Ch. 3 Income Statement LearnSmart

Under which of the following circumstances would cash basis accounting report lower revenue than accrual basis accounting in a company's first year of business

When it makes sales on account

A trial balance...

can be taken at any point in time can verify the equality of debits and credits lists all accounts with their current balances is NOT the same as a balance sheet

If Revenues is credited, then the possible debits are____.

cash deferred revenue accounts receivable

if an expense is debited then he possible credits are _____.

cash prepaid rent accounts payable

Revenues and expenses are subcategories of _____.

retained earnings

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

retained earnings stockholders' 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 quantity sold times the price charged from selling goods or services to customers

revenue

T or F: Expenses are the costs of operating a business that are incurred to generate revenues and are reported in the income state

T

If revenues equal $100,000 and expenses equals $120,000 then net income/loss must equal

$(20,000)

On July 1, 2020, a firm prepaid $200,000 for 2 years' rent of an office building beginning on July 1. What amount will be shown for Prepaid Rent one and one-half years later on the December 31, 2021 balance sheet?

$50,000

Cash basis accounting may distort net income when a company ______.

-Pays for expenses in a later accounting period than when the resources are used -collects cash in advance of providing services to customers -pays for expenses in advance of when the resources are used -makes credit sales

After posting all entries to the ledger, the Accounts Payable T-account will show which of the following?

-Purchases on account on the credit side. -Payments made on the debit side. -Beginning balance on the top of the credit side. -Ending balance on the bottom of the credit side.

If a company collected$1000 from its customers in advance and then fulfilled $800 of its obligation and incurred expenses of $700 of which it paid $300, using accrual basis accounting, it would report net income equal to

100 Net income of $100 equals $800 revenue minus the $700 of expenses incurred. In accrual basis accounting, revenues is the amount from providing goods or services regardless of the amount collected and expenses are the amount incurred regardless of the amount paid.

Total Expenses equals 80k and Net Income equals 20k then Total Revenues equals

100000

Monster Music Company provided music lessons for customers for $10,000, receiving $6000 in cash and the rest on account. What is their revenue if they used the cash basis of accounting?

6k

When a company makes a payment for amounts owed from prior purchases, it will record a debit to ____ and a credit to ____.

Accounts Payable; Cash

Which ratio change provides good news about a company?

An increase in the net profit margin ratio

In which order is the order of the unadjusted trial balance?

Assets Liabilities Common Stock Retained Earnings Revenues Expenses

The journal entry that records the collection of cash from a customer for payment on account for a sale that was recorded previously includes a debit to _____.

Cash and credit to accounts receivable

Income Statement Format

Company Name Income Statement For the month... Total Revenues Total Expenses Net Income

On February 28, AppGame Company paid for a one-year insurance policy that begins March 1. AppGame's entry to record this transaction includes a ____

Credit to Cash Debit to Prepaid Insurance

Which account is credited when a customer pays in advance for goods to be delivered later?

Deferred Revenue

Novel Tea Company paid $1000 in May for advertising to be run in June. The expense recognition principle requires the advertising expense to be recorded in...

June

Morris Lest, Inc. received and paid a $500 electric bill in June for electricity used in May. In which month should Morris Lest record the expense in accordance with GAAP?

May

Which are 3 common misconceptions users of an income statement may have?

Net income does not include estimate Net income reports all changes of value that accursed during the accounting period Net income equals cash

In June, customers paid $3900 for services they received in May. How much revenue should be recognized in June under accrual accounting?

No revenues are recognized in June

___ activities are the primary source of revenues and expenses and affect whether a company earns a profit or incurs a loss

Operating

The key factor in determining whether revenue should be recognized is whether the ___.

Seller has provided the goods or services to the customer.

Performing services on account will increase ____.

Total Assets Stockholder's Equity

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

accrual

Expenses decrease net income and retained earnings, so expenses are recorded with a ___, just like all decreases in stockholders' equity

debit

The correct journal entry to record a transaction that involves paying cash for an expense incurred in the same period is ______

debit an expense credit cash

The entry to record cash collected from customers in advance includes a ______. (Select all that apply.)

debit to Cash credit to Deferred Revenue

Pizza Company prepared 3 months' store rent. The journal entry to record this transaction includes a _____.

debit to Prepaid Rent credit to Cash

Bank n Roll Inc pays its employees once a month and records the expense at the time of payment. On May 31, Bank n Roll Inc 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

The entry to record the sale of services for cash includes a _______.

debit to cash credit to Service Revenue

Expenses are increased with ___.

debits because they decrease shareholders' equity

Which of the following are found on an income statement?

expnses revenue net income

Receiving cash from a customer to pay for a previously recorded accounts receivable will ____.

have no effect on the accounting equation

The balance sheet reports the company's assets, liabilities, and stockholders' equity at a specific point in time. The ___ statement described the revenue and expense items that affect net income over an interval of time

income

Net income appears on the

income statement and statement of retained earnings

In its 1st year of operation, Jetway Airlines paid Salaries Expense of $40 million. On December 31, it recorded an entry for additional Salaries Expense of $2 million that will be paid at the beginning of the 2nd year. What should Jetway report in the income statement and balance sheet for its first year ended December 31?

income statement: salaries expense 42 million; balance sheet: salaries payable 2 million

The net profit margin ratio ____.

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

Accounts Payable ____.

is a liability represents amounts owed

What type of account is Deferred Revenue?

liability

When cash is received in advance of the seller providing the goods or services to its customers a(n) ___ called ___ is recorded

liability; Deferred Revenue

The period from buying goods and services through to collecting cash is known as the ___ cycle

operating

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