Acctg 2010 - Chapter 3 Review

Dividing the long life of a company into shorter periods such as months, quarters, or years for reporting purposes is called the:

time period assumption

Supplies are expensed

when used

Amounts in the balance sheet will continue to have a

financial impact beyond the current accounting period

If a company records a debit to Accounts Receivable and a credit to Revenue, it must be recording the

sale of goods on account

If a company has no Wages Payable on its balance sheet, then one may conclude ____

the wages expensed in the period were paid

Order from top to bottom an Unadjusted Trial Balance

Assets Liabilities Common Stock Retained Earnings Revenues Expenses

True or false: The timing of cash receipts dictates when revenues are recognized.

False: The key factor is whether the seller has provided the goods or services to the customer, not whether the cash has been received.

Monster Music Company provided music lessons for customers for $10,000, receiving $6,000 in cash and the rest on account. What is Monster Music Company's revenue if it used the CASH BASIS of accounting instead of accrual basis accounting?

$6,000

The journal entry a law firm records when it provides legal services for a client who will pay in a later period includes:

- Debit to Accts Receivable - Credit to Service Revenue

On May 29, Lox, Stock & Bagel, Inc. received a $100 invoice for advertising run in May. The bill will be paid in June. The entry to record in May includes a $100 ___ and ___.

- Debit to Advertising Expense - Credit to Accounts Payable

Wage Works, Inc. reported $10,000 of Wages Expense and $2,000 of Wages Payable on its annual financial statements. Which of the following statements about wages is true?

- Wages Expense, on the income statement, reports the amount of services received during the year - Wages Payable, on the balance sheet, reports the amount owed at the end of the year for services received

When employees work for a company in June but are not paid until July, the June financial statements will include ____ and ____ on the ____ ____.

- Wages Payable and Wages Expense - Balance Sheet and Income Statement

In its first year of business, Wok 'n' Roll, Inc. provided $100,000 of goods to its customers of which $80,000 was collected. It also incurred $90,000 in expenses for which $80,000 was paid. Which of the following statements are correct?

- Wok 'n' Roll should use an accrual basis accounting for external reporting purposes to conform to GAAP and IFRS - Wok 'n' Roll should report net income of $10,000 for external reporting purposes

The entry to record the sale of services for cash include a

- credit to service revenue - debit to cash

On June 1, Pizza Company paid $100 for advertisements to be run on June 1. Pizza Company's entry to record this payment will include a $100 ___, ___.

- debit to Advertising Expense - credit to cash

The entry to record cash from customers in advance includes a ____ and a ____.

- debit to Cash - credit to Deferred Revenue

On November 1, Movers Inc. paid $24,00 for 2 years' rent beginning on November 1 (assume rent is the same amount each month). The entry to record this transactions require ___, ___.

- debit to Prepaid Rent of $24,000 - credit to Cash of $24,000

On May 31, Bank n Roll paid its employees 10,000 for work performed in May. The entry to record the payment includes a ____ for 10,000.

- debit to Wages Expense - credit to cash

Pizza Company sold pizzas on account. The journal entry to record the sales will include a

- debit to accounts receivable - credit to sales revenue

Accrual basis accounting differs from cash basis accounting in that it records ___ and ___.

- expenses in the period incurred, even though cash has not yet been paid - revenues in the period in when the services are performed or goods are delivered, even though the cash has not yet been collected

The net profit margin ratio

- means improved performance if it increases - indicates how well expenses are controlled

The following financial statements cover a period of time rather than report amounts at a specific point in time.

- statement of cash flows - income statement

When AppGame Company delivers pizza to customers ON ACCOUNT and bills its customer accounts, it shoudl record a debit to ____ and a credit to ____.

Accounts Receivable, Sales Revenue

If Sales Revenue is credited, then which of the following would be the corresponding debit?

Cash

Cash

Collections occur in the same period as the services

ABC Company paid $6,000 cash for insurance in June that provides coverage for 6 months, from July to December. How much expense should be recognized in June to be in accordance with generally accepted accounting principles?

No expense should be recorded in June.

Which of the following would increase the net profit margin ratio in the current year?

Postpone routine maintenance work that was to be done this year.

____ Expenses require adjustment because the cash is paid in one period, but the resource is not completely used until a later period.

Prepaid

Which of the following should be classified as stockholders' equity?

Retained Earnings and Common Stock

What is the quantity sold times the price charged from selling goods or services to customers?

Revenue

Accounts Receivable

The service is performed prior to the collections

True or false: Operating activities are the primary sources of revenue and expenses involved in running a business.

True

True or false: Expenses are costs of operating a business that are incurred to generate revenues and are reported in the income statement.

True: Expenses are the cost of operating the business that are necessary to earn revenue.

Reporting revenues when the goods or services are provided and expenses when they are incurred is called

accrual basis accounting

Accounts Receivable is on the ____ and reports the amount ____

balance sheet, not yet collected for sales made on account to customers

Accounts Receivable is credited when recording the ___

collection from sales made on account

Increases in Stockholders' equity is recorded on the

credit side of the T-account

The ending balance of Accounts Receivable in the ledger is calculated by adding the

debits and subtracting the credits recorded during the period to the beginning debit balance to arrive at the ending debit balance

The totals on a trial balance reveal whether the total ____ equal the total ____.

debits, credits

Measurement of net income involves

estimations

Deferred Revenue

is a liability and collections occur in advance of the performance of the service

The income statement reports the results of activities for an accounting

period of time

Under the expanded accounting equation, assets equal liabilities plus common stock and

retained earnings

In an expanded accounting equation, revenues and expenses are part of

retained earnings and stockholder's equity

In accrual accounting, according to the ____ recognition principle, revenues should be recognized when the seller performs the work promised, not necessarily when cash is received.

revenue

The net profit margin ratio is calculated by dividing net income by

revenue