Financial Accounting Test 1 (Chapter 1-4)

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Andrea invested $14,000 cash in the business in exchange for common stock. Andrea contributed $25,000 of photography equipment to the business. The company paid $2,600 cash for an insurance policy covering the next 24 months. The company received $6,200 cash for services provided during January. The company purchased $6,700 of office equipment on credit. The company provided $3,250 of services to customers on account. The company paid cash of $2,000 for monthly rent. The company paid $3,600 on the office equipment purchased in transaction #5 above. Paid $325 cash for January utilities. Based on this information, the balance in the cash account at the end of January would be:

$11,675.

If equity is $420,000 and liabilities are $200,000, then assets equal:

$620,000

A company's balance sheet shows: cash $36,000, accounts receivable $42,000, equipment $74,000, and equity $84,000. What is the amount of liabilities?

$68,000

Gross Margin Ratio

(Net Sales - Cost of Goods Sold) / Net Sales

On March 31st, Kelley estimates future period discounts arising from this period's sales to be roughly $0

-0-

Expected Returns and Allowances Cost Side for Expected R&A

-Because of expected returns, inventory expected to be returned. -Cost of goods sold overstated because of expected returns. -Seller creates an Inventory Returns Estimated account. -Current asset updated only during adjusting process. -Dec. 31 company estimates future returns of $500. -Unadjusted balance is $200 debit, so entry is made for $300.

Assets (Resources owned or controlled by a company)

-Cash -Notes Receivable -Land -Buildings -Equipment -Store Supplies -Vehicles -Accounts Receivable

Equity (Owner's claim on assets)

-Common stock -Retained Earnings -Dividends

Adjusting Entries for Merchandisers Expected Sales Discounts

-New revenue recognition rules require reporting sales at net amount expected. -Adjusting entry estimates sales discounts for the current period's sales likely to be taken in future periods.

Liabilities (Creditors' claims on assets)

-Notes Payable - Accounts Payable -Taxes Payable -Wages Payable

Conceptual Framework

-Objectives: to provide information useful to investors, creditors and others -Qualitative Characteristics: to require information that is relevant, reliable and comparable -Elements: to define items that financial statements can contain -Recognition and Measurement: to set criteria that an item must meet for it to be recognized as an element; and how to measure that element

Expected Returns and Allowances Revenue Side for Expected R&A

-Seller sets up a Sales Refund Payable for expected returns. -Current liability to reflect expected customer refunds. -Sales Refund Payable updated only during adjusting process. -Dec. 31 company estimates future sales refunds of $1,200. -Unadjusted balance is $300 credit, so entry is for $900.

Adjusting Entries for Merchandisers Expected Returns and Allowances

-To avoid overstatement of sales and cost of sales, new revenue recognition rules require sellers to estimate sales returns and allowances in the period of the sale. -Estimating returns and allowances requires companies to maintain two balance sheet accounts. *Current asset: Inventory Returns Estimated *Current liability: Sales Refund Payable -Two adjusting entries made - revenue side and cost side

What is on the balance sheet?

-current assets -Noncurrent assets -Long-term investments -Plant assets -Intangible assets -Current liabilities -noncurrent liabilities -equity

Importance of Accounting

1. Identifying (the sale by Apple of an Iphone) 2. Recording (Keep a chronological log of transactions) 3. Communicating (Prepare reports such as financial statements)

Oder in which a company prepares financial statements

1. Income Statement 2. Statement of Retained Earnings 3. Balance Sheet 4. Statement of Cash Flows

Each sales transaction for a seller of merchandise involves two parts

1. Revenue received in the form of an asset from a customer 2. Recognition of the cost of merchandise sold to a customer

Accounting Cycle

1. analyze transactions 2. journalize 3. post 4. prepare unadjusted trial balance 5. adjust 6. prepare adjusted trial balance 7. prepare statements 8. close 9. prepare post-closing trial balance 10. reverse (optional)

Closing process

1. resets revenue, expense, and dividends account balances to zero at the end of the period 2. Helps summarize a periods revenues and expenses in the income summary account

On 12/01/2018, Fast Forward paid $2,400 to cover insurance for 24 months that began on 12/01/2018. Recorded as Prepaid Insurance on 12/01/18

12/1 Prepaid Insurance (D): 2400 Cash (C): 2400 12/31 Insurance expense (D): 100 Prepaid Insurance (C): 100 Equals: 2300

12/31 is a Wednesday, so three day's salaries are owed at year end.

