Principles of Financial Accounting

The income statement approach for estimating bad debts uses a percentage of

credit sales

_________ is defined as the "cost of borrowing money." (Enter one word per blank)

interest

Which method of accounting requires recognizing bad debt expense when it is determined that the customer cannot pay?

Direct write-off method

A long-term liability:

is not due within the next year

Accounting

is the language of business

When viewing a company's accounting records, the terms "debit" and "credit" would typically be seen in which location?

journal

An aging schedule classifies accounts receivable based on

length of time outstanding

Any amount owed to a creditor is classified in the balance sheet as a/an

liabilities

Which inventory cost flow method approximates the physical flow of inventory items?

FIFO

In times of rising prices, ending inventory determined using the LIFO inventory assumption will be than ending inventory determined using the FIFO inventory assumption.

lower

When expenses are greater than revenues it is defined as

net loss

The statement of cash flows classifies items as

operating, investing, and financing.

Net sales revenue minus cost of goods sold is

Gross Profit

_______ is the amount recorded as a result of the sale of products or services to customers

Revenue

The purpose of a general ledger is to

provide in a single location the list of transactions affecting each account and the account's balance.

The amount of cash owed to a company by its customers from the sale of goods or services is referred to as

accounts receivable.

book value

an asset's original cost less accumulated depreciation

At year-end, companies that utilize accrual-based accounting systems complete the measurement process through

recording of adjusting entries

Revenues, expenses, and dividends are referred to as _____________ accounts.

temporary

Consider the following list of accounts:Accounts PayableCashPrepaid RentCommon StockSalaries PayableEquipmentSuppliesRent ExpenseHow many of these accounts have a normal credit balance?

three

If a company records a transaction before the bank records the same transaction, this is called a/an ______ difference.

timing

Two primary functions of financial accounting

to measure activities of a company and communicate those measurements to investors and other people for making decisions.

In a periodic inventory system, the entry at the time of a sale to record the cost of inventory sold includes a:

Not recorded at this time of the sale

KEY POINT SIX STEP MEASUREMENT

Six step measurement is the foundation of financial accounting. To understand this process, it is important to realize in step 2 that we analyze the effects of business transactions on the accounting equation. Then in step 3 we begin the process of translating those effects into the accounting records.

Which of the following are financial statements?

Statement of stockholders' equity; Income Statement; Balance Sheet

The receivables turnover ratio indicates

The number of times during a year that the average accounts receivables were collected.

The percentage-of-receivables method of estimating bad debt applies ____ to _____.

a single percentage; accounts receivable

Accounting

a system of maintaining records of a company's operations and communicating that information to decision makers

Monetary Unit Assumption

a unit or scale of measurement can be used to measure financial statement elements. EX: US= dollar; Europe=euro

To complete the measurement process, companies need to update balances of assets, liabilities, revenues and expenses for ___ entries.

adjusting

Accounts receivable should be classified as a(n)

asset

net change in cash

change in cash = operating cash flows + investing cash flows + financing cash flows

Cash disbursements that have been recorded in the company's accounting records but are not yet recorded by the bank are called

checks outstanding

dividends

distributions to stockholders, typically in the form of cash

When a person intentionally deceives another person or company for personal gain, this is referred to as . (Enter one word per blank)

fraud

Under the allowance method, companies estimate _____ uncollectible amounts and report those estimates in the _____ year.

future; current

going concern assumption

in the absence of information to the contrary, a business entity will continue to operate indefinitely Provides justification for measuring many assets based on their original costs (known as the historical cost principle)

The expense that relates to notes payable and accumulates or accrues throughout the accounting period is referred to as ______________ expense.

interest

Accruals

involve cash flows occurring after the revenues and expenses are recognized.

The asset that is most susceptible to employee fraud is

cash

Adam Corporation uses the cash-basis of accounting. Adam Corporation should record expenses when:

paid

A(n) _______ is a cost of doing business that is necessary to produce _______.

expense; revenue

Klein Corporation's retained earnings account showed a balance of $200 at 1/1/18. During the year, the company earned revenues of $5,000 and incurred expenses of $3,000. Dividends declared were $500. The amount of retained earnings reported on the 12/31/18 balance sheet will be

$1,700

Freedom from error

reported amounts reflect the best available info

A company is most likely to utilize the specific identification method if its inventory consists of:

All of the other answers are reasons to utilize the specific identification method.

Which financial statement reports revenues and expenses?

Income statement

Which of the following statements is correct regarding the adjusting entry to record interest accrued on a note payable?

Interest on the note payable is classified as an expense since it is a cost of borrowing.

The income statement approach for estimating bad debts focuses on

current year's credit sales.

Generally Accepted Accounting Principles (GAAP)

the rules of financial accounting

External Transactions

transactions the firm conducts with a separate economic entity

On January 1, Gucci Brothers Inc. started the year with a $692,000 balance in Retained Earnings and a $603,000 balance in common stock. During the year, the company reported net income of $108,000, paid a dividend of $14,600, and issued more common stock for $24,000. What is total stockholders' equity at the end of the year?

$1,412,400

Use the following appropriate amounts to calculate net income: Revenues, $11,100; Liabilities, $3,600; Expenses, $4,600; Assets, $18,800; Dividends, $1,800.

$6,500

The definition of inventory includes which of the following items?

1) Items held for resale2) Items currenlty in production for future sale3) Items used currenlty in the productions of goods to be sold

A company reports the following information for the year: Net credit sales$110,000Average accounts receivable 16,000Cash collections on credit sales 94,000 What is the company's receivables turnover ratio? (Round your answer to 1 decimal place.)

6.9

Using the accounting equation, stockholders' claims on the resources of the corporation can be expressed as

Assets - Liabilities.

Because prices change over time, costs reported for these accounts tend to differ among inventory cost methods.

COGS; Inventory

Shriver Corp. borrows $25,000 from a bank and signs a two-year promissory note. What accounts will be affected by this transaction and what is the effect?

Cash increases Notes payable increases.

When adjusting the company's cash account balance in a bank reconciliation, which item must be added to the cash account balance?

Collections of funds by the bank

Which of the following appear(s) on the balance sheet?

Common stock; Accounts receivable; Utilities Payable

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest cost of goods sold?

FIFO

Which financial statement is typically prepared first?

Income statement

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest pretax income?

LIFO

Adjusting entries for accrued expenses ensure that liabilities are reported for all amounts ______ at the end of the accounting period.

Owed

The term "cooking the books" refers to:

Purposely providing misleading financial information to investors and creditors.

key point

adjusting entries are needed when cash flows or obligations occur before the revenue- or expense- related activity (prepayment) or when cash flows occur after the revenue- or expense-related activity (accrual).

A periodic inventory system measures cost of goods sold by

counting inventory at the end of the period.

Clover Corporation uses the perpetual inventory system. When Clover purchases inventory on account, the entry will include which of the following?

debit inventory

The primary components of net income are:

expenses and revenues

financing cash flows

include cash transactions with lenders, such as borrowing money and repaying debt, and with stockholders, such as issuing stock and paying dividends

Assets

resources of a company

A bank statement may not agree with the amount of cash recorded by the company in the cash account because of differences and errors.

timing

An income statement reports:

Expenses; Revenue; Net income or loss

______ is the price earned from selling goods or services to customers.

Revenue

Purchasing inventory on account:

increases liabilities increases assets

Accounting errors must be corrected

as soon as they are discovered.

Eve's Apples opened for business on January 1, 2021, and paid for two insurance policies effective that date. The liability policy was $52,200 for 18 months, and the crop damage policy was $14,400 for a two-year term. What was the balance in Eve's Prepaid Insurance account as of December 31, 2021?

$24,600

The journal entry to record bad debt expense includes: (Select all that apply.)

debit to bad debt expense credit to allowance for uncollectible accounts

Inventory records for Dunbar Incorporated revealed the following: DateTransactionNumberof UnitsUnitCostApr.1Beginning inventory 440 $2.41 Apr.20Purchase 430 2.77 Dunbar sold 620 units of inventory during the month. Ending inventory assuming FIFO would be: (Do not round your intermediate calculations. Round your answer to the nearest dollar amount.)

$602

Sole Proprietorship

A business owned by one person

Which of the following statements describes the effect that adjusting entries may have on liabilities?

Adjusting entries increase liabilities for the amount of any accrued and unpaid expenses at the end of the period.

The closing entry for expense accounts involves the following journal entry.

Debit - Retained earnings Credit - Expenses

The first step for analyzing the effect of transactions is:

Determine one account in the accounting equation that will increase or decrease

measuring business activities and reporting those measurements to external parties is the function of _____ accounting.

Financial

Frosty Inc. has the following balances on December 31 prior to closing entries: Revenues$40,700 Retained Earnings, Jan. 1 9,800 Cash 8,100 Expenses 23,700 Accounts Payable 3,600 Dividends 3,000 Supplies 19,300 Based upon the balances above, what net adjustment would be made to Retained Earnings due to closing entries?

Increase of $14,000

Which of the following best describes revenue?

Sales of goods and services to a customer

International Financial Reporting Standards (IFRS)

The standards being developed and promoted by the International Accounting Standards Board.

A trial balance is a list of all accounts and their balances showing debits equals credits. A balance sheet presents assets, liabilities, and stockholders' equity. PARTICULAR DATE

True

True or False: The accounting equation is: Assets= Liabilities + Stockholders' equity.

True

The account "Allowance for Uncollectible Accounts" is classified as

a contra asset to accounts receivable.

A trade discount is

a percentage reduction from list price.

When a company performs services for a customer, and the customer agrees to pay for the services at a later date, the transaction is recorded in which account?

accounts receivable

contra account

an account with a balance that is opposite, or "contra", to that of its related accounts. reduce the asset indirectly by crediting an account called Accumulated Depreciation. Another common name for book value is carrying value because this is the amount the asset is "carried" in the books. The normal balance in the Accumulated Depreciation contra asset account is a credit, which is opposite to the normal debit balance in an asset account.

Resources owned by a company are called

assets

Expenses

costs of providing products and services and other business activities during the current period

Roland Corporation borrows $10,000 from the bank by signing a promissory note. Recording this transaction will include:

credit to notes payable debit to cash

Ming Corporation pays its employees $4,000 in salaries for the current period. Recording the payment of salaries would include a

debit to salary expense

In the closing process, ______ are zeroed out by crediting each account and ______ are zeroed out by debiting each account.

expenses and dividends; revenues

Which of the following includes the list of transactions affecting each individual account and the account's balance?

ledger

The two primary functions of financial accounting are to:

measure business activities; communicate measurements to external parties.

