accounting ch 3

The following table contains financial information for Trumpeter Inc. before closing entries: Cash $12,200 Supplies 4,900 Prepaid Rent 3,500 Salary Expense 5,700 Equipment 66,500 Service Revenue 29,300 Miscellaneous Expenses 21,700 Dividends 3,800 Accounts Payable 4,000 Common Stock 66,700 Retained Earnings 18,300 What is Trumpeter's net income?

$1900 Revenues ($29,300) − Expenses ($5,700 + $21,700) = $1,900.

The following financial information is from Bronco Company. All debt is due within one year unless stated otherwise. Retained Earnings $64,000 Supplies 37,600 Equipment 72,700 Accounts Receivable 9,400 Deferred Revenue 4,800 Accounts Payable 13,300 Common Stock 24,700 Notes Payable (due in 18 months) 29,000 Interest Payable 6,100 Cash 22,200 What is the amount of current liabilities?

$24,200

The following financial information is from Shovels Construction Company. Accounts payable $13,100 Buildings 82,000 Cash 10,600 Accounts receivable 10,000 Sales tax payable 4,500 Retained earnings 46,600 Supplies 41,300 Notes payable (due in 18 months) 32,000 Interest payable 2,400 Common stock 45,300 What is the amount of current assets, assuming the accounts above reflect normal activity?

$61900 Cash ($10,600), Accounts Receivable ($10,000), and Supplies ($41,300) are normally current assets.

The following table contains financial information for Trumpeter Inc. before closing entries: Cash $12,800 Supplies 5,600 Prepaid Rent 2,700 Salaries Expense 5,600 Equipment 65,200 Service Revenue 28,800 Miscellaneous Expenses 21,800 Dividends 4,000 Accounts Payable 3,200 Common Stock 67,300 Retained Earnings 18,400 What is the amount of Trumpeter's total assets?

$86300 Assets include Cash ($12,800), Supplies ($5,600), Prepaid Rent ($2,700), and Equipment (65,200).

list the accounting cycle steps (9 total)

1 use source documents to identify accounts affected by external transactions 2. analyze the impact of the transaction on the accounting equation 3 access whether the transaction results in a debit or credit to the account balance 4 record the transaction 5 post the transaction to the T-account in the general ledger 6 prepare the trial balance 7 record and post adjusting entries 8 prepare final statements (Income statement, statement of stockholders' equity, balance sheet, and statement of cash flows) 9 record and post closing entries

A list of all accounts and their balances after posting closing entries is referred to as:

A post-closing trial balance.

permanent accounts

All accounts that appear in the balance sheet, including Retained Earnings

matching principle

Companies typically report expenses in the same period as the revenues they help to generate It is a cause-and-effect relationship between revenue and expense recognition. In the same period we report revenues, we should also record all expenses incurred to generate those revenues. The result is a measure—net income—that matches current period accomplishments (revenues) and sacrifices (expenses).

At the beginning of December, Global Corporation had $1,300 in supplies on hand. During the month, supplies purchased amounted to $3,000, but by the end of the month the supplies balance was only $2,200. What is the appropriate month-end adjusting entry?

Debit supplies expense $2,100, credit supplies $2,100

At the beginning of December, Global Corporation had $1,900 in supplies on hand. During the month, supplies purchased amounted to $3,700, but by the end of the month the supplies balance was only $2,800. What is the appropriate month-end adjusting entry?

Debit supplies expense $2,800, credit supplies $2,800

period costs

In theory, it would be ideal for Eagle to record the cost of advertising as an expense in the month that it records the revenue the advertising generates. However, it's difficult to determine when, how much, or even whether additional revenues occur as a result of advertising. Because of this, firms generally recognize advertising expenditures as expenses in the period the ads are provided, with no attempt made to match them with related revenue

the sale of common stock, and the payment of dividends to common stockholders.

Neither of these transactions involves the recognition of revenues or expenses and therefore will not require period-end adjusting entries.

A customer purchased a drill press on November 14 on account from Sears. The drill press was delivered two weeks later. The customer paid for the drill press on December 5. When should Sears record the revenue for this transaction according to the revenue recognition principle?