12/31 Salaries expense (D): 210 Salaries payable (C): 210

Purchase Discounts

2/10, n/30 -2: discount percent -10: number of days discount is available -n: net (or all) is due n 30 days -30: credit period

On 1/9 of the next year, record the expense for 7 days work in January.

3 days last year- Salaries payable (D): 210 7 days this year- Salaries expense (D): 490 Cash (C): 700

On May 31, the Cash account of Bottle's R US had a normal balance of $5,100. During May, the Cash account was debited for a total of $12,300 and credited for a total of $11,600. What was the balance in the Cash account at the beginning of May?

A $4,400 debit balance.

Expense recognition principle (matching principle)

A company must record its expenses incurred to generate the revenue reported.

Expense recognition (matching) principle

A company records the expenses incurred to generate the revenues reported.

Full Disclosure Principle

A company reports details behind financial statements that would impact users' decisions in the notes to the financial statements

Full disclosure principle

A company reports details behind financial statements that would impact users' decisions.

Adjusting Entries for Merchandisers Inventory Shrinkage

A merchandiser using a perpetual inventory system is usually required to make an adjustment to update the Merchandise Inventory account to reflect any loss of merchandise, including theft and deterioration.

Purchase Allowance

A reduction in the cost of defective or unacceptable merchandise received by a purchaser from a supplier.

The company paid Kandy Corp for the invoice dated Jan 7

A/P: 5800 M. Inventory: 58 Cash (99%* 5800): 5742

The company paid Kandy Corp. for the balance due less the merchandise credit for returned merchandise on Jan 24th

A/P: 8504 M. Inventory (9000*1%) (C): 90 Cash: 8414

The company sold merchandise with a 4640 cost for 12250 on credit to Castle Inc, invoice dated Jan 26th

A/R: 12,250 Sales: 12,250 CGS: 4640 M. Inventory: 4640

Sold 50 units of merchandise to a customer for $150 per unit under credit terms of 2/10, n/30, FOB shipping point, and the invoice is dated June 1. 50 units of merchandise had cost $100 per unit.

A/R:7500 Sales:7500 CGS: 5000 M. Inventory: 5000

The company billed Gill Corporation $5668 for services performed

Account receivable: 5668 Revenue: 5668

The company paid $2,000 cash for payment on a 6-month-old account payable for office supplies.

Accounts Payable (D): 2,000 Cash (C): 2,000

The company completed work for AAA Engineering Co. and sent AAA a bill for $3950

Accounts Receivable: 3950 Revenue: 3950

The company paid $2,000 cash to settle the account payable created on September 5.

Accounts payable (D): 2,000 Cash (C): 2,000

The company paid $1420 cash for the computer supplies purchased from Harper office products on october 3

Accounts payable: 1420 Cash: 1420

The company returned defective merchandise from the Jan 7th purchase to Kandy Corp. and accepted a credit against future purchases. The defective merchandise invoice amount was 496, which is the price net of the discount

Accounts payable: 496 M. Inventory: 496

Paid the amount due from the October 1 purchase, less the return on October 7

Accounts payable: 950 M. Inventory(C): 38 cash: 912

Assume the October 11 payment was never made and, instead, payment of the amount due on the October 1 purchase, less the return on October 7, occurred on October 31

Accounts payable: 950 cash: 950

12/31, 20 days worth of services have been provided and earned

Accounts receivable (D): 1800 Revenue (C): 1800

The company completed $6,250 of services for a client, who must pay within 30 days.

Accounts receivable (D): 6,250 Fees revenue (C): 6,250

The company billed E. Leasing another $1400 for services performed

Accounts receivable: 1400 Service revenue: 1400

The company billed Triple Threat Company $5208 for services performed

Accounts receivable: 5208 Revenue: 5208

The computer billed E. Leasing $4,800 for services performed in installing new computer hardware

Accounts receivable:4800 Revenue: 4800

The company sold merchandise with a retail value of 5,200 and cost of 3560 to Lyon Corporation, invoice dated Jan 13. Terms are 1/10, n/30 FOB shipping point

Accounts receivable:5200 Sales: 5200 CGS: 3560 M. Inventory: 3560

The company paid $1728 cash for advertisements published in the local newspaper

Advertising expense: 1728 cash: 1728

periodic inventory system

An inventory system in which a company does not maintain detailed records of goods on hand throughout the period and determines the cost of goods sold only at the end of an accounting period.

