CH 4 Smartbook Assignment

Which statements are true in regard to the five questions of transaction analysis methodology?

"Does the balance sheet balance?" is essentially the same question as "Do the debits equal the credits?" "Does my analysis make sense?" is a feedback loop to ensure that the entry you recorded is consistent with your understanding of "What's going on?" "What accounts are affected?" is where you identify the specific accounts affected by the transaction.

Assume that in the current year a company performed $100 of services for a client but only $30 was collected in cash at the time the services were performed. This transaction would be recorded in the horizontal model with:

+30 Cash and +70 Accounts Receivable in the Assets column and +100 Service Revenue in the Revenues column.

Assume that in the current year a company collected $70 in cash from a customer for services that were performed in a prior period. This transaction would be recorded in the horizontal model with:

+70 Cash and -70 Accounts Receivable in the Assets column.

Assume that in the current year a company paid $50 in cash for advertising services that were availed in a prior period. This amount was recorded as an expense at the time of availing the services. This transaction would be recorded in the horizontal model with:

-50 Cash in the Assets column and -50 Accounts Payable in the Liabilities column.

List the correct (normal) order of the five questions of transaction analysis methodology shown below: 1 What accounts are affected? 2 How are the accounts affected? 3 Does my analysis make sense? 4 What's going on? 5 Does the balance sheet balance? Multiple choice question.

4, 1, 2, 5, 3

Identify a correct statement regarding the usage of plus or minus signs along with the dollar amounts in the horizontal model of financial statements.

A minus sign for expenses indicates that net income is reduced because expenses are higher.

Identify the statements that are correct about reclassification year-end adjustments.

A reclassification year-end adjustment is required when cash has been paid for an expense but the expense has not been incurred yet. A reclassification year-end adjustment is required when cash for a revenue has been received but the revenue has not been recognized yet.

Which statement is true regarding the closing process?

All expense and loss accounts, as well as dividends, are credited for amounts equal to their year-end debit balances.

Which statements are true regarding the closing process?

All revenue and gain accounts are debited for amounts equal to their year-end credit balances. All expense and loss accounts, as well as dividends, are credited for amounts equal to their year-end debit balances.

Identify the statements that are correct about accrual year-end adjustments.

An expense is accrued when the expense has been incurred but not yet paid for in cash. A revenue is accrued when the revenue has been earned but not yet received in cash.

Which of the following are acceptable/correct expressions of the balance sheet equation?

Assets = Liabilities + Stockholders' equity Assets - Liabilities = Stockholders' equity Assets = Liabilities + Paid-in capital + Retained earnings (beginning of period) + Revenues (during the period) - Expenses (during the period) Assets = Liabilities + Paid-in capital + Retained earnings

If debits equal credits, what will be shown on the balance sheet?

Assets will equal the sum of liabilities and stockholders' equity.

Merchants who send you a notice that they have "charged" your account are really communicating that they have (debited/credited) your account in their accounting records to (increase/decrease) your account balance, which is shown as a(n) (asset/liability) from their perspective, since you owe them money.

Blank 1: debited Blank 2: increase Blank 3: asset or assets

When a bank (debits/credits) your account for the service charges incurred during the month, what it is really communicating is that it is (increasing/decreasing) the (asset/liability) recorded in its accounting records to represent your account from its perspective. Listen to the complete question

Blank 1: debits Blank 2: decreasing Blank 3: liability

Accounts are summarized in financial _______(statements/entities/transactions), whereas _______(statements/entities/transactions) are summarized in accounts.

Blank 1: statements Blank 2: transactions

The abbreviation for debit is___ and the abbreviation for credit is____

Dr, Cr

Which entry can be recorded as an accrual adjusting entry?

Dr. Interest Receivable 200 Cr. Interest Income 200 Reason: Correct. Period-end adjustments affect both the balance sheet and the income statement.

Which entry can be recorded as a reclassification adjusting entry?

Dr. Supplies 300 Cr. Supplies Expense 300

Which entry can be recorded as an accrual adjusting entry?

Dr. Wages Expense 100 Cr. Wages Payable 100

Which group of accounts would be closed in the year-end closing process?

Insurance Expense, Service Revenue, Loss on Sale of Equipment, and Sales

Which group of accounts would all be closed in the year-end closing process?

Interest Income, Supplies Expense, Dividends, and Gain on Sale of Land

Which statements regarding the closing process are true?

Losses and dividends are closed in the same way that expenses are closed. All expense accounts are closed by crediting each account for an amount equal to the adjusted year-end debit balance. All revenue accounts are closed by debiting each account for an amount equal to the adjusted year-end credit balance.

Which transactions would require a reclassification adjusting entry?

Prepaid insurance Rent received in advance

Which of these are source documents that often support journal entries?

