Packet 8 videos/quiz

When a company purchases supplies on account

liabilities increase. (Purchasing on account means that the buyer does not pay cash at the time of purchase. Instead the buyer incurs an obligation (accounts payable) to pay cash in the future. When supplies are purchased on account assets (supplies) and liabilities (accounts payable) increase. The cash flow associated with the purchase of supplies is an operating activity not an investing activity.)

Which of the following most accurately depicts the steps in an accounting cycle?

Record transaction data → Adjust accounts → Prepare Statements →Close temporary accounts (Transaction data are recorded in accounts during the accounting period. However, some accounts are not updated during the accounting period. For example, used supplies are not recognized as an expense until the end of the accounting period. As a result, many accounts must be adjusted (updated) before the financial statements can be prepared. After the accounts have been adjusted, the financial statements are prepared. Finally, the temporary accounts (revenue, expense, and dividend accounts) are closed so that they begin the next accounting period with a zero balance.)

Which of the following is not one of the steps in the accounting cycle?

Record transactions, Adjust accounts, Prepare Statements (The four steps of the accounting cycle are to 1) record transactions, 2) adjust accounts, 3) prepare statements, and 4) close temporary accounts.)

The after closing balance in a revenue account will always be zero. This statement is

True (During the closing process the balance in a revenue account is transferred from the revenue account into the retained earnings account, thereby leaving an ending balance in the revenue account of zero. Since last period's ending balance becomes next period's beginning balance the beginning balance for a revenue account will also be zero.)

The ending balances for an accounting period become the beginning balances of the subsequent accounting period. This statement is

True (The ending balances in all permanent accounts will become the beginning balances for the following accounting period. For example, the ending balance in the cash account for Year 1 will become the beginning balance in the cash accounting for Year 2.)

On December 31, Year 1 Adam Company incurred $3,000 of accrued salary expense. The Year 2 recognition of the cash payment for these expenses

decreases the amount of liabilities shown on the Year 2 balance sheet. (Recognizing accrued salary expense in Year 1 caused liabilities (salaries payable) to increase. In Year 2 when cash is paid to settle the obligation, assets (cash) and liabilities (salaries payable) decrease. The expense recognition occurs in Year 1. Paying off the liability in Year 2 does not affect the recognition of salary expense.)

The matching principle states that

revenues should be recorded in the same period as the related expenses (The matching principle is the primary goal of accrual accounting. The idea behind the matching principle is that revenues should be matched with their related expenses in the accounting period in which they were incurred. For example, if we accrue for salaries payable at the end of an accounting period, we are matching the expense with the labor incurred for the period.)