As of April 30, $3,000 of interest expense has accrued on a note payable. The full interest payment of $9,000 on the note is due on May 20.

April 30th: Interest expense (D): 3000 Interest payable (C): 3000 May 20th: Interest expense (D): 6000 Interest payable (D): 3000 Cash (C): 9000

On April 1, the company retained an attorney for a flat monthly fee of $3,500. Payment for April legal services was made by the company on May 12.

April 30th: Legal services expense (D): 3500 Legal services payable (C): 3500 May 12th: Legal services payable (D): 3500 Cash (C): 3500

Total weekly salaries expense for all employees is $10,000. This amount is paid at the end of the day on Friday of each five-day workweek. April 30 falls on a Tuesday, which means that the employees had worked two days since the last payday. The next payday is May 3.

April 30th: Salaries expense (D): 4000 Salaries payable (C): 4000 May 3rd: Salaries payable (D): 4000 Salaries expense (D): 6000 Cash (C): 10,000

Straight- Line Depreciation Expense

Asset Cost- Salvage Value/ Useful Life

Expanded Accounting Equation

Assets = Liabilities + Common Stock + Revenues - Expenses - Dividends

Accounting Equation

Assets = Liabilities + Owner's Equity

If a company receives $10,200 from its sole stockholder to establish a corporation, the effect on the accounting equation would be:

Assets increase $10,200 and equity increases $10,200.

Venedict invested her personal automobile in the company in exchange for more common stock. The automobile has a value of $16,500 and is to be used exclusively in the business

Automobiles (D): 16,500 Common stock (C): 16,500

Inventory Systems

Beginning inventory + net purchases = merchandise available for sale = ending inventory + cost of goods sold

What is on the statement of Retained Earnings?

Beginning of Retained Earnings + Net Income - Dividends = End of Retained Earnings

Retained Earnings with Stock Issuances

Beginning of Retained Earnings + Net income + stock issuances - dividends = end of retained earnings

To include the personal assets and transactions of a business's stockholders in the records and reports of the business would be in conflict with the:

Business Entity Assumption

After a March 31st physical count of inventory, it is determined that shrinkage occurred and the amount of merchandise inventory still available totals 6000

CGS: 876 M. Inventory: 876

The company received the balance due from Lyon Corp.

Cash (99%*4700): 4653 Sales Discount: 47 A/R:4700

The company received $10,000 cash from a client in payment for services to be provided next year.

Cash (D): 10,000 Unearned services revenue (C): 10,000

Brina Valdez invested $20,000 cash in the company in exchange for common stock.

Cash (D): 20,000 Common Stock (C): 20,000

The company received $3,500 cash from a client in partial payment of accounts receivable

Cash (D): 3,500 Accounts Receivable (C): 3,500

Investors exchanged $30,000 cash for common stock

Cash (D): 30,000 Common stock (C): 30,000

Fast Forward earns payment as time passes. At 12/31, 5 days service is earned.

Cash (D): 3000 Unearned Revenue (C): 3000 Unearned Revenue (D): 250 Revenue (C): 250

The company received $4,000 cash in partial payment on the receivable created on September 21.

Cash (D): 4,000 Accounts receivable (C): 4,000

Fast Forward provides consulting services and immediately collect $4,200 cash

Cash (D): 4200 Services revenues (C): 4200

K. Baker Invested $45,000 cash, a $20,000 computer system and $8,000 of office equipment in the company in exchange for its common stock

Cash (D): 45000 Computer system (D): 20,000 Office equipment (D): 8000 Common stock (C): 73,000

The company borrowed $5,000 cash from the bank by signing a note payable.

Cash (D): 5,000 Notes Payable (C): 5,000

The company received $5,331 cash in photography fees earned.

Cash (D): 5,331 Photography fees earned (C): 5,331

Venedict invested $60,000 cash along with office equipment valued at $25,000 in exchange for common stock of a new company named HV Consulting.

Cash (D): 60,000 Office equipment (D): 25,000 Common stock (C): 85,000

The company provided services to a client and collected $8,000 cash.

Cash (D): 8,000 Fees revenue (C): 8,000

The company provided services to a client and immediately received $900 cash.