The accumulated net income earned since the inception of the corporation and not yet paid to shareholders is referred to as _________ ____________ (two words)

retained earnings

Operating Cycle

the average time it takes to provide a service to a customer and then collect that customer's cash.

Expenses

the costs of doing business that are necessary to produce revenue

Which of the following are stockholder equity accounts?

Common stock Retained earnings

Rawlings Corp. borrows $3,000 on a note payable from Third National Bank. Which of the following is used to record this transaction?

Debit cash $3,000; credit note payable $3,000.

PrimeFlix sells one-year online subscriptions for viewing classic movies. Customers are required to pay for the subscription at the beginning of the subscription period. On April 1, 2021, total sales of one-year subscriptions are $12,000. What is the adjusted balance of Deferred Revenue on December 31, 2021?

$3000 Explanation $12,000 (April 1) − $9,000 (year-end adjustment)* = $3,000.* $12,000 × 9 months / 12 months = $9,000.

In the statement of stockholders' equity, the balance of Retained Earnings increased by $32,000. The company declared a dividend of $10,000 during the year. What was the net income for the year?

$42000 Explanation Increase in Retained Earnings ($32,000) = Net Income − Dividends ($10,000)

The following information pertains to Lightning Inc., at the end of December: Credit Sales$20,000 Accounts Payable 10,000 Accounts Receivable 8,500 Allowance for Uncollectible Accounts 400creditCash Sales 20,000 Lightning uses the aging method and estimates it will not collect 7% of accounts receivable not yet due, 11% of receivables up to 30 days past due, and 47% of receivables greater than 30 days past due. The accounts receivable balance of $8,500 consists of $5,500 not yet due, $1,700 up to 30 days past due, and $1,300 greater than 30 days past due. What is the appropriate amount of Bad Debt Expense?

(5500*.07)+(1700*.11)+(1300*.47) = 1183 1183-400(credit) =783

Adjusted trial balances

A list of all accounts and their balances after we have updated account balances for adjusting entries

Which method of accounting requires estimating bad debt expense and recording the expense in the same period as the related revenue?

Allowance method

Revenues

Amounts earned from selling products or services to customers.

Pearl Corporation pays employee salaries of $5,000 for the current period. Recording this transaction will include which of the following?

Credit cash debit salary expense

Joyce Corp. uses the percentage-of-receivables method to account for bad debt expense. Joyce determines that a customer account of $20,000 should be written off as uncollectible. The write off of the account will include which of the following entries?

Credit to Accounts ReceivableDebit to allowance for Uncollected accounts

International Accounting Standards Board (IASB)

An international accounting standard-setting body responsible for the convergence of accounting standards worldwide.

Which of the following is the accounting equation?

Assets = Liabilities + Owner's Equity

Which financial statement best reveals to investors and creditors information about a company's debt?

Balance Sheet

When the company pays stockholders a dividend, what is the effect on the accounting equation for that company?

Decrease assets and decrease stockholders' equity.

The allowance method is required by __________ . (Enter one word or abbreviation per blank)

GAAP

The body of rules and procedures that guide the measurement and communication of financial accounting information is known as

Generally Accepted Accounting Principles (GAAP)

Partnership

a business owned by two or more people

A journal provides a

a chronological record of all transactions affecting a firm

The adjusting entry for an accrued revenue always includes: (Select all that apply.)

a debit to an asset account a credit to a revenue account

In an adjusting entry for expenses incurred but not yet paid ______.

a liability is increasing since cash will be paid in the future due to the expense incurred

chart of accounts

a list of all account names used to record transactions of a company

An informal credit arrangement with a customer for payment to be received after the sale is classified as a(n)

account receivable

The two main functions of are to (1) measure business activities and (2) to communicate those measurements to investors and creditors.

accounting

The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the method of accounts receivable. (Enter only one word.)

aging

Liabilities

are the amounts owed to creditors

Accounts Receivable are

assets

Resources of a company are referred to as

assets

A customer account that is not expected to be collected is referred to as a(n) _______ debt. (Enter one word per blank)

bad

A customer account that is not expected to be collected is referred to as a(n) debt. (Enter one word per blank)

bad

The cost of estimated accounts receivable that will not be collected is referred to as ____ _____ expense.

bad debt

The estimated expense for accounts that may not be collected is referred to as

bad debt expense.

Stockholders' Equity accounts

common stock and retained earnings

Which financial statement is typically prepared first?

Income statement.

Patents, copyrights, franchises, and trademarks are examples of:

Intangible assets.

One of the major differences between service companies and retail or manufacturing companies is that retailers and manufacturers must account for:

Inventory

______ revenue arises when a business receives cash in one period, but does not provide all of the related goods or services until a later period. (Enter only one word.)

deferred

Cash receipts that have been recorded in the company's accounting records but are not yet recorded by the bank are

deposits outstanding

A(n) is a mistake in accounting, which can be intentional or unintentional. (Enter one word per blank)

error

cost constraint

financial accounting information is provided only when the benefits of doing so exceed the costs

Which of these is a long-term liability?

mortgage payable due in 20 years

Gross Profit

net sales - cost of goods sold

A formal, signed credit agreement between a lender and a borrower is called a(n) _____ by the lender.

note receivable

Purchase returns are recorded in a separate contra purchase account in a ______ inventory system.

periodic

Ursula Company's bookkeeper records revenue relating to a customer transaction. This indicates that the company

provided goods or services to a customer.

The _____ ratio shows the number of times during a year that the average receivable balance is collected.

receivables turnover

Preparation of a bank _____ helps maintain control of cash accounts.

reconcilation

Internal control consists of plans to (Select all that apply.)

safeguard company assets. provide accurate and reliable accounting information.

Which of the following are errors in accounting for cash?

Recording a check for $168 for $186 in the cash account. The bank processing a check for $210 as $120. Recording a cash collection of $4,000 but depositing $3,000 into the bank.

Margot, a prospective investor, wants to know how much cash Ziegler Inc. has on December 31. Margot can find the information in Ziegler's: (Select all that apply.)

statement of cash flowsbalance sheet

Stockholders' claims to the company's resources are referred to as:

stockholders' equity

Common Mistake

students sometimes mistakenly include the Cash account in an adjusting entry. Typical adjusting entries will never include the Cash account. Note that every adjusting entry includes both an income statement account and a balance sheet account.

After the adjusting entries have been completed, the adjusted balance in the Deferred Revenue account represents:

the amount of the sales or services still owed to the customer.

Accounts receivable are assets which represent

the amounts owed by customers.

For accounts receivable, the longer an account is outstanding,

the more likely it will prove uncollectible.

depreciation

the process of allocating the cost of a long-term asset to expense over its useful life.

Retained earnings represents

the total net income earned over the life of the company that has not been distributed as dividends.

Consistency

the use of similar accounting procedures either over time for the same company or across companies at the same point in time. Consistency of accounting procedures is a means of achieving that goal.

The allowance method estimates

uncollectible accounts

Understandability

users must understand the information within the context of the decision they are making.

The post-closing trial balance helps to verify that: (Select all that apply.)

we prepared and posted closing entries correctly the accounts are ready for next period's transactions

When the direct write-off method is used, an entry for bad debt expense is required

when the account receivable is determined to be uncollectible.

FOB shipping point means title to the goods passes

when they are shipped.

FOB destination means title to the goods passes

when they arrive at the destination.

Closing entries move the balances from the ______ accounts into the Retained Earnings account.

Temporary

What would cause a bank statement not to agree with the cash balance in the accounting records?

The bank made an error in recording a deposit made by the company. Deposits outstanding that have been recorded on the company's records, but not on the bank's. The bank paid interest that the company has not recorded. The company made an error in recording a deposit.

The formula to compute the receivables turnover ratio is net credit sales divided by

average accounts receivable.

In times of rising prices, cost of goods sold determined using the LIFO inventory assumption typically will be than cost of goods sold determined using the FIFO inventory assumption.

higher, greater, more, or larger

Costs of assets acquired in one period that will be recorded as expense in a future period are referred to as ______ and are initially recorded as _____.

prepaid expenses; assets

If a company uses the perpetual inventory system, how many entries are made when a sale occurs?

2

The closing entry for expenses includes:

A debit to Retained Earnings and a credit to all expense accounts.

Childers Service Company provides services to customers totaling $2,900, for which it billed the customers. How would the transaction be recorded?

Debit Accounts Receivable $2,900, credit Service Revenue $2,900

A company received a bill for newspaper advertising services, $450. The bill will be paid in 10 days. How would the transaction be recorded today?

Debit Advertising Expense $450, credit Accounts Payable $450

A formal credit arrangement between a creditor and debtor is called a(n)

Note receivable

Green Corp. uses a periodic inventory system. Cost of beginning inventory is $1,000. During the year, Green purchases inventory costing $11,000. The related freight is $100. Based on a physical count, Green determines that inventory costing $1,800 is still on hand. Green Corporation's cost of goods available for sale is:

$12,100

In a bank reconciliation, which of the following will require a journal entry by the company?

Adjustments to the balance per books for items discovered on the bank reconciliation that were not yet recorded on the books

Key Point

After each transaction, the accounting equation must always remain in balance. In other words, assets must always equal liabilities plus stockholders' equity.

The disclosure that shows the difference in the cost of inventory between LIFO and FIFO is referred to as the

LIFO reserve

Based on the introductory section of this chapter, which course is most like financial accounting?

Foreign language

The difference between LIFO and FIFO disclosed in the notes to the financial statements of a company currently utilizing the LIFO cost flow assumption is sometimes referred to as the

LIFO reserve or difference

The cumulative difference between reporting inventory at LIFO rather than FIFO is commonly referred to as the

LIFO reserve

Creditors' claims to a corporation's resources are referred to as:

Liabilities

A company reports the following in its income statement: Total revenues of $500,000 and total expenses of $300,000. Which of the following is true?

Net income equals $200,000.

If a company records cash received for services to be provided in the future with a debit to Cash and a credit to Service Revenue, how will this error affect net income for the current period?

Net income will be too high.

Which of the following appear on the statement of stockholders' equity? (Select all that apply.)

Net income; Beginning balance of retained earnings; Dividends

Which of these would be found on a company's balance sheet? (Select all that apply.)

