Accounting Ch 6

Cash basis of accounting

Reporting income when the cash is received and expenses when the cash is paid

Income Statement

A financial statement showing the revenue and expenses for a fiscal period

Balance Sheet

A financial statement that reports assets, liabilities, and owner's equity on a specfic date

Fiscal Year

A fiscal period consisting of 12 consecutive months

Trial Balance

A proof of equality of debits and credits in a general ledger

Prepaid Expense

Cash paid for an expense in one fiscal period that is not used until a later period

Adjustments

Changes recorded on a work sheet to update general ledger accounts at the end of a fiscal period

1. The accounting concept Consistent Reporting is being applied when a delivery business reports revenue for the number of deliveries made one year and the amount of revenue received for the deliveries made the next year

False

11. The income statement and balance sheet are prepared from the Trial Balance columns on the work sheet

False

18. The best way to prevent errors is to use a calculator

False

2. A fiscal period must be 12 months in length

False

3.Journals, ledgers, and work sheets are considered permanent records

False

5. Only accounts with a balance are listed on a trial balance

False

6. The 4 questions asked when analyzing an adjustment are: Why? Where? When? and How?

False

8. The two accounts affects by the adjustment for insurance are Prepaid Insurance Expense and Insurance

False

Net Loss

The difference between total revenue and total expenses when total expenses are greater

Net Income

The difference between total revenue and total expenses when total revenue is greater

Fiscal Period

The length of time for which a business summarizes its financial information and reports its financial performance

10. Totaling and ruling the Adjustments columns of a work sheet are necessary to prove the equality of debits and credits

True

12. Net income on a work sheet is calculated by subtracting the Income Statement Debit column total from the Income Statement Credit column total

True

13. If errors are found on a work sheet, they must be erased and corrected before any further work is completed

True

14. When two column totals are not in balance on the work sheet, the difference between the two totals is calculated and checked

True

15. If the difference between the totals of Debit and Credit columns on a work sheet can be evenly divided by 9, then the error is most likely a transposed number

True

16. If there are errors in the work sheet's Trial Balance columns, it might be because a general ledger account balance was recorded in the wrong Trial Balance column

True

17. Most errors occur in doing arithmetic

True

19. Adjusting entries must be posted to the general ledger accounts

True

20. The balance in Supplies Expense after adjusting entries are recorded represents the amount of supplies used during the fiscal period

True

4. The heading on a work sheet contains the name of the business, the name of the report, and the date of the report

True

7. The two accounts affected by the adjustments for supplies are Supplies and Supplies Expense

True

9. The balance in Prepaid Insurance after adjusting entries are recorded represents the amount of insurance premium still remaining

True

Work Sheet

A columnar accounting form used to summarize the general ledger information needed to prepare financial statements

Adjusting Entries

Journal entries recorded to update general ledger accounts at the end of fiscal period

Accrual basis of accounting

Reporting income when it is earned and expenses when they are incurred