Cash (D): 900 Services revenue (C): 900

Unearned (Deferred) Revenues

Cash received in advance of providing revenues

Acid-test ratio explanation

Cash+ short term investments+receivables/ current liabilities

The seller receives the balance due from the June 1 sale to the customer less returns and allowances

Cash: (98% *7200): 7056 sales discount (D): 144 A/R: 7200

The company received $1400 cash from E. Learning towards its account

Cash: 1400 Accounts receivable: 1400

Notified by AAA Engineering Company that KSB Solution's bid of 7000 on a proposed project has been accepted. AAA paid a 1500 cash advance to KSB

Cash: 1500 Unearned revenue: 1500

The company received $2208 cash from Triple Threat Company as partial payment of the October 28 bill

Cash: 2208 Accounts receivable: 2208

Received 3000 cash from Gill Co. on its receivable

Cash: 3000 Accounts receivable: 3000

The company received $4633 cash from Lex Corporation for computer services performed

Cash: 4633 Revenue: 4633

The company received $4800 cash from E. leasing as partial payment toward its account

Cash: 4800 Accounts receivable:4800

The account was paid in full within the 10-day discount period

Cash: 980 Sales Discount: 20 Accounts receivable: 1000

The account was paid in full after the discount period

Cash:1000 Accounts Receivable: 1000

Ethics

Codes of conduct by which actions are judged as right or wrong, fair or unfair, honest or dishonest.

Purchased 1100 of computer supplies on credit from Harper Office Products

Computer Supplies: 1100 Accounts Payable: 1100

The company purchased computer supplies for $1125 cash from Harper Office Products

Computer supplies: 1125 Cash: 1125

The company purchased $1,420 of supplies on credit from Harper Office Products

Computer supplies: 1420 Accounts payable: 1420

The company purchased 2730 of computer supplies from Harper Office Products on credit with terms n/15, invoice dated March 8th

Computer supplies: 2730 A/P: 2730

General accounting principle

Concepts, assumptions, and guidelines for preparing financial statements.

Sarbanes-Oxley Act

Created the Public Company Accounting Oversight Board, regulates analyst conflicts, imposes corporate governance requirements, enhances accounting and control disclosures, impacts insider transactions and executive loans, establishes new types of criminal conduct, and expands penalties for violations of federal securities laws.

A law firm billed a client $2,100 for work performed in the current month. Which of the following general journal entries will the firm make to record this transaction?

Debit Accounts Receivable, $2,100; credit Legal Fees Revenue, $2,100.

Revenue (what is normal)

Debit for decreases Credit for increases (Normal)

Equity (what is normal)

Debit for decreases Credit for increases (normal)

Liabilities (what is normal)

Debit for decreases Credit for increases (normal)

Dividends (what is normal)

Debit for increase (normal) Credit for decrease

Assets (what is normal)

Debit for increases (normal) Credit for decreases

Expenses (what is normal)

Debit for increases (normal) Credit for decreases

The company has one piece of equipment that it purchased on Jan 1st. The asset had a cost of 38,000, estimated useful of 10 years and is expected to be sold for 8,000 at the end of its 10 years life.

Deprecation expense: 3000 Accumulation deprecation: 3000

Depreciation on the company's equipment for the year is computed to be $18,000.

Depreciation expense- Equipment (D): 18,000 Accumulated depreciation- Equipment (C): 18,000

Depreciation on the computer equipment for Jan 1st through March 31st should be recorded

Depreciation expense: 1250 A/D-Computer equipment: 1250

The computer system acquired on October 1, is expected to have a four year life with no salvage value

Depreciation expense: 1250 A/D-Computer system: 1250

Depreciation on the office equipment for Jan 1st through March 31st should be recorded

Depreciation expense: 400 A/D- office equipment: 400

The office equipment acquired on October 1, is expected to have a five year life with no salvage value

Depreciation expense: 400 A/D-office equipment: 400

Specific accounting principle

Detailed rules used in reporting events and transactions.

The company paid $2,800 cash in dividends.

Dividends (D): 2,800 Cash (C): 2,800

Fast Forward pay $200 cash for dividends

Dividends (D): 200 Cash (C): 200

The company paid $4,500 cash in dividends to the owner (sole shareholder).

Dividends (D): 4,500 Cash (C): 4,500

The company paid 1500 cash in dividends

Dividends: 1500 Cash: 1500

The company paid $3600 cash in dividends

Dividends: 3600 cash: 3600

Business entity assumption

Each business is accounted for separately from its owner or owners.