Notes payable; Equipment; Accounts receivable

Which of the following pre-payments requires an adjusting entry at the end of the year?

On November 1, the company pays rent for the next six months.

On May 1, a company purchased inventory costing $2,000 on account with terms 2/10, n/30. On May 18, the company pays for this inventory and records which of the following using a perpetual inventory system? 1.Accounts Payable2,000 Cash 2,0002.Accounts Payable1,960 Inventory40 Cash 2,0003.Accounts Payable2,000 Inventory 40 Cash 1,9604.Cash2,000 Accounts Payable 2,000

Option 1 Acct Payable 2000 Cash 2000

Using a perpetual inventory system, how should a company record the sale of inventory costing $510 for $980 on account? 1.Inventory510 Cost of Goods Sold 510 Sales Revenue980 Accounts Receivable 9802.Accounts Receivable980 Sales Revenue 980 Cost of Goods Sold510 Inventory 5103.Inventory510 Gain470 Sales Revenue 9804.Accounts Receivable980 Sales Revenues 510 Gain 470

Option 2

On April 1, a company purchased two units of inventory, A and B. The cost of unit A was $640, and the cost of unit B was $555. On April 30, the company had not sold the inventory. The net realizable value of unit A was now $665 while the net realizable value of unit B was $465. The adjustment associated with the lower of cost and net realizable value on April 30 will be: 1.Cost of Goods Sold65 Inventory 652.Inventory65 Cost of Goods Sold 653.Cost of Goods Sold90 Inventory 904.Inventory90 Cost of Goods Sold 90

Option 3

The primary distinction between operating activities and nonoperating activities in a multiple-step income statement is whether the activity is:

Part of primary business operations

Match each inventory system with the method for recognizing freight-in on purchases.

Periodic inventory matches separate freight-in account is used. A separate freight-in account is used. Perpetual inventory Freight is added directly to the inventory account. Freight is added directly to the inventory account.

One of the most important internal controls for cash is the bank .

Reconciliation

Which of the following steps are necessary to reconcile the bank balance and the cash account balance.

Record items that reconcile the company's cash balance Adjust bank's cash balance Adjust the company's cash balance

Accrual Basis Accounting

Record revenues when goods and services are provided to customers, and record expenses for the costs used to provide those goods and services to customers. We record revenues in the period that goods and services are provided to customers. We record expenses in the period that costs are used to provide those goods and services to customers. Revenues - expenses provides a measure - net income - that represents the success of the company in generating profits for its owners during the period.

Which of the following describes the purpose(s) of closing entries?

Reduce the balances of the temporary accounts to zero to prepare them for measuring activity in the next period.

Temporary accounts include ______, ______, and ______.

Revenues,Expenses,dividends

_____ are recorded in the period that goods and services are provided to customers and _____ are recorded in the period that costs are incurred while providing those goods and services.

Revenues; Expenses

The Public Company Accounting Reform and Investor Protection Act of 2002 is known as the

Sarbanes-Oxley Act.

Smith's operating cash flows in millions were $100, $150, $80 during the past three years; while Jones' operating cash flows in millions were $105, $115, $110 during the same period. From the perspective of operating cash flows, which company would likely be perceived as riskier?

Smith

Which if the following item(s) is (are) assets?

Supplies; Inventory

The ending balance of Retained Earnings can best be described as:

The amount of net income over the life of the company not paid to owners in the form of dividends.

What would cause a bank statement not to agree with the cash balance in the accounting records?

The bank made an error in recording a deposit made by the company. The company made an error in recording a deposit. The bank paid interest that the company has not recorded. Deposits outstanding that have been recorded on the company's records, but not on the bank's.

A bank reconciliation is a procedure used to determine if the cash balance in the bank statement equals

The ending balance of cash in the accounting records

A company reports the following in its balance sheet: Total assets of $800,000 and total liabilities of $700,000. Which of the following is true?

Total stockholders' equity equals $100,000.

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 Auditors play a major role in investors' and creditors' decisions by adding credibility to a company's financial statements

Common Mistake

When a cash prepayment has occurred, students sometimes confuse the initial cash entry (the prepayment) with the adjusting entry that follows. The cash flow is not the adjusting entry. The adjusting entry is to recognize the expense that has occurred after the cash flow.

Ethics

a code or moral system that provides criteria for evaluating right and wrong behavior.

Verifiability

a consensus among different measures.

account

a record of the business activities related to a particular item.

Adjusting entries: (Select all that apply.)

are needed before financial statement preparation. update the accounts to their proper balances.

At the beginning of the accounting period, the balances of temporary accounts

are zero

prepaid expenses

arise when a company pays cash (or has an obligation to pay cash) to acquire an asset that is not used until a later period. in the period these assets are used, an adjusting entry is needed to (1) decrease the asset's balance to its remaining (unused) amount and (2) recognize an expense for the cost of asset used.

With the direct write-off method, the journal entry to write-off an uncollectible account includes a debit to _____ and a credit to _____.

bad debt expense; accounts receivable

Which financial statement best reveals to investors and creditors information about a company's debt?

balance sheet

Which of the following financial statements shows a firm's financial position on a particular date?

balance sheet

which financial statement shows that a company's resources equal claims to those resources?

balance sheet

Prepaid rent appears in the ______.

balance sheet because it is an asset

classified balance sheet:

balance sheet that groups a company's assets into current assets and long-term assets and that separates liabilities into current liabilities and long-term liabilities.

A classified balance sheet ______.

groups asset and liabilities into current and long-term categories

statement of stockholders' equity

summarizes the changes in each stockholders' equity account.

Ethical Decision Making

1. Understand the ethical decision you face. 2. Specify the options for alternative courses of action. 3. Identify the impact of each option on the stakeholders. 4. Make a decision.

Financial accounting serves which primary functions?

BOTH measures business activities Communicates business activities to interested parties.

Which of the following appear on the statement of stockholders' equity?

Beginning balance of retained earnings; Net income; Dividends

Accounting Equation

Equation that shows a company's resources (assets) equal creditors' and owners' claims to those resources (liabilities and stockholders' equity) Assets = Liabilities + Stockholders' equity

underlines

In a financial statement, a single underline generally represents a subtotal (in this case, total expenses), while a double underline indicates a final total (in this case, revenues minus expenses, or net income).

What are the two fundamental qualitative characteristics identified by the Financial Accounting Standards Board's (FASB) conceptual framework?

Relevance and faithful representation

Which of the following items are reported on the balance sheet as liabilities?

Wages and salaries payable; notes payable

Balance Sheet

a financial statement that presents the financial position of the company on a particular date Assets = Liabilities + stockholders' equity

statement of stockholders' equity

a financial statement that summarizes the changes in stockholders' equity over an interval of time stockholders' equity = common stock + retained earnings

The basic ____ _____ is referred to as the fundamental model of business valuation

accounting equation

the fundamental model of business valuation is commonly referred to as the

accounting equation

retained earnings

cumulative amount of net income earned over the life of the company that has been kept (retained) in the business rather than distributed to stockholders as dividends (not retained) retained earning = all net income - all dividends

Net Income

difference between revenues and expenses revenue - expenses = net income

A(n) ______ is a distribution of net income to the stockholders of a corporation

dividends

A(n) is a distribution of net income to the stockholders of a corporation. (Enter one word per blank)

dividends

Timeliness

information being available to users early enough to allow them to use it in the decision process

Stockholders' Equity

owners' clamis to resources, which equal total assets minus total liabilities

Sales of products or services are referred to as

revenues

Based on the introductory section of this chapter, financial accounting can also be described as a way to

tell the financial story of a company

Objectives of Financial Accounting

provide information that: is useful to investors and creditors in making decisions. Helps to predict cash flows. Tells about the economic resources, claims to resources, and changes in resources.

Comparability

the ability of users to see similarities and differences between two different business activities Also refers to the ability of users to see similarities and differences in the same company over time. Comparability of financial information is the overriding goal.

double taxation

the company first pays corporate income taxes on it earns and stockholders then pay personal income taxes when the company distributes that income as dividends to them.

Periodicity Assumption

the economic life of an enterprise (presumed to be indefinite) can be divided into artificial time periods for financial reporting

Inventory records for Dunbar Incorporated revealed the following: DateTransactionNumberof UnitsUnitCostApr.1Beginning inventory 410 $2.14 Apr.20Purchase 320 2.66 Dunbar sold 610 units of inventory during the month. Ending inventory assuming LIFO would be: (Do not round your intermediate calculations. Round your answer to the nearest dollar amount.)

$257

Consider the following information pertaining to OldWest's inventory: ProductQuantityCostNet Realizable Value Revolvers16$120 $150 Spurs23 27 22 Hats12 56 40 At what amount should OldWest report its inventory

$2906

DW has an ending Retained Earnings balance of $51,700. If during the year DW paid dividends of $4,800 and had net income of $21,500, then what was the beginning Retained Earnings balance?

$35000 Explanation: Beginning Retained Earnings + Net Income ($21,500) − Dividends ($4,800) = Ending Retained Earnings ($51,700)

On December 31, 2021, Larry's Used Cars had balances in Accounts Receivable and Allowance for Uncollectible Accounts of $67,000 and $775, respectively. During 2022, Larry's wrote off $2,325 in accounts receivable and determined that there should be an allowance for uncollectible accounts of $5,200 at December 31, 2022. Bad debt expense for 2022 would be:

$6750

On February 1, 2021, Miter Corp. lends cash and accepts a $2,300 note receivable that offers 6% interest and is due in six months. How much interest revenue will Miter Corp. report during 2021? (Do not round intermediate calculations.)

$69

In what order are the following financial statements prepared: (1) balance sheet, (2) income statement, and (3) statement of stockholders' equity

2,3,1

In what order are the following financial statements prepared: (1) balance sheet, (2) income statement, and (3) statement of stockholders' equity?

2,3,1

At December 31, Gill Co. reported accounts receivable of $232,000 and an allowance for uncollectible accounts of $1,300 (debit) before any adjustments. An analysis of accounts receivable suggests that the allowance for uncollectible accounts should be 5% of accounts receivable. The amount of the adjustment for uncollectible accounts would be:

232000*.05=11600 + 1300=12900

At December 31, Gill Co. reported accounts receivable of $262,000 and an allowance for uncollectible accounts of $700 (credit) before any adjustments. An analysis of accounts receivable suggests that the allowance for uncollectible accounts should be 5% of accounts receivable. The amount of the adjustment for uncollectible accounts would be:

262000 * .05=13100 -700= 12400

retained earnings

3 components: revenues, expenses, and dividends

Consider the adjustment process at the end of the accounting period. Record the adjusting entries in the journal. Prepare an adjusted trial balance to check the equality of the debits and credits. Determine the accounts requiring adjustment, using the unadjusted trial balance. Post the adjusting entries to the general ledger. Place the actions above in the proper order.

