Financial Accounting Module 2

Ace Electronics paid $4,000 of the $5,000 its employees had earned during the period. Ace Electronics should report Wages Expense of $5,000 on the income statement and Wages Payable of ______ on the balance sheet prepared in accordance with generally accepted accounting principles.

$1,000

On May 1, Cut Above, Inc. collected $3,000 in advance from customers to mow their lawns in June. Under cash basis accounting, revenues in May will equal ______. 1. $3,000 2. $1,500 3. 0

$3,000 because This is the correct answer for accrual, not cash, basis accounting. This question asks for revenue under cash basis, not accrual basis accounting.

Ace Electronics sold $5,000 of goods to customers of which $3,000 has been collected. Using accrual accounting, Ace Electronics should report revenues of ______.

$5,000 bc Revenues equal the amount earned, regardless of whether the cash has been collected.

Monster Music Company provided music lessons for customers and earned $10,000, receiving $6,000 in cash and recording an accounts receivable for the remainder. What is Monster Music Company's revenue under the cash basis accounting? Multiple choice question. A)$6,000 B)$10,000 C)$4,000

$6,000 was received in cash.

Pizza Aroma delivered $500 of pizzas to the local high school, but hasn't received payment yet. Pizza Aroma will report ______.

Accounts Receivable of $500

When Pizza Company delivers pizza to customers and bills its customer accounts, it should record a debit to ______ and a credit to ______.

Accounts Receivable; Revenue

If the journal entry to record services provided to a customer on account was recorded with a debit to Accounts Receivable and a credit to Service Revenue, then the company is using ______ basis accounting

Accrual

Salary and wages expense

Amount employees worked to generate sales for the period

Accrued Expenses Payable

Amounts owed for services received

Supplies Expense

Amounts used to produce and sell products

Equipment

An asset with future economic benefit

Which of the following are the five elements of the accounting equation?

Assets, Liabilities, Stockholders' Equity, Revenues, Expenses

Under which of the following circumstances would cash basis accounting report higher expenses than accrual basis accounting in the current accounting period?

Cash is paid in advance of services being provided

Depreciation Expense

Cost of long-term assets used during the period

assets

Economic resources (things of value) owned by a firm.

True or false: All expenditures are expenses.

False

in January, Pizza Company bought pizza ingredients on account for $100, with payment due to the supplier in March. The pizza ingredients were used for pizzas made in January. In which month should Pizza Company record the cost of the pizza ingredients as an expense?

January because The pizza ingredients are expensed in the month the ingredients are used (January), not in the month when the payment is made.

Which of the following financial statement line items is not an expense? Salaries and Wages Expense rent expense prepaid rent advertising expense

Prepaid rent because Prepaid Rent is an asset because it has future economic benefit for the business.

On May 30, Blade for Blade, Inc. collected $10,000 from customers in advance. In June, it earned $2,000 of the amounts collected in advance. In June, ______. (Select all that apply.)

Revenue is increased Unearned Revenue is decreased

On May 30, The Merchant of Tennis, Inc. collected $1,000 from customers in advance. In June, it earned $600 of the amounts collected in advance. What is the effect of these events on The Merchant of Tennis in May and June? (Select all that apply.)

Revenue is increased in June Unearned Revenue is increased in May Cash is increased in May Unearned Revenue is decreased in June

The business earns $2,800 cash for services performed. How would this receipt affect the total stockholders' equity of a business?

Revenue is increased which causes stockholders' equity to increase.

Which of the following are operating expenses on the income statement of a merchandising company? (Check all that apply.)

Salaries expense Supplies expense

Which one of these activities is part of the operating cycle?

Selling goods and services

Which of the following accounts are examples of operating expenses? (Check all that apply.)

Supplies Expense Rent Expense

Which of the following would be reported on an income statement as an operating expense? (Select all that apply.)

Supplies expense Depreciation expense Rent expense

True or false: Expenses are the costs of operating a business that are incurred to generate revenues and are reported in the income statement.