Fast Forward purchases equipment by paying $26,000 cash

Equipment (D): 26,000 Cash (C): 26,000

Fast Forward purchased equipment on December 1 for $26,000. Equipment has an useful live of 5 years. The equipment is expected to be worth $8,000 at the end of five years.

Equipment (D): 26000 Cash (C): 26000 Depreciation Expense (D): 300 Accumulated Expense (C): 300

The company paid $39,000 cash for equipment purchased

Equipment (D): 39,000 Cash (C): 39,000

T/F Stockholder investments always decrease equity

False

T/F The balance sheet shows a company's net income or loss due to earnings activities over a period of time.

False

T/F The right side of an account is called the debit side.

False

Generally Accepted Accounting Principles (GAAP)

Financial accounting is governed by concepts and rules know as this. It aims to make information relevant, reliable and comparable

Going-concern assumption

Financial statements reflect the assumption that the business continues operating instead of being closed or sold

How do you know what business relies most heavily on creditor financing?

Highest Debit Ratio and lowest ROA

Measurement (cost) principle

Information is based on actual costs incurred in transactions.

The Prepaid Insurance account had a $9,000 debit balance at December 31 before adjusting for the costs of any expired coverage. An analysis of the company's insurance policies showed that $590 of unexpired insurance coverage remains.

Insurance expense (D): 8,410 Prepaid insurance (C): 8,410

Three months have expired since the 12-month insurance premium was paid in advance

Insurance expense: 555 Prepaid insurance: 555

Three more months have expired since the company purchased its annual insurance policy at a 2220 cost for 12 months of coverage

Insurance expense:555 Prepaid insurance: 555

Step 8: Close

Journalize and post entries to close temporary accounts

The company purchased land valued at $40,000 and a building valued at $160,000. The purchase is paid with $30,000 cash and a long-term note payable for $170,000.

Land (D): 40,000 Building (D): 160,000 Cash (C): 30,000 Notes Payable (C): 170,000

How to find Debit Ratio?

Liabilities / Assets

Unearned revenues refer to a(n):

Liability that is settled in the future when a company delivers its products or services.

Purchased $1,000 of goods. Terms of the sale are 4/10, n/30, and FOB shipping point; the invoice is dated October 1.

M. Inventory: 1000 Accounts Payable: 1000

Paid $30 cash for freight charges from UPS for the October 1 purchase.

M. Inventory: 30 Cash: 30

The company paid 600 cash for freight chargers on the merchandise purchased on Jan 7

M. Inventory: 600 Cash: 600

The company purchased 9000 of merchandise from Kandy corp. with terms 1/10, n/30, FOB destination, invoice dated Jan 26

M. Inventory: 9000 Accounts payable: 9000

The company purchased 5800 of merchandise from Kandy Crop. with terms 1/10, FOB shipping, invoice dated Jan 7th

M. Inventory:5800 A/P: 5800

Purchase Return

Merchandise returned by the purchaser to the supplier.

Sent a reminder to Gill CO. to pay the fee for services recorded on November 8

No entry

The company hired a part time assistant for $125 per day as needed

No entry

The company received notification from AAA Engineering Corporation that KSB's bid of $3950 for an upcoming project was accepted

No entry

The company purchased $2,000 of office supplies on credit.

Office Supplies (D): 2,000 Accounts Payable (C): 2,000

The company purchased $20,300 of new office equipment by paying $20,300 cash

Office equipment (D): 20,300 Cash (C): 20,300

The company purchased $5,600 of additional office equipment on credit.

Office equipment (D): 5,600 Accounts payable (C): 5,600

The company purchased office supplies for $1,080 cash.

Office supplies (D): 1,080 Cash (C): 1,080

cost-benefit

Only information with benefits of disclosure greater than their cost need be disclosed.

Z-Mart purchases $250 of merchandise on June 1 with terms 2/10, n/60. On June 3, Z-Mart returns $50 of goods before paying the invoice. When Z-Mart later pays on June 11, it takes the 2% discount only on the $200 remaining balance.