3,1,4,2

Crimson Inc. recorded credit sales of $761,000, of which $570,000 is not yet due, $130,000 is past due for up to 180 days, and $61,000 is past due for more than 180 days. Under the aging of receivables method, Crimson Inc. expects it will not collect 4% of the amount not yet due, 13% of the amount past due for up to 180 days, and 20% of the amount past due for more than 180 days. The allowance account had a debit balance of $4,800 before adjustment. After adjusting for bad debt expense, what is the ending balance of the allowance account?

570,000*.04=22,800 130,000*.13=16,900 61,000*.2=12,200 ADD $51,900

Income Statement

A financial statement that reports a company's revenues and expenses and resulting net income or net loss for a specific period of time. AKA: statement of operations, statement of income, and profit and loss statement

Liability Accounts

Accounts Payable, Salaries Payable, Utilities Payable, and Taxes Payable Each of these accounts keeps a record of amounts owed as a result of the related transactions

List the steps for a bank reconciliation in the correct order. (Drag the items to put them in the proper order with the first step on top.)

Adjust bank's cash balance Adjust the company's cash balance Update the company's Cash account by recording items identified in the previous step

How do adjusting entries for accrued expenses affect liabilities and expenses?

Adjusting entries for accrued expenses can increase liabilities and increase expenses.

Key Point

An adjusted trial balance is a list of all accounts and their balances at a particular date, after we have updated account balances for adjusting entries.

A classified balance sheet shows subtotals for current ______ and current _________ . (Enter one word per blank)

Assets liabilities

The balance sheet depicts which of the following equations?

Assets = liabilities + stockholders' equity.

Where is inventory reported in the financial statements?

Balance sheet as a current asset

FIFO is considered a balance-sheet approach for reporting inventory because it:

Better approximates the value of ending inventory.

Oswego Clay Pipe Company provides services of $46,000 to Southeast Water District #45 on April 12 of the current year with terms 1/15, n/60. What would Oswego record on June 10, assuming the customer made the correct payment on that date? A.Cash46,000 Accounts Receivable 45,540 Discounts Receivable 460B.Cash46,000 Accounts Receivable 45,540 Interest Revenue 460C.Cash46,000 Accounts Receivable 46,000D.Cash46,460 Accounts Receivable 46,000 Interest Revenue 460

C Cash$46,000 Accounts receivable 46000

Pluto Inc. borrows $3,000 from Second National Bank by signing a promissory note. Recording this transaction will include which of the following?

Credit note payable debit cash

Clement Company paid an account payable related to a previous utility bill of $970. This transaction should be recorded as follows on the payment date:

Debit Accounts Payable $970, credit Cash $970.

On July 7, Saints Incorporated received $10,800 in cash from a customer for services to be provided on October 10. Which of the following describes how the transaction should be recorded on July 7?

Debit Cash $10,800, credit Deferred Revenue $10,800

On July 31, ALOE Inc. received $5,000 cash from a customer who previously purchased ALOE's products on account. What entry should ALOE Inc. record at the time it receives cash?

Debit Cash, $5,000; credit Accounts Receivable, $5,000.

When a company pays $3,400 dividends to its stockholders, the transaction should be recorded as:

Debit Dividends; Credit Cash.

Public Company Accounting Oversight Board (PCAOB)

Ensure that auditors follow a strict set of guidelines when conducting their audits of public companies' financial statements.

Independent auditors express an opinion on the:

Extent to which financial statements are in compliance with GAAP.

The inventory cost flow assumption typically approximates the actual physical flow of inventory items of most companies.

FIFO

Which inventory cost flow assumption generally results in the highest reported amount for cost of goods sold when inventory costs are falling?

FIFO

The two functions of financial accounting are to measure business activities and prepare tax returns.

False

True or false: A balance sheet is a list of all accounts and their balances showing that debits equals credits.

False

Financial accounting and reporting standards in the United States are established primarily by the

Financial Accounting Standards Board (FASB)

Financial accounting and reporting standards in the United States are established primarily by the:

Financial Accounting Standards Board.

The shipping term FOB stands for

Free On Board

Which of the following are financial statements? (Select all that apply.)

Income statement; Statement of stockholders' equity;Balance sheet

Accountants are responsible for measuring various operating, investing and financing activities. Which of the following correctly matches the activity with its type?

Investing - purchasing land.

Why does financial accounting have a positive impact on our society?

It allows investors and creditors to redirect their resources to successful companies and away from unsuccessful companies.

A company received an order from a customer in June for services to be provided. Those services were provided in July, and the customer paid the full amount in August. According to the revenue recognition principle, in which month should the company record revenue?

July

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest ending inventory?

LIFO

Which of the following items will require a journal entry following a bank reconciliation? (Select all that apply.)

NSF Checks & Notes Collected by the bank

What is the formula for the receivables turnover ratio?

Net credit sales divided by average accounts receivable (net).

If a company uses the periodic inventory system, how many entries are made when a sale occurs?

One

Analyze the following t-accounts. What is the transaction that required the posting of item (7)?

Perform services for customers on account

Revenue Recognition Principle

Record revenue in the period in which we provide goods and services to customers. Revenue is recognized in the period in which goods and services are provided to customers, not necessarily in the period in which we receive cash.

Which of the following line items appear in an income statement?

Salaries Expense Sales Revenue

Which of the following accounts has a debit balance?

Salaries Expense.

Which of the following best describes revenue?

Sales of goods and services to a customer.

The four financial statements published to provide information to external users include which of the following?

Statement of cash flows; statement of stockholders' equity; income statement; balance sheet

The ending balance in cash is reported in which financial statement(s)?

The balance sheet and statement of cash flows.

Which one of the following statements regarding financial reports is correct?

The statement of stockholders' equity updates the balances of common stock and retained earnings for related transactions during the year.

Financing cash flows in the statement of cash flows would include which of the following?

This is the correct answer!! Paying dividends to stockholders.

Financial accounting objectives do not include providing information:

To determine market values, assess profit potential, and evaluate management.

Which of the following represent reasons why managers closely monitor inventory levels?

To ensure that sufficient units are available. To minimize costs of inventory write-downs due to obsolete inventory.

Key Point

We post adjusting entries to the general ledger to update the account balances.

The percentage-of-receivables approach to measuring bad debt expense is referred to as _____ method.

a balance sheet

Mangerial Accounting

accounting deals with the concepts and methods used to provide information to an organization's internal users

Relevance

accounting information that possesses confirmatory value and/or predictive value, and that is material.

Managerial Accounting

accounting used to provide information and analyses to managers inside the organization to assist them in decision making

The amount of cash owed to a company by its customers from the sale of goods or services on account is commonly referred to as:

accounts receivable

The allowance for uncollectible accounts is a contra account to

accounts receivable.

In a perpetual inventory system, freight costs on purchases are

added to the inventory account

Key Point

adjusting entries are a necessary part of accrual-basis accounting. They are used to record changes in assets and liabilities (and their related revenues and expenses) that have occurred during the period but have not yet been recorded by the end of the period.

Economic Entity Assumption

all economic events with a particular economic entity can be identified the distinction between the economic activities of owners and those of the company.

To record an estimate for future bad debts at the end of the period, an adjustment would be made with a credit to

allowance for uncollectible accounts.

A company that expects that some of its customers will not pay the agreed upon sales price must utilize the

allowance method

Revenue in the income statement for the year ended December 31, 2018 equals the ______.

amount earned by selling goods or services to customers during 2018

In recording an accrual adjusting entry to account for revenues earned but not yet collected, ______.

an asset is increased since cash will be collected at a later date

Corporation

an entity that is legally separate from its owners

cause-and-effect relationship

any costs used to help generate revenues are recorded as expenses in the same period as those revenues.

In a periodic inventory system, purchase returns

are recorded in a separate contra purchases account

Norbert Inc. delivered goods and services during December. Payment is expected during the first week of January. The related adjusting entry should consist of a debit to a(n) ____ account and a credit to a(n) _____ account.

asset; revenue

Using the accounting equation, stockholders' claims on the resources of the corporation can be expressed as

assets - liabilities

Meller purchases inventory on account. As a results, Meller's

assets will increase

The financial statement that displays a firm's financial position on a particular date is the . (Enter one word per blank)

balance sheet

Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to

be more accurate

A check that is NSF (nonsufficient funds) is a check that

cannot be paid because the account does not contain enough funds.

Reporting revenues only when cash is received and expenses only when cash is paid is called the ________ basis of accounting. (Enter one word per blank.)

cash

The asset that is most easily stolen and susceptible to fraud is . (Enter one word per blank)

cash

Which of the following is a balance sheet item?

cash

Slim purchases equipment with cash. The accounts affected are

cash and equipment.

Operating Cash Flow

cash receipts and cash payments for transactions involving revenues and expenses during the period.

investing cash flows

cash transactions involving purchase and sale of long-term assets

The entries that transfer the balances of all temporary accounts to retained earnings are referred to as

closing entries

The two components of stockholders' equity are

common stock and retained earnings

Major differences between service companies and retail or manufacturing companies is that retailers and manufacturers must account for (Select all that apply.)

cost of goods sold and inventory

Andy records an adjusting entry for deferred revenue. Andy should: (Select all that apply.)

credit a revenue account debit a liability account

Roslin Corp. provides services to customers on account for $5,000. Recording this transaction will include a

credit to revenues debit to accounts receivable.

Turkey Corp. provides services to customers on account for $3,000. Recording this transaction will include a

credit to revenues.

inventory is classified as

current asset

A disadvantage to selling on account is

customers do not always pay.

In a double-entry accounting system, a(n) ____________ represents the left side of the account.

debit

Shannon Corp. uses the aging method to account for bad debt expense. Shannon determines that a customer account of $10,000 should be written off as uncollectible. The write off of the account will include

debit Allowance for Uncollectible Accounts.