November

When a company makes an end-of-period adjusting entry that includes a credit to Prepaid Rent, the debit is usually made to the ACCOUNT:

Rent Expense

temporary accounts

These three accounts—revenues, expenses, and dividends

accrued expense

When a company has a cost that helps to produce revenue but hasn't yet paid cash for that cost, it still should record the cost as an expense and also a liability for the amount owed.

accrued revenue

When a company provides products or services to customers but hasn't yet received cash, it still should record the revenue and an asset for the amount expected to be received

when recording an adjustment for the cost of using equipment during the current accounting period, which two accounts are affected?

accumulated depreciation and depreciation expense

Always involve at least one income statement account and one balance sheet account.

adjusting entries

a prepayment that is originally recorded as an asset will be...

allocated to future accounting periods based on the value of the benefit used during the period

prepaid expenses

are the costs of assets acquired in one period that will be recorded as an expense in a future period. Examples include the purchase of equipment or supplies and the payment of rent or insurance in advance. These payments create future benefits, so we initially record them as assets at the time of purchase. The benefits provided by these assets expire in future periods, so we need to expense their cost in those future periods

A company purchases supplies that will be used during the following quarter, at the time of purchase, the supplies should be recorded as an...

asset

when purchased, supplies that are not used immediately are recorded as an

asset

prepaid insurance is an...

asset in the balance sheet

the retained earnings balance shown in the adjusted trial balance is the account's

beginning balance

adjusting entry for accrued expenses involve

credit to a liability debit to an expense

During the year, Cheng Company paid salaries of $22,400. In addition, $8,100 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 $8100

Andy records an adjusting entry for deferred revenue, Andy should...

debit a liability account credit a revenue account

to update their balances, adjusting entries are posted to the

general ledger accounts

classified balanced sheet

groups a company's asset and liability accounts into current and long-term categories

a classified balance sheet

groups assets and liabilities into current and long-term categories

interest expense and depreciation expense are both shown in the...

income statement and the adjusted trial balance

contra account

is an account with a balance that is opposite, or "contra," to that of its related accounts. aka the Accumulated Depreciation Account

operating cycle

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

depreciation

is the process of allocating the cost of an asset, such as equipment, to expense over the asset's useful life.

statement of cash flows

is typically prepared last

A company accrues salaries at the end of the year, as a result the company's

liabilities increase equity decrease

investments in another company's debit expected to be held for five years are reported on a classified balance sheet under this category

long-term investments

adjustments for accrued expenses ensure that liabilities are reported as all amounts _____ at the end of the accounting period

owed

intangible assets

patents, copyrights, franchises, and trademarks

all balance sheet accounts are

permanent accounts

This is an internal report prepared as the last step in the accounting cycle

post-closing trial balance

the last step in the accounting cycle

post-closing trial balance

adjusting entries into 4 subcategories

prepaid expenses deferred revenues accrued expenses accrued revenues

adjusting entries into two broad categories

prepayments and accruals

expenses incurred, not yet paid and goods and services provided but not yet collected are...

referred to as "accruals"

two primary components of net income

revenues and expenses

what appears on an income statement?

sales revenue and salaries expense

revenue recognition principle

states that we record revenue in the period in which we provide goods and services to customers ex: If a company sells products or services to a customer in 2018, the company should report the revenue in its 2018 income statement.

with accruals...

the cash flow occurs after either the expense or the revenue is recorded. they are the opposite of prepayments

temporary accounts are found in

the income statement

long -term assets

those that provide a benefit for more than one year

current assets

those that provide a benefit within the next year

what are the effects on the accounting equation from the adjustment for revenues earned but not yet collected during the accounting period?

total assets and total stockholders' equity will both increase

true/false: The adjusting entry for a deferred revenue always includes a debit to a liability account (decrease a liability) and a credit to a revenue account (increase a revenue)

true

true/false: The adjusting entry for a prepaid expense always includes a debit to an expense account (increase an expense) and a credit to an asset account (decrease an asset).

true

true/false: The adjusting entry for an accrued expense always includes a debit to an expense account (increase an expense) and a credit to a liability account (increase a liability).

true

true/false: The adjusting entry for an accrued revenue always includes a debit to an asset account (increase an asset) and a credit to a revenue account (increase a revenue).

true

true/false: The liquidity of an asset refers to how quickly it will be converted to cash

true

true/false: Transactions in which we receive cash at the same time we record revenue or pay cash at the same time we record an expense do not require adjusting entries.

true

true/false: after the closing entries have been posted the new balance in the Retained Earnings account will equal the Retained Earnings reported in the balance sheet

true

true/false: cash-basis accounting is not part of generally accepted accounting principles (GAAP).

true

true/false: Adjusting entries are a necessary part of accrual-basis accounting

true; They must be recorded at the end of each period before the company prepares its financial statements.

adjusting entries (internal transactions)

update the accounts to their proper balances are needed in order to measure the period's net income or loss

accrual-basis accounting

we record revenues when we provide goods and services to customers, and we record expenses with related revenues it helps measures and reports revenues and expenses in a way that clearly reflects the ability of a company to create value for its stockholders

deferred revenues

when a company receives cash in advance from a customer for products or services to be provided in the future. When customers pay cash in advance, we debit cash and credit a liability.