance, accounts payable, cash, office supplies.

Annual Financial Statement

reports covering a one year period.

In order to prepare the statement of retained earnings, the balance of (retained earnings/cash) account balance as well as any debit balance in the (supplies/dividends) account is transferred from the adjusted trial balance and is used along with the reported net income or loss from the income statement.

retained earnings, dividends.

Cash Basis recognizes (revenues/expenses/equity) when cash is received and records (revenues/expenses/liabilities) when cash is paid.

revenues, expenses

in order to prepare an income statement using the account balances on an adjusted trial balance all of the (revenues/liabilities) and their credit balances are transferred to the income statement as well as all of the (expenses/assets) and their (debit/credit) balances.

revenues, expenses, debit.

Accrual basis accounting recognizes (equity/revenues/expenses) when earned and records (liabilities/expenses/revenues) when (incurred/paid) in order to adhere to the matching principle.

revenues, expenses, incurred

A work sheet is a helpful tool to help prepare financial (statements/reports) It is constructed at the (beginning/end) of and accounting period before the adjusting process. All adjustments can easily be seen in the (adjustments/unadjusted) trial balance columns and then an (adjusted/unadjusted) trial balance can be prepared.

statements, end, adjustments, adjusted.