When a company records an adjusting entry for services previously recorded as Deferred Revenue, it records a:

debit to Deferred Revenue credit to Revenue

Lindell sells $100 of goods to a customer. The customer pays with a personal check. Recording this transaction will include a

debit to cash

The post-closing trial balance checks that total _________ equal total _________ at the end of the period.

debits credits

When a company finds out that an NSF check was written to the company, the company must ______ the balance in the cash account.

decrease

Norma Inc. uses the perpetual inventory system. When the company records a sale, it should make entries to:

decrease an asset and increase an expense increase an asset and increase revenue

Ophelia Inc. just learned that Patton Inc., one of its customers with an outstanding accounts receivable balance, filed for bankruptcy. Assuming that the company utilizes the allowance method, Ophelia should record a(n):

decrease in Accounts Receivable

Supplies should be ______ and Supplies Expense should be ______ for the cost of supplies used up during the period.

decreased; increased

______ is an allocation of the cost of buildings, vehicles, and equipment to expense over time as they are used. (Enter one word per blank.)

depreciation

The process of allocating the cost of an asset to expense over the useful life of the asset is called

depreciation.

The two types of control procedures are preventive and . (Enter one word per blank)

detective

Mark records a journal entry with a debit to Bad debt Expense and a credit to Accounts Receivable. Mark is utilizing the

direct write-off method

A trade discount is a reduction from the list price, which is used to: (Select all that apply.)

disguise real prices from competitors, give quantity discounts to customers, and change prices without publishing a new catalog

A distribution of net income to owners is called a(n)

dividend

Shareholders' equity arises primarily from amounts invested by shareholders and amounts ______.

earned by the corporation

Assumptions to support the existence of GAAP.

economic entity assumption, monetary unit assumption, periodicity assumption, going concern assumption

adjusting entries

entries at the end of the period used to update balances of revenues and expenses (and changes in their related assets and liabilities) that have occurred during the period but that we have not yet recorded.

Which of the following would be included (added or subtracted) in the calculation of retained earnings? (Select all that apply.)

expenses beginning balance retained earnings revenues dividends declared

The three classifications on the statement of cash flows are cash flows from (Select all that apply.)

financing activities. operating activities. investing activities.

The use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employer's resources is called occupational .

fraud

Accounting Cycle

full set of procedures used to accomplish the measurement/communication process of financial accounting

An adjusting entry is necessary to record interest expense at year-end because the interest:

has already been incurred

A primary purpose of adjusting entries is to record events that

have occurred but that have not yet been recorded.

Robert Skinner, an accountant, discovers an error in accounting for an inventory purchase. He should correct the error

immediately

asset accounts

include cash, supplies, and equipment

Gerald Corporation purchases inventory FOB shipping point. The shipping costs are $300. The shipping costs are

included in Gerald's inventory.

The financial statement that summarizes the profit-generating activities of a company during a particular period of time is the

income sheet

Which financial statement reports revenues and expenses?

income statement

In a LIFO inventory system, inventory costs shown in the balance sheet may be distorted because they may represent costs

incurred several years earlier.

Items held for sale in the normal course of business are referred to as

inventory

prepayments

involve cash flows occurring before the revenues and expenses are recognized.

Depreciation

is an estimate based on expected useful life and is an attempt to allocate the cost of the asset over its useful life. Does not necessarily represent market value (what the asset could be sold for in the market)

Companies extend credit to customers and sell goods on account because

it increases sales.

A debit is on the ______ side of the account.

left

A balance sheet lists the assets, ______ and stockholders' equity as of a specific date.

liabilities

amounts owed by the company are referred to as

liabilities

Deferred revenue is a(n) ______.

liability

An asset that can quickly be turned into cash has the characteristic of

liquidity

With respect to current assets, ________ refers to how quickly an asset can be converted to cash. (Enter only one word.)

liquidity

Resources owned by the company that will provide a benefit for more than one year are called:

long-term assets

In times of rising prices, ending inventory determined using the LIFO inventory assumption will be ________ than ending inventory determined using the FIFO inventory assumption.

lower

The ______ method of valuing inventory was developed to avoid reporting inventory at an amount that is ______ than the benefits it can provide.

lower of cost and net realizable value; greater

What type of company purchases raw materials and makes goods to sell?

manufacturers

Companies that produce the inventory they sell are referred to as . (Enter one word per blank)

manufactures

The specific identification method (select all that apply):

matches each unit of inventory with its actual cost; would be beneficial to a company that makes fine jewelry.

Neutrality

means to be unbiased, and this characteristic is highly related to the establishment of accounting standards.

Accountants

measure the activities of the company and communicate those measurements to others

When a sale occurs under the periodic inventory system, we record:

only the sale, but not the related cost of goods sold

Managers typically monitor inventory very closely to ensure that sufficient units are available for sale and to prevent inventory from becoming

outdated

Ronald Corporation purchases inventory with terms FOB destination. The shipping costs are $300. The shipping costs are

paid by the supplier.

The two sources of stockholders' equity are amounts_________

paid in from shareholders; earned by the corporation

Financial Statements

periodic reports published by the company for the purpose of providing information to external users

Freight-in costs are debited to Inventory in this inventory system:

perpetual only

A _______ inventory system updates the inventory account each time a sale or purchase is made, whereas a _______ inventory system calculates cost of goods sold and ending inventory at the end of the reporting period.

perpetual; periodic

Freight-in costs should be debited to the Inventory account under the inventory system and to a separate Freight-in account under the inventory system.

perpetual; periodic

The inventory system records all inventory-related transactions in the Inventory account (e.g. transportation, purchase returns and allowances, purchase discounts) and reduces inventory at the time of sale. The inventory system uses separate accounts for these items and records cost of goods sold at the end of the accounting period.

perpetual; periodic

Two types of control activities are

preventive and detective controls

limited liability

prevents stockholders from being held personally responsible for the financial obligations of the corporation

Cash Basis Accounting

record revenues at the time cash is received and expenses at the time cash is paid We record revenues at the time we receive cash. We record expenses at the time we pay cash. Under cash-basis accounting, the revenues and expenses are recorded ONLY at the time cash is exchanged. Cash-basis accounting is not part of generally accepted accounting principles (GAAP).

Undistributed profits that have accumulated in the company over time are called ______ earnings

retained

Undistributed profits that have accumulated in the company over time are called ________ earnings.

retained

Consistent with the ___________ recognition principle, companies record revenue at the time goods are provided to customers. (Enter only one word.)

revenue

Gershwin Wallcovering Inc. shipped the wrong shade of paint to a customer. The customer agreed to keep the paint upon being offered a 15% price reduction. The price reduction is an example of a:

sales allowance

Revenues are:

sales of goods or services to customers

When a customer returns a product for a refund, in which account is the entry recorded?

sales return

Wald Corporation's adjusted trial balance shows the following temporary accounts: service revenue: $20,000; salaries expense $8,000; insurance expense: $2,000; utilities expense: $3,000; interest expense $200; and depreciation expense: $1,400. As part of the the closing process, Wald should debitAikman Company paid dividends of $2,560, $0, $1,470 and $970 over the first four years of the company's existence, respectively. If Retained Earnings has an ending balance of $9,300 at the end of year four, what was the average annual amount of net income (loss) over the first four years for Aikman? (Round your answer to the nearest dollar amount.)

service revenue.

A petty cash fund is used for

small amounts of cash needed for low-cost items.

The inventory costing method that matches each unit of inventory with its actual cost is referred to as the _____ method.

specific identification

The post-closing trial balance helps to verify that: (Select all that apply.)

the accounts are ready for next period's transactions we prepared and posted closing entries correctly

Accruals

the opposite of prepayments. with accruals, the cash flow occurs after either the expense or the revenue is recorded.

Assume Company X is in its fifth year of operation. Analyze the following schedule. What conclusion can be drawn from the following schedule?

the target amount in allowance for uncollectible accounts is $25,500.

no adjustment necessary

these are transactions with owners and therefore do not involve the recognition of revenues or expenses. transactions in which we receive cash at the same time we record revenue or in which we pay cash at the same time we record an expense do not require adjusting entries.

Accounts receivable are typically classified as current assets because

they will be converted to cash within 1 year

A(n) difference in cash occurs when a company records a transaction either before or after the bank records the same transaction. (Enter only one word.)

timing

The direct write-off method is used when

uncollectible accounts are not anticipated or are immaterial

A customer account that is not expected to be collected is referred to as a bad debt or __________ account. (Enter one word per blank)

uncollectible, doubtful, or allowance

After the adjusting entries have been completed, the adjusted balance in the Supplies Expense account represents the cost of supplies:

used during the accounting period

Common mistake

when recording the interest payable on a borrowed amount, students sometimes mistakenly credit the liability associated with the principal amount (Notes Payable.) We record interest payable in a separate account (interest payable) to keep the balance owed for principal separate from the balance owed for interest.

On January 1, Gucci Brothers Inc. started the year with a $696,000 balance in Retained Earnings and a $596,000 balance in common stock. During the year, the company reported net income of $93,000, paid a dividend of $14,400, and issued more common stock for $30,000. What is total stockholders' equity at the end of the year?

$1,400,600 Explanation Total Stockholders' Equity = Common Stock ($596,000 + $30,000) + Retained Earnings ($696,000 + $93,000 − $14,400)Total Stockholders' Equity = $1,400,600.

The following table contains financial information for Trumpeter Inc. before closing entries: Cash$14,000 Supplies 5,700 Prepaid Rent 2,200 Salaries Expense 5,800 Equipment 65,100 Service Revenue 28,600 Miscellaneous Expenses 21,800 Dividends 4,800 Accounts Payable 3,200 Common Stock 67,000 Retained Earnings 20,600 What is Trumpeter's net income?

$1000 Explanation: Revenues(28600) - Expenses (5800+21800)

A company has beginning inventory for the year of $11,000. During the year, the company purchases inventory for $120,000 and ends the year with $21,000 of inventory. The company will report cost of goods sold equal to:

$110,000 11,000+120,000-21,000= 110,000

Consider the following inventory transactions for September: Beginning inventory16units@$2.70 Purchase on September 1228units@$3.60 Purchased on September 2311units@$4.40 For the month of September, the company sold 32 units. What is cost of goods sold under the weighted-average cost method? (Do not round your intermediate calculations. Round the weighted-average unit cost to 4 decimals if necessary. Round your answer to the nearest dollar amount.)