Purchase order Invoice from a supplier Check stub

Assets = Liabilities + Paid-in capital + ______.

Retained earnings (beginning of period) + Revenues (during the period) - Expenses (during the period)

Which accounts would be closed during the year-end closing process?

Service Revenue Rent Expense Gain on Sale of Land

Which of the following statements are true regarding the general format of a journal entry?

The account(s) and amount(s) to be credited are listed after the account(s) and amount(s) to be debited and are indented and shown to the right. The amount(s) and account(s) to be debited are listed before the account(s) and amount(s) to be credited and are shown to the left. The date is recorded to provide a cross reference to the transaction.

Which statements are true of expense accounts?

They increase with debit entries. They decrease with credit entries. They normally have a debit balance.

Which statements correctly describe asset accounts?

They increase with debit entries. They decrease with credit entries. They normally have a debit balance.

Which statements are true of liability accounts?

They normally have a credit balance. They increase with credit entries. They decrease with debit entries.

A(n) (accrual/reclassification) period-end adjustment is required when a revenue has been earned but not yet received in cash.

accrual

Period-end adjustment entries:

affect both the balance sheet and the income statement. result in recording expenses in the period during which they were incurred.

Assets = Liabilities + Paid-in capital + Retained earnings (beginning/ending) + (Revenues/Expenses) - (Revenues/Expenses)

beginning, revenues, expenses

Transactions:

can be seen as the bricks that build financial statements are summarized in accounts, and accounts are further summarized in financial statements

When a firm earns revenue prior to the end of the current fiscal period but has not yet received the associated revenue, there occurs a _____.

cash lag

When a firm receives cash prior to the end of the current fiscal period but has not yet earned all the associated revenue, there occurs a _____.

cash lead Reason: When a firm receives cash prior to the end of the current fiscal period but has not yet recognized all the associated revenue, there occurs a cash lead.

The name(s) and amount(s) of any accounts to be (debited/credited) are indented and shown to the right.

credited

In bookkeeping and accounting, ___means left and ____means right.

debit, credit

In bookkeeping and accounting, means and credit means right.

debit, left

Merchants who send you a notice that they have "charged" your account are really communicating that they have:

debited your account to increase your account balance, which is shown as an asset (accounts receivable) in their accounting records.

credit entries:

decrease expense and loss accounts and increase revenue and gain accounts.

When a bank debits your account for the service charges incurred during the month, what it is really communicating is that it is: Multiple choice question.

decreasing your account balance, which is shown as a liability from its perspective.

In period-end adjustment entries, ______.

either the debit or the credit affects the income statement

Although revenues and expenses are reported on the income statement, they also:

impact stockholders' equity on the balance sheet.

Debit entries:

increase expense and loss accounts and decrease revenue and gain accounts.

When a bank credits your account for the interest earned during the month, what it is really communicating is that it is:

increasing your account balance, which is shown as a liability from its perspective.

Transactions are:

initially recorded in a journal and then posted to a ledger.

Transactions are initially recorded in a (journal/ledger/chart of accounts).

journal

A chart of accounts serves as an index to a company's _____(journal/ledger/income statement/transactions).

ledger

In a horizontal financial statement, the arrow from net income to stockholders' equity indicates that ______.

net income affects retained earnings, which is a component of stockholders' equity

The report format of the balance sheet ______.

presents assets above liabilities and stockholders' equity items

The account format of the balance sheet:

presents assets on the left and liabilities and stockholders' equity items on the right.

A(n)____ (accrual/reclassification) period-end adjustment is required when cash has been paid for an expense but the expense has not yet been incurred.

reclassification

In the horizontal model, a minus sign next to an expense amount means that net income is (reduced/increased) because of expenses being (lower/higher).

reduced, higher

In the closing process, all income statement accounts (revenues, expenses, gains, and losses) and dividends are closed. What is the name of the account into which all those accounts are closed?

retained earnings

In a balance sheet, net income from the income statement is added to the beginning balance of ______.

retained earnings in the statement of changes in retained earnings

Although and are reported on the income statement, they also impact the ending balance of retained earnings shown on the balance sheet.

revenues, expenses

A chart of accounts:

serves as an index to a company's ledger.

An invoice from a supplier, a copy of a customer's credit card purchase receipt, and a check stub are examples of _____.

source documents

If debits equal credits, then:

the company's balance sheet equation will be in balance.

Under accrual accounting, year-end adjustments are made: (Select all that apply).

to ensure that expenses are recognized in the year in which they are incurred. because revenue receipts may occur before or after the event that causes revenue recognition.

Under accrual accounting, year-end adjustments are made: (Select all that apply).

to ensure that revenues are recognized in the year in which they are earned. because the cash disbursement for expenses may occur before or after the event that causes expense recognition.

True or false: The key to using the horizontal model is to keep the balance sheet in balance.

true