True

True or false: Operating activities are the primary sources of revenue and expenses involved in running a business.

True

True or false: Net income on the income statement will typically differ from the net operating cash flows on the statement of cash flows.

True because Revenues and expenses on the income statement are the amounts earned and incurred, which will typically be different from the amounts collected from customers and the amounts paid during the same period.

Which of the following events would result in an increase in Accounts Payable on X Company's balance sheet? (Check all that apply.)

X Company purchased $5,000 of supplies on account. X Company purchased $5,000 of chairs on credit.

______ is the account debited when a service is provided to a customer on account.

accounts receivable

What type of an account is Accounts Receivable?

asset

Paying cash for an expense incurred in the same period has what effect on the accounting equation?

assets decrease stockholders' equity decreases

In June, Jackson Programming Company paid its June rent of $500. This transaction causes a decrease in (Expenses/Cash/Revenue) ________ and an increase in (Expenses/Cash/Revenue) ________ .

cash expenses

Florist Gump, Inc. sold 1,000 vases of flowers for $50 each for cash. The entry to record the sale includes a ______. (Select all that apply.) Multiple select question. credit to Cash for $50,000

credit to Sales Revenue for $50,000 debit to Cash for $50,000

On May 29, Lox, Stock & Bagel, Inc. received a $100 invoice for advertising run in May. The bill will be paid in June. The entry to record in May includes a $100 _____. (Select all that apply.)

debit to Advertising Expense credit to Accounts Payable

The entry to record the sale of services for cash includes a ______. (Check all that apply.)

debit to Cash credit to Service Revenue

Cash basis accounting may be used by organizations that ______.

do not need to report to external users

The two principles underlying accrual accounting are the .... and ...... recognition principles. (Enter one word per blank.)

expense and revenue

Accrual basis accounting records ______. (Check all that apply.)

expenses even when cash has not yet been paid revenue even when cash has not been collected revenue when earned expenses when incurred to generate revenue

Accrual basis accounting differs from cash basis accounting in that accrual basis accounting records ______. (Check all that apply.)

expenses in the period incurred, even though cash has not yet been paid revenues in the period when the revenue is earned, even though the cash has not yet been collected

Accrual accounting results in recording ______. (Check all that apply.)

expenses when incurred regardless of when paid revenues when earned regardless of when collected

Liabilities

financing provided by creditors

stockholders equity

financing provided by owners and reinvested earnings

Morsels Company provided catering services at a wedding and billed the bride $4,000 due in the following month. Record the transaction in Morsels' accounting equation by:

increasing Accounts Receivable and increasing Revenue

Jackson's Catering provided $3,000 worth of cookies to the local college. The college paid immediately. This transaction is recorded by _____

increasing cash and revenue

The Accounts Payable account is a(n) ______ account.

liability account

Wages Payable is a(n) ______.

liability on the balance sheet

Under the accrual basis of accounting, the expense .... principle requires that expenses be deducted on the income statement in the same period as the related revenues.

matching or recognition

revenues

resources generated from the delivery of goods or services

expenses

resources used

The two basic accounting principles that determine when revenues and expenses are recorded under accrual accounting are ______ principles.

revenue and expense recognition

T-accounts (general ledger) show ______. (Check all that apply.)

the activity for the current period beginning balances of zero for all income statement accounts the prior period ending balances as beginning balances for all balance sheet accounts

When supplies are purchased on credit it means that ______. (Check all that apply.)

the business will pay for the supplies at a later time the Accounts Payable account will be increased a liability has been incurred

The trial balance at year end shows ______.

the ending balance in each T-account

When expenses are recognized in the same period as the related cash is paid, the expense amount will be ______ accrual versus cash basis accounting.

the same under both

Performing services on account will increase ______. (Check all that apply.)

total assets stockholders' equity

The expense recognition principle dictates ______.

when costs are deducted against revenues on the income statement