$112

Wald Corporation's adjusted trial balance shows the following temporary accounts: service revenue: $20,000; salaries expense $8,000; insurance expense: $2,000; utilities expense: $3,000; interest expense $200; and depreciation expense: $1,400. As part of the the closing process, Wald should debit retained earnings for:

$14,600

The following information pertains to Lindsey Corp. at the end of the year: Credit Sales$162,500 Accounts Payable 27,000 Accounts Receivable 32,500 Allowance for Uncollectible Accounts 700debitCash Sales 6,900 Lindsey Corp. uses the percentage-of-credit-sales method and estimates that 9% of the credit sales are uncollectible. After the year-end adjustment, what amount of bad debt expense would Lindsey report for the year?

$14,625

Stimpleton Company engages in the following cash payments: Purchase equipment$3,700 Pay rent 550 Repay loan to the bank 5,900 Pay workers' salaries 850 What is the total amount of cash paid for operating activities?

$1400 Explanation: Rent ($550) + Workers' salaries ($850) = total amount of cash paid for operating activities ($1,400).

Inventory records for Marvin Company revealed the following: DateTransactionNumberof UnitsUnitCostMar.1Beginning inventory 980 $7.10 Mar.10Purchase 590 7.54 Mar.16Purchase 790 7.96 Mar.23Purchase 530 8.36 Marvin sold 2,000 units of inventory during the month. Cost of goods sold assuming FIFO would be: (Do not round your intermediate calculations. Round your answer to the nearest dollar amount.)

$14829

The following information pertains to Julia & Company: March 1 Beginning inventory = 29 units @ $5.90March 3 Purchased 21 units @ 4.30March 9 Sold 31 units @ 8.10 What is the cost of goods sold for Julia & Company assuming it uses LIFO? (Do not round your intermediate calculations. Round your answer to the nearest dollar amount.)

$149

Northwest Fur Co. started the year with $91,000 of merchandise inventory on hand. During the year, $445,000 in merchandise was purchased on account with credit terms of 1/15, n/45. All discounts were taken. Northwest paid freight-in charges of $8,000. Merchandise with an invoice amount of $5,000 was returned for credit. Cost of goods sold for the year was $377,000. What is ending inventory?

$157,600

Inventory records for Marvin Company revealed the following: DateTransactionNumberof UnitsUnitCostMar.1Beginning inventory 1,050 $7.19 Mar.10Purchase 590 7.30 Mar.16Purchase 840 7.45 Mar.23Purchase 550 7.65 Marvin sold 2,200 units of inventory during the month. Cost of goods sold assuming weighted-average cost would be: (Do not round your intermediate calculations and round your final answer to nearest dollar amount. Round weighted-average unit cost to 4 decimals if necessary.)

$16207

On September 1, 2021, Middleton Corp. lends cash and accepts a $11,000 note receivable that offers 9% interest and is due in six months. How much interest revenue will Middleton Corp. report during 2022? (Do not round intermediate calculations. Round your answer to the nearest dollar amount.)

$165 report in 2022 = ($11000*9%)*2 months/12 months = 165

Following are transactions of Gotebo Tanners, Inc., a new company, during the month of January: Issued 10,000 shares of common stock for $15,000 cash. Purchased land for $12,000, signing a note payable for the full amount. Purchased office equipment for $1,200 cash. Received cash of $14,000 for services provided to customers during the month. Purchased $300 of office supplies on account. Paid employees $10,000 for their first month's salaries. What was the balance of Gotebo's Cash account following these six transactions?

$17,800. Explanation: Cash = ($15,000 − $1,200 + $14,000 − $10,000) = $17,800.

Wald Corporation's adjusted trial balance shows the following temporary accounts: service revenue: $20,000; salaries expense $8,000; insurance expense: $2,000; utilities expense: $3,000; interest expense $200; and depreciation expense: $1,400. As part of the the closing process, Wald should credit retained earnings for:

$20,000

The following amounts are reported in the ledger of Mariah Company: Assets$76,000 Liabilities 45,000 Retained Earnings 10,000 What is the balance in the common stock account?

$21,000 Explanation: Assets ($76,000) = Liabilities ($45,000) + Stockholders' Equity ($21,000 + 10,000)

Emmitt had the following final balances after the first year of operations: assets, $36,300; stockholders' equity, $13,700; dividends, $2,400; and net income, $9,900. What is the amount of Emmitt's liabilities?

$22,600

Emmitt had the following final balances after the first year of operations: assets, $36,200; stockholders' equity, $13,400; dividends, $2,800; and net income, $10,000. What is the amount of Emmitt's liabilities?

$22800 Liabilities = Assets ($36,200) - Stockholders' Equity ($13,400)Liabilities = $22,800.

The following financial information is from Bronco Company. All debt is due within one year unless stated otherwise. Retained Earnings$65,500 Supplies 38,700 Equipment 73,100 Accounts Receivable 9,800 Deferred Revenue 4,800 Accounts Payable 13,000 Common Stock 24,400 Notes Payable (due in 18 months) 30,000 Interest Payable 6,400 Cash 22,500 What is the amount of current liabilities?

$24,200 Explanation Deferred Revenue ($4,800), Accounts payable ($13,000), and Interest payable $(6,400) are normally current liabilities.

The following information pertains to Lightning Inc., at the end of the year: Credit Sales$68,000 Accounts Payable 13,500 Accounts Receivable 6,400 Allowance for Uncollectible Accounts$800creditCash Sales 39,000 Lightning uses the percentage-of-credit-sales method and estimates 3% of sales are uncollectible. What is the ending balance of the allowance account after the year-end adjustment?

$2840 Balance in allowance for uncollectible account$ 800 Baddebts during the period ($68,000*3%) $ 2,040 Ending Balance in allowance for uncollectible account (800+2040)

The ending Retained Earnings balance of Boomer Inc. decreased by $1.9 million from the beginning of the year. The company declared a dividend of $5.0 million during the year. What was the net income for the year?

$3.1 million

The ending Retained Earnings balance of Boomer Inc. decreased by $1.7 million from the beginning of the year. The company declared a dividend of $5.6 million during the year. What was the net income for the year?

$3.9 million Explanation Beginning Retained Earnings ($0) + Net Income − Dividends ($5.6) = Ending Retained Earnings (−$1.7)

Bijoux Company has sales of $40,000, beginning inventory of $5,000, purchases of $25,000, and ending inventory of $7,000. The cost of goods available for sale is:

$30,000 Rationale: $5,000+$25,000=$30,000

In the statement of stockholders' equity, Retained Earnings had a beginning balance of $25,000. During the period, the company reports a net income of $10,000 and a dividend of $4,000. The ending balance in the Retained Earnings account is:

$31,000 Explanation Beginning Retained Earnings ($25,000) + Net Income ($10,000) − Dividends ($4,000) = Ending Retained Earnings.

DW has an ending Retained Earnings balance of $52,200. If during the year DW paid dividends of $4,200 and had net income of $21,600, then what was the beginning Retained Earnings balance?

$34,8000

Aikman Company paid dividends of $2,560, $0, $1,470 and $970 over the first four years of the company's existence, respectively. If Retained Earnings has an ending balance of $9,300 at the end of year four, what was the average annual amount of net income (loss) over the first four years for Aikman? (Round your answer to the nearest dollar amount.)

$3575 Explanation: Beginning Retained Earnings ($0) + Net Income − Dividends ($2,560 + $0 + $1,470 + $970) = Ending Retained Earnings ($9,300). Divide net income amount by 4 to get average.Net Income = $14,300 / 4 = $3,575

At December 31, Amy Jo's Appliances had account balances in Accounts Receivable of $340,000 and in Allowance for Uncollectible Accounts of $1,380 (debit) before any adjustments. An analysis of Amy Jo's December 31 accounts receivable suggests that the allowance for uncollectible accounts should be 3% of accounts receivable. Bad debt expense for the year should be:

$4,400

Given the information below, what is the gross profit? Sales revenue$305,000 Accounts receivable 53,000 Ending inventory 115,000 Cost of goods sold 238,000 Sales returns 25,000

$42,000

Given the information below about Thomas Corporation, what was the amount of dividends the company paid in the current period? Beginning retained earnings$53,000 Ending retained earnings$106,000 Decrease in cash$10,800 Net income$98,000 Change in stockholders' equity$16,000

$45,000 Explanation: Beginning Retained Earnings ($53,000) + Net Income ($98,000) − Dividends = Ending Retained Earnings ($106,000)

The Accounts Payable account has a beginning balance of $11,100 and the company purchased $54,000 of supplies on account during the month. The ending balance was $19,300. How much did the company pay to creditors during the month?

$45,800 Explanation Payment to Creditors = Beginning Balance ($11,100) + Purchases ($54,000) − Ending Balance ($19,300)Payment to Creditors = $45,800.

The Accounts Receivable account has a beginning balance of $10,000 and the company provides services of $50,000 on account during the month. The ending balance was $12,000.How much did the company receive from customers during the month?

$48,000

Inventory records for Marvin Company revealed the following: DateTransactionNumberof UnitsUnitCostMar.1Beginning inventory 1,030 $7.12 Mar.10Purchase 510 7.62 Mar.16Purchase 429 8.22 Mar.23Purchase 550 8.92 Marvin sold 1,860 units of inventory during the month. Ending inventory assuming FIFO would be: (Do not round your intermediate calculations. Round your answer to the nearest dollar amount.)

$5802

The following financial information is from Shovels Construction Company: Accounts payable$13,400 Buildings 83,000 Cash 12,500 Accounts receivable 10,200 Sales tax payable 3,400 Retained earnings 46,400 Supplies 40,100 Notes payable (due in 18 months) 34,000 Interest payable 2,200 Common stock 46,400 What is the amount of current assets, assuming the accounts above reflect normal activity?

$62,800

The retained earnings account had a beginning credit balance of $26,900. During the period, the business had a net loss $12,600, and the company paid dividends of $8,100. The ending balance in the retained earnings account is:

$6200 Explanation Beginning Retained Earnings ($26,900) − Net Loss ($12,600) − Dividends ($8,100) = Ending Retained Earnings ($6,200).

Use the following appropriate amounts to calculate net income: Revenues, $11,200; Liabilities, $4,200; Expenses, $5,000; Assets, $18,000; Dividends, $1,400.

$6200 Explanation: Net Income = Revenues ($11,200) − Expenses ($5,000)Net Income = $6,200.

Nina Corp. had the following net income (loss) for the first three years of operations, respectively: $6,600, ($1,600), and $3,600. If the Retained Earnings balance at the end of year three is $1,100, what was the total amount of dividends paid over these three years?