Perpetual: June 1: M. Inventory: 250 Accounts payable: 250 June 3: Accounts payable: 50 M. Inventory: 50 June 11: Accounts payable: 200 cash(C): 196 M.Inventory 4 Periodic: June 1: Purchases: 250 Accounts payable: 250 June 3: Accounts payable: 50 Purchase return allowance: 50 June 11: Accounts payable:200 cash: 196 purchases account: 4

Z-Mart recorded a sale for $2,400 that had a cost of $1,000. Assume the customer returns part of the merchandise (not defective). The returned items sell for $15 and cost $9

Perpetual: Account receivable: 2400 Sales: 2400 CGS: 1000 M.Inventory:1000 Return: Sales Return Allowances:15 A/R:15 M. Inventory: 9 CGS:9 Periodic: A/R:2400 Sales:2400 Return: Sales return allowances:15 A/R: 15

On November 12, Z-Mart paid the amount due on the purchase of November 2.

Perpetual: Accounts payable (D): 500 Cash (C): [(1-.02)500]=490 M. Inventory (C): 10 Periodic: Accounts payable (D): 500 Cash (C): 490 Purchase Discount (C): 10

On November 5, Z-Mart (buyer) issues a $30 debit memorandum for an allowance from Trex for defective merchandise.

Perpetual: Accounts payable:30 M. Inventory: 30 Periodic: Accounts payable: 30 Purchase returns allowance: 30

Z-Mart sold $1,000 of merchandise on credit with terms 2/10 n/45. The merchandise has a cost basis to Z-Mart of $300.

Perpetual: Accounts receivable: 1000 Sales: 1000 Cost of goods sold: 300 M. Inventory:300 Periodic: Accounts Receivable: 1000 Sales: 1000

On November 2, Z-Mart purchased $500 of merchandise inventory on account, credit terms are 2/10, n/30.

Perpetual: M. Inventory: 500 Accounts Payable: 500 Periodic: Purchases: 500 Accounts payable: 500

On November 2, Z-Mart purchased $500 of merchandise inventory for cash

Perpetual: M. Inventory: 500 Cash: 500 Periodic: Purchases: 500 Cash: 500

Z-Mart purchased merchandise on terms of FOB shipping point. The transportation charge is $75.

Perpetual: M. Inventory: 75 cash:75 Periodic: Transportation In: 75 Cash: 75

Internal users

Persons using accounting information who are directly involved in managing the organization.

External users

Persons using accounting information who are not directly involved in running the organization.

Madison Harris, the owner, invested $8,500 cash and $35,500 of photography equipment in the company in exchange for common stock.

Photography equipment (D): 35,500 Cash (D): 8,500 Common Stock (C): 44,000

Step 3: Post

Posting is the process of transferring the information from the general journal to the general ledger. There are four steps in the posting process. 1. Identify debit account in Ledger: enter date, journal page, amount, and balance. 2. Enter the debit account number from the Ledger in the PR column of the journal. 3. Identify the credit account in Ledger: enter date, journal page, amount, and balance. 4. Enter the credit account number from the Ledger in the PR column of the journal.

The company paid $4,100 cash for an insurance policy covering the next 24 months.

Prepaid Insurance (D): 4,100 Cash (C): 4,100

Fast Forward pays $2,400 cash (insurance premium) for a 24-month insurance policy. Coverage begins on December 1

Prepaid insurance (D): 2400 Cash (C): 2400

The company paid $2,220 cash for on year's premium on a property and liability insurance policy

Prepaid insurance: 2220 Cash: 2220

The company paid $3,300 cash for four months rent

Prepaid rent: 3300 Cash: 3300

Step 2: Journalize

Record accounts, including debits and credits, in a journal

Step 5: Adjust

Record adjustments to bring account balances up to date; journalize and post adjustments.

Sales return

Refer to merchandise that customers return to the seller after the sale.

Fast Forward pays $1,000 cash for December rent

Rent expense (D): 1,000 Cash (C): 1,000

The Prepaid Rent account had a $5,500 debit balance at December 31 before adjusting for the costs of any expired coverage. An analysis of rental policies showed that $4,910 of rental coverage had expired.

Rent expense (D): 4,910 Prepaid rent (C): 4,910

On October 1st of the current year, the company prepaid 12,000 for one year of rent for facilities being occupied from that day forward. The company debited Prepaid rent and credit cash for 12,000

Rent expense: 3,000 Prepaid rent: 3,000

Prepaid (deferred) expenses

Resources paid for prior to receiving the actual benefits Examples: Prepaid insurance, prepaid rent, supplies

The rule that (1) requires revenue to be recognized when goods or services are provided to the customer and (2) at the amount expected to be received from the customer is called the:

Revenue Recognition Principle

Revenue recognition principle

Revenue is recorded when products and services are delivered.