$7,500

The ending retained earnings balance of Juan's Mexican Restaurant chain increased by $6 million from the beginning of the year. The company declared a dividend of $1.3 million during the year. What was the amount of net income during the year?

$7.3 million Explanation Increase in Retained Earnings ($6.0 million) = Net Income − Dividends ($1.3 million). Net Income = $6.0 million + $1.3 million = $7.3 million.

Inventory records for Dunbar Incorporated revealed the following: DateTransactionNumberof UnitsUnitCostApr.1Beginning inventory 500 $2.43 Apr.20Purchase 370 2.60 Dunbar sold 570 units of inventory during the month. Ending inventory assuming weighted-average cost would be: (Round weighted-average unit cost to 4 decimal places and final answer to the nearest dollar amount.)

$751

The following table contains financial information for Trumpeter Inc. before closing entries: Cash$12,000 Supplies 4,500 Prepaid Rent 2,000 Salaries Expense 4,500 Equipment 65,000 Service Revenue 30,000 Miscellaneous Expense 20,000 Dividends 3,000 Accounts Payable 5,000 Common Stock 68,000 Retained Earnings 8,000 What is the amount of Trumpeter's total stockholders' equity?

$78,500 Explanation Total stockholders' equity includes common stock plus (ending) retained earnings. Common stock is $68,000. Ending retained earnings = beginning retained earnings ($8,000) plus revenues ($30,000) less expenses ($24,500) less dividends ($3,000) = $10,500. Total stockholders' equity = $68,000 + $10,500 = $78,500

Nina Corp. had the following net income (loss) for the first three years of operations, respectively: $7,300, ($2,000), and $4,000. If the Retained Earnings balance at the end of year three is $1,500, what was the total amount of dividends paid over these three years?

$7800 Explanation: Dividends = Beginning Retained Earnings ($0) + Net Income ($7,300 − $2,000 + $4,000) − Ending Retained Earnings ($1,500)Dividends = $7,800.

Nina Corp. had the following net income (loss) for the first three years of operations, respectively: $7,100, ($1,600), and $3,600. If the Retained Earnings balance at the end of year three is $1,100, what was the total amount of dividends paid over these three years?

$8,000

Nina Corp. had the following net income (loss) for the first three years of operations, respectively: $7,100, ($1,600), and $3,600. If the Retained Earnings balance at the end of year three is $1,100, what was the total amount of dividends paid over these three years?

$8000 Beginning Retained Earnings ($0) + Net Income ($7,100 − $1,600 + $3,600) − Dividends ($8,000) = Ending Retained Earnings ($1,100).

On March 3, Cobra Inc. purchased a desk for $360 on account. On March 22, Cobra purchased another desk for $505 also on account, and then on March 24, Cobra paid $540 on account. At the end of March, what amount should Cobra report for desks (assuming these two desks were the only desks they had)?

$865 Explanation: $360 + $505 = $865

The following table contains financial information for Trumpter Inc. before closing entries: Cash$12,700 Supplies 6,100 Prepaid Rent 3,700 Salaries Expense 4,600 Equipment 65,600 Service Revenue 28,300 Miscellaneous Expenses 21,000 Dividends 5,000 Accounts Payable 5,000 Common Stock 66,100 Retained Earnings 19,300 What is the amount of Trumpter's total assets?

$88,100

The following information pertains to Julia & Company: March 1 Beginning inventory = 26 units @ $5.10March 3 Purchased 17 units @ 3.80March 9 Sold 20 units @ 8.50 What is the ending inventory balance for Julia & Company assuming that it uses FIFO? (Do not round your intermediate calculations. Round your answer to the nearest dollar amount.)

$95

Inventory records for Dunbar Incorporated revealed the following: DateTransactionNumberof UnitsUnitCostApr.1Beginning inventory 540 $2.31 Apr.20Purchase 370 2.57 Dunbar sold 640 units of inventory during the month. Cost of goods sold assuming LIFO would be: (Do not round your intermediate calculations. Round your answer to the nearest dollar amount.)

(370*2.57)=950.9 270*2.31=623.7 1575

When adjusting the company's cash account balance in a bank reconciliation, which items reduce the company's cash account balance? (Select all that apply.)

-Service charges- Charges for NSF check

Five items to note about the classified balance sheet

1. Total assets are separated into current and long-term assets 2. Total liabilities are separated into current and long-term liabilities. 3. Total stockholders' equity includes common stock and retained earnings from the statement of stockholders equity. 4. Total assets must equal total liabilities plus stockholders' equity. 5. The balance sheet reports assets, liabilities, and stockholders' equity at a point in time.

Tyler Toys has beginning inventory for the year of $19,100. During the year, Tyler purchases inventory for $237,000 and has cost of goods sold equal to $240,000. Tyler's ending inventory equals:

19,000+237,000=256,100-240,000 = 16,100

Four items to note about the income statement:

1: total revenues include products and services provided to customers during the reporting period. 2: Total expenses include costs used to operate the business during the reporting period. 3: net income equals total revenues minus total expenses. 4: the income statement reports revenues and expenses over an interval of time.

In a perpetual inventory system, when a company sells inventory on account, how many entries are required?

2 One Rationale: Two entries are required: One entry is required for the sales transaction; a second entry is required to record the cost of goods sold and decrease inventory. Zero Rationale: Two entries are required: One entry is required for the sales transaction; a second entry is required to record the cost of goods sold and decrease inventory. Three Rationale: Two entries are required: One entry is required for the sales transaction; a second entry is required to record the cost of goods sold and decrease inventory.

Beverage International reports net credit sales for the year of $576,000. The company's accounts receivable balance at the beginning of the year equaled $23,000 and the balance at the end of the year equaled $33,000. What is Beverage International's receivables turnover ratio? (Round your answer to 1 decimal place.)

20.6 Average Accounts receivable = (23000+33000)/2 Receivable Turnover ratio = Net sales/ Average Accounts receivable 576000 /R.T.R = 20.567 times

Consider the following information pertaining to OldWest's inventory: ProductQuantityCostNet Realizable ValueRevolvers 14 $128 $154 Spurs 30 29 24 Hats 12 55 45 At what amount should OldWest report its inventory?

3052

At December 31, Amy Jo's Appliances had account balances in Accounts Receivable of $306,000 and in Allowance for Uncollectible Accounts of $700 (credit) before any adjustments. An analysis of Amy Jo's December 31 accounts receivable suggests that the allowance for uncollectible accounts should be 4% of accounts receivable. Bad debt expense for the year should be:

306000*.04=12240 -700=$11540

The formula for average collection period is:

365 days divided by average accounts receivable

Which of the following transactions are examples of prepayments that will require an adjustment at the end of the accounting period on December 31? (Select all that apply.)

A company pays a 6-month insurance premium at the beginning of October. A company pays for 4 months of advertising in the Wall Street Journal on November 1.

Statement of Cash Flows

A financial statement that provides financial information about the cash receipts and cash payments of a business for a specific period of time.

What is a benefit to a career in accounting?

ALL OF THESE ARE CORRECT: high salaries, wide range of job opportunities, high demand for accounting graduates

Oswego Clay Pipe Company provides services of $47,400 to Southeast Water District #45 on April 12 of the current year with terms 1/15, n/60. What would Oswego record on April 12? A.Accounts Receivable46,926 Sales Revenue 46,926B.Accounts Receivable47,400 Sales Revenue 46,926 Sales Discounts 474C.Accounts Receivable47,400 Sales Revenue 47,400D.Accounts Receivable47,400 Sales Discounts474 Sales Revenue 47,874

Accounts Receivable $47,400 Sales revenue $47,400

A(n) _____________ _______________ (Two words) is the legal right to receive cash from a credit sale and represents an asset of the company.

Accounts receivable

total revenues for the period

Accounts receivable only represent services or sales on account. Since the company could also have cash sales, accounts receivable do not represent total revenues for the period.

Financial Accounting Standards Board (FASB)

An independent, private body that has primary responsibility for the establishment of GAAP in the United States.

Analysis of Mueller Company's accounts show that as a result of a single transaction, both cash and notes payable increased by $10,000. Which of the following transactions would have caused this increase?

Borrowing cash and signing a promissory note

Lithuanian Motors has the following balance sheet accounts: Land$170,000 Equipment 66,000 Salaries Payable ? Notes Payable 88,000 Supplies 14,000 Cash 26,000 Common Stock 100,000 Retained Earnings 40,000 Accounts Payable ? Prepaid Rent 12,000 If the company has total assets of $288,000, what is the balance of the company's Salaries Payable account?

Cannot be determined given the information provided. Total liabilities + Stockholders' equity = ($288,000) = Accounts Payable (?) + Salaries Payable (?) + Notes Payable ($88,000) + Common Stock ($100,000) + Retained Earnings ($40,000); therefore, with two unknowns there is not enough information to solve the problem.

Which of the following is a balance sheet item?

Cash

Jeremy issues 5,000 shares of common stock for $10 per share. Which of the following accounts are affected?

Cash; Common Stock

London Corp. issues 1,000 shares of stock for $20 per share. What are the effects of this transaction?

Common stock is increased. Cash is increased

Four enhancing qualitative characteristics

Comparability, verifiability, timeliness, and understandability

Identify the entries needed for the closing process.

Credit Dividends Declared and debit Retained Earnings. Debit each revenue, credit each expense, and record the difference in Retained Earnings.

During the year, Cheng Company paid salaries of $22,000. In addition, $8,000 in salaries has accrued by the end of the year but has not been paid. The year-end adjusting entry would include which one of the following?

Credit to salaries payable for $8,000

Classified Balance Sheet into two major categories

Current assets - those that provide a benefit within the next year. Long-term assets- those that provide a benefit for more than one year.

On August 1, 2021, Turner Manufacturing lends cash and accepts a $16,000 note receivable that offers 12% interest and is due in nine months. How would Turner record the year-end adjustment to accrue interest in 2021? (Do not round intermediate calculations. Round your answer to the nearest dollar amount.) A.Interest Revenue846 Interest Receivable 846 B.Interest Receivable1,920 Interest Revenue 1,920 C.Interest Receivable846 Interest Revenue 846 D.Interest Receivable800 Interest Revenue 800

D.Interest Receivable800 Interest Revenue 800

Summer Leasing received $11,000 from a customer to cover 24 months of rent in advance. How should Summer record this transaction?