What is on a Income Statement ?

Revenues - Expenses = Net Income

Step 10: Reverse (optional)

Reverse certain adjustments in the next period

The company paid cash to the assistant for five days work at the rate of 125 per day. four of the five day related to salaries payable that we accrued in the proper year

Salaries Payable: 500 Salaries expense (D): 125 Cash: 625

The company paid $1,200 cash for the just completed two-week salary of the receptionist.

Salaries expense (D): 1,200 Cash (C): 1,200

The company paid $1,800 cash salary to an assistant.

Salaries expense (D): 1,800 Cash (C): 1,800

Fast Forward pays $700 cash for employee salary

Salaries expense (D): 700 Cash (C): 700

Fast Forward pays $700 cash in employee salary for work performed in December

Salaries expense (D): 700 Cash (C): 700

The company paid the assistant $1750 cash for 14 days of wages

Salaries expense: 1750 cash: 1750

At year end, salaries of 5,000 have been incurred by the company, but not yet paid to employees

Salaries expense: 5000 Salaries payable: 5000

The company paid $875 cash for the assistant's wages for seven days of work this month

Salaries expense: 875 cash: 875

Lyon Corp. returned 500 of defective merchandise from its invoice dated Jan 13. The returned merchandise, which had a 320 cost is returned to the shelf

Sale returns and allowances: 500 Accounts Receivables: 500 M. Inventory: 320 CGS: 320

Assume that $40 of the merchandise Z-Mart sold on November 12 is defective but the buyer decides to keep it because Z-Mart offers a $10 price reduction.

Sales Return and allowances: 10 A/R:10

On March 31st, Kelley estimates future period returns and allowance will be a small percent of sales, or roughly, 1100 and similarly a small percent of cost of sales, roughly 400

Sales Return and allowances:1100 Sales refund payable: 1100 Inventory Returns estimated: 400 CGS: 400

The customer returns 2 units because those units did not fit its needs. The seller restores those units to its inventory (as they are not defective) and sends the buyer a $300 credit memorandum.

Sales return and allowances: 300 A/R: 300 M. Inventory: 200 CGS: 200

The customer discovers that 10 units have minor damage but keeps them because the seller sends a $50 cash payment allowance to compensate.

Sales return and allowances: 50 A/R and Cash: 50

Step 1: Analyze Transactions

Source documents are checked for accuracy, and transactions are analyzed into debit and credit parts.

Step 6: Prepare adjusted trial balance

Summarize adjusted ledger accounts and amounts

Step 4: Prepare unadjusted trial balance

Summarize unadjusted ledger accounts and amounts.

Fast Forward purchases supplies by paying $2,500 in cash

Supplies (D): 2,500 Cash (C): 2,500

Fast Forward purchases $7,100 of supplies on credit

Supplies (D): 7100 Accounts payable (C): 7100

Fast Forward purchased $9,720 of supplies in December. A physical count shows that unused supplies equal $8,670

Supplies (D): 9720 Cash (C): 9720 Supplies expense (D): 1050 Supplies (C): 1050

The Office Supplies account had a $290 debit balance at the beginning of December; and $2,680 of office supplies were purchased in December. The December 31 physical count showed $342 of supplies available.

Supplies expense (D): 2,628 Supplies (C): 2,628

The March 31 amount of computer supplies still available totals 2005

Supplies expense: 1305 Supplies: 1305

The supplies account has a 1,000 debit balance at the beginning of the year. supplies of 2,000 were purchased during the current year and debited to the supplies account. A December 31 physical count shows 500 of supplies remaining. Prepare the year end ad

Supplies expense: 2500 Supplies: 2500

Step 9: Prepare Post-closing trial balance

Test clerical accuracy of the closing procedures

Investing Activities

These activities are the acquiring and disposing of assets that an organization uses in its business

Auditors

Trained individuals hired by a company as an independent party to express a professional opinion of the conformity of that company's financial statements with GAAP

T/F Revenues are increases in equity (via net income) from a company's sales of products and services to customers.

True

T/F The business entity assumption means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.

True

T/F The journal is known as a book of original entry.

True

Account : Land (Type of account, Normal Balance, Dr. or Cr)