Debit Cash; credit Deferred Revenue

On October 1, 2021, a company purchases equipment for $72,000. The equipment is expected to be used for the next four years (48 months). What adjusting entry should the company record on December 31, 2021?

Debit Depreciation Expense and credit Accumulated Depreciation for $4,500. Explanation 2021 Depreciation Expense = ($72,000/48 months) × 3 months = $4,500.

Assume that $17,100 cash is paid for insurance to cover the next year. The appropriate debit and credit would be:

Debit Prepaid Insurance $17,100, credit Cash $17,100.

Sooner purchased office supplies on account. The transaction would be recorded as:

Debit Supplies, Credit Accounts Payable

When a company pays utilities of $1,870 in cash, the transaction is recorded as:

Debit Utilities Expense $1,870, credit Cash $1,870.

Perkins Company pays employees $5,000 for work performed in the current period. Which of the following is used to record this transaction?

Debit salary expense; credit cash.

At the beginning of December, Global Corporation had $2,700 in supplies on hand. During the month, supplies purchased amounted to $4,000, but by the end of the month the supplies balance was only $1,800. What is the appropriate month-end adjusting entry?

Debit supplies expense $4,900, credit supplies $4,900

Using the income statement method for accounting for uncollectible accounts, a company estimates that 2.5% of credit sales will eventually become uncollectible. If credit sales during the year are $400,000 and accounts receivable at the end of the year are $80,000, the adjustment for estimated uncollectible accounts will require a:

Debit to Bad Debt Expense for $10,000.

Alvord Company pays employees $10,000 for work performed in the current period. Which of the following is used to record this transaction?

Debit to salary expense

An increase to an asset account is shown with a ______________. An increase to a liability account is shown with a ______________.

Debit; Credit

True or false: The entry for a sale to customers is different depending on whether the customer pays with cash or a check.

False

True or false: Variability in operating cash flows is unimportant as long as the total cash flows over a three-year period is sufficiently positive.

False

Sarbanes-Oxley Act of 2002 (SOX)

Formally titled the Public Company Accounting Reform and Investor Protection Act of 2002, This act provides regulation of auditors and the types of services they furnish to clients, increases accountability of corporate executives, addresses conflicts of interest for securities analysts, and provides for stiff criminal penalties for violators.

The following events pertain to Bills Company: December 28, 2021 Bills was contacted by a customer for possible accounting and tax services.December 30, 2021 Bills signed a formal agreement with the customer to provide accounting and tax services in 2022.January 4, 2022 The customer paid $1,000 in advance for the services to be provided by Bills Company.January 11, 2022 Bills provided accounting and tax services to the customer. Using accrual-basis accounting, on which date should Bills Company record revenue for the accounting and tax services?

January 11, 2022

Purchasing office equipment on account has what impact on the accounting equation?

Liabilities increase and assets increase.

Which of the accounts are decreased on the debit side and increased on the credit side?

Liabilities, stockholders' equity, and revenues.

During the year, Bears Inc. recorded credit sales of $690,000. Before adjustments at year-end, Bears has accounts receivable of $380,000, of which $56,000 is past due, and the allowance account had a credit balance of $2,900. Using the aging of receivables method, what would be the adjustment assuming Bears expects it will not collect 6% of the amount not yet past due and 21% of the amount past due? A.Bad Debt Expense31,200 Allowance for Uncollectible Accounts 31,200B.Bad Debt Expense34,100 Allowance for Uncollectible Accounts 34,100C.Bad Debt Expense28,300 Allowance for Uncollectible Accounts 28,300D.Allowance for Uncollectible Accounts28,300 Bad Debt Expense 28,300

Not yet past due = $324000 Past due = $56,000 Required provision = $324,000×6%+$56,000×21% = $31,200 Opening balance = 2,900 Required expense for year = $28,300. Hence, correct entry is show below. Bad Debt Expense Dr. 28300 Allowance for Uncollectible accounts Cr. 28300

accrued expenses

Occur when a company has used costs in the current period, but the company hasn't yet paid cash for those costs. because the company has used these costs to operate the company in the current period and is obligated to pay them, an adjusting entry is needed to (1) record the liability to be paid and (2) recognize the cost as an expense.

Accrued Revenues

Occur when a company provides products or services but hasn't yet received cash. Because the company has provided products and services in the current period and has the right to receive payment, an adjusting entry is needed to (1) record an asset for the amount expected to be received and (2) recognize revenue.

On February 1, 2021, Sanger Corp. lends cash and accepts a $7,500 note receivable that offers 18% interest and is due in six months. What would Sanger record on August 1, 2021, when the borrower pays Sanger the correct amount owed? (Do not round intermediate calculations.) A.Cash8,175 Interest Revenue 450 Notes Receivable 7,725 B.Cash7,500 Accounts Receivable 7,500 C.Cash8,175 Interest Revenue 675 Notes Receivable 7,500 D.Cash8,175 Notes Receivable

Option C

On July 5, Harris Company purchased supplies from the hardware store for $600 on account. On July 10, Harris receives a bill from the hardware store as a reminder about the account balance. On July 17, Harris pays the account in full. How does Harris record the transaction on July 17? A.Supplies600 Accounts Payable 600B.Accounts Payable600 Supplies 600C.Cash600 Accounts Payable 600D.Accounts Payable600 Cash 600

Option D

Below is the company's Cash T-account. CashBeg.1,200 5,2003,100 End.3,300 The $3,100 amount could represent which of the following?

Payment for salaries.

Which inventory system recognizes cost of goods sold and decreases inventory each time a sale occurs?

Perpetual inventory system

A small amount of cash on hand to pay for minor purchases is commonly referred to as a(n) fund. (Enter one word per blank.)

Petty cash

Securities and Exchange Commission

Power to require companies that publicly trade their stock to prepare periodic financial statements for distribution to investors and creditors.

On April 1, Katie Inc. collected $2,400 from a customer for a 12-month membership starting on that date. On December 31, Katie Inc. should credit:

Service revenue for $1,800

Six Steps in Measuring External Transactions

Step 1: Use source documents to identify accounts affected by an external transaction. Step 2: Analyze the impact of the transaction on the accounting equation. Step 3: Assess whether the transaction results in a debit or credit to account balances. Step 4: Record the transaction in a journal using debits and credits. Step 5: Post the transaction to the general ledger. Step 6: Prepare a trial balance.

Stockholders' claims to the company's resources are referred to as:

Stockholders' equity.

What is the primary purpose of a bank reconciliation?

To ensure the bank balance per reconciliation is equal to the company balance per reconciliation.

A list of all accounts and their balances at a particular date showing that debits equal credits is referred to as a(n)

Trial Balance

3 questions to ask

What is one account in the accounting equation affected by the transaction? Does that account increase or decrease? What is a second account in the accounting equation affected by the transaction? Does that account increase or decrease? Do assets equal liabilities plus stockholders' equity? (ANSWER MUST ALWAYS BE YES!)

Reporting revenues when goods or services are provided and expenses in the period they are incurred to generate related revenues is referred to as ___________ -basis accounting.

accrual

The accounting basis that records revenues when goods or services are provided to customers and expenses with related revenues is referred to as:

accrual-basis

Under both

accrual-basis and cash-basis accounting, all revenues are eventually recorded for the same AMOUNT. The difference between accrual-basis accounting and cash-basis accounting is in the timing of when we record those revenues and expenses.

adjusting entries

are unnecessary in two cases: (1) for transactions that do not involve revenue or expense activities and (2) for transactions that result in revenues or expenses being recorded at the same time as the cash flow.

Deferred Revenue

arise when a company receives cash in advance from customers, but goods and services won't be provided until a later period. In the period those services are provided, the liability is settled, and an adjusting entry is needed to (1) decrease the liability to its remaining amount owed and (2) recognize revenue.

The lower of cost and net realizable value method was developed to

avoid reporting inventory at an amount that exceeds the benefits it provides.

The Sarbanes-Oxley Act applies to

companies that are required to file with the SEC

As part of the closing process, dividends are closed to retained earnings. In the closing entry, correctly match the accounts with the appropriate debit/credit.

debit - retained earnings credit - dividends

During the year, Smite Company declared and paid dividends in the amount of $50,000. As part of the closing process, Smite should

debit retained earnings and credit dividends

The Accounts Receivable account is reduced when the seller:

determines that a specific customer account will not be collectible

ISAB objectives

develop a single set of high-quality, understandable global accounting standards promote the use of those standards bring about the convergence of national accounting standards and international accounting standards around the world

Adjusting entries are made at the ____________ of the accounting period, while daily transactions are made throughout the accounting period. (Enter one word per blank.)

end

Adjusting entries are made at the of the _________ accounting period, while daily transactions are made throughout the accounting period. (Enter one word per blank.)

end

Crane purchases equipment by signing a note payable with the equipment dealer for $10,000. The accounts affected for Crane are

equipment and notes payable

Crane purchases equipment by signing a note payable with the equipment dealer for $10,000. The accounts affected for Crane are

equipment and notes payable.

The financial statement that is most useful in explaining a company's stock price performance is the

income statement

The financial statement that summarizes revenues and expenses for a period of time is the

income statement

Using a percentage of each period's net credit sales to estimate bad debt expense is a(n) approach to measuring bad debts. (Enter only one word per blank.)

income statement

which financial statement conveys a company's ability to generate profits in the current period?

income statement

________ is defined as the "cost of borrowing money." (Enter one word per blank)

interest

A company's plans to safeguard company assets and enhance the reliability and accuracy of accounting information are referred to as

internal controls

A major difference between companies that provide services and companies that manufacture or sell goods is that those that manufacture or sell goods must account for:

inventory

Margot Inc, which uses the perpetual inventory system, purchases 500 units of inventory to be held for resale. Margot should debit the purchase to:

inventory

In times of rising prices, ending inventory determined using the LIFO inventory assumption will be ________ than ending inventory determined using the FIFO inventory

lower, smaller, or less

The two roles of financial accounting are to:

measure and report results to taxing authorities. communicate information to external parties for decision making purposes.

finanical accounting

measurement of business activities of a company and communication of those measurements to external parties for decision-making purposes

Accounting two main functions

measures business activities communicates those measurements to investors and creditors so they can make decisions

Public accounting

professional service firms that traditionally have focused on three areas: auditing, tax preparation/planning, and business consulting

When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n) ________ _____________ . (Enter only one word per blank.)

sales return