Ch. 8 Notes 2

At the beginning of the year, a company's balance sheet reported the following balances: Total Assets = $225,000; Total Liabilities = $125,000; and Owner's Capital = $100,000. During the year, the company reported revenues of $46,000 and expenses of $30,000. In addition, owner's withdrawals for the year totaled $20,000. Assuming no other changes to owner's capital, the balance in the owner's capital account at the end of the year would be $116,000. $136,000. $24,000. $96,000. $104,000.

$96,000

Four Closing Entries

(1) An entry to close income statement accounts with credit balances. (2) An entry to close income statement accounts with debit balances, (3) An entry to record net income or net loss and close Income Summary, and (4) An entry to close the owner's drawing account.

3. Journal entries used to prepare temporary accounts for a new fiscal period

closing entries

Journal entries used to prepare temporary accounts for a new fiscal period. (p. 214)

closing entries

journal entries used to prepare temporary accounts for a new fiscal period

closing entries

Balance Sheet Section

contains balances of assets, liability and owner's equity accounts

Income statement section

contains the balances of revenue and expense accounts ** with Income summary at "0" balance ** Debits do not equal credits at this time

5. When revenue is greater than total expenses, resulting in a net income, the Income Summary account has a

credit balance

When revenue is greater than total expenses, resulting in a net income, the income summary account has a ___.

credit balance

when revenue is greater than total expenses, resulting in a net income, the income summary account has a ..

credit balance

Adjusting and closing entries are journalized from the work sheet

6

Pt 5. Adjusting and closing entries are journalized from the work sheet.

6

Adjusting and closing entires are posted to the general ledger

7

Pt 5. Adjusting and closing entries are posted to the general ledger.

7

A post-closing trial balance of the general ledger is prepared

8

Pt 5. A post-closing trial balance of the general ledger is prepared.

8

The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is: Cash basis accounting. The expense recognition (matching) principle. The time period assumption. Accrual basis accounting. Revenue basis accounting.

Accrual basis accounting.

Incurred but unpaid expenses that are recorded during the adjusting process with a debit to an expense and a credit to a liability are: Intangible expenses. Prepaid expenses. Unearned expenses. Net expenses. Accrued expenses.

Accrued expenses.

A trial balance prepared after adjustments have been recorded is called a(n): Balance sheet. Adjusted trial balance. Unadjusted trial balance. Classified balance sheet. Unclassified balance sheet.

Adjusted trial balance.

Journal entries recorded to update general ledger accounts at the end of a fiscal period

Adjusting Entries

Supplies Expense is debited and Supplies is credited

Adjusting Entry for Supplies

Which of the following statements is incorrect? Adjustments to prepaid expenses and unearned revenues involve previously recorded assets and liabilities. Accrued expenses and accrued revenues involve assets and liabilities that had not previously been recorded. Adjusting entries can be used to record both accrued expenses and accrued revenues. Prepaid expenses, depreciation, and unearned revenues often require adjusting entries to record the effects of the passage of time. Adjusting entries affect only balance sheet accounts.

Adjusting entries affect only balance sheet accounts.

True

Adjusting entries are recorded on the next journal page following the page on which the last daily transactions for the month are recorded.

Insurance Expense is debited and Prepaid Insurance is credited

Adjusting entry for Prepaid Insurance

True

Adjustments are first analyzed and planned on a work sheet before the adjusting entries are journalized.

Adjusting entries: Affect only income statement accounts. Affect only balance sheet accounts. Affect both income statement and balance sheet accounts. Affect cash accounts. Affect only equity accounts.

Affect both income statement and balance sheet accounts.

False

All accounts in a general ledger are listed on a post-closing trial balance.

The adjusted trial balance contains information pertaining to: Asset accounts only. Balance sheet accounts only. Income statement accounts only. All general ledger accounts. Revenue accounts only.

All general ledger accounts.

A post-closing trial balance reports: All permanent ledger accounts with balances. All nominal ledger accounts with balances. All temporary and permanent ledger accounts with balances. Only revenue and expense accounts. Only asset accounts.

All permanent ledger accounts with balances.

When closing entries are made: All ledger accounts are closed to start the new accounting period. All temporary accounts are closed but permanent accounts are not closed. All real accounts are closed but nominal accounts are not closed. All permanent accounts are closed but nominal accounts are not closed. All balance sheet accounts are closed.

All temporary accounts are closed but permanent accounts are not closed.

A debit is used to record which of the following: A decrease in an asset account. A decrease in an expense account. An increase in a revenue account. An increase in the owner's withdrawals account.

An increase in the owner's withdrawals account.

A company records the fees for legal services paid in advance by its clients in an account called Unearned Legal Fees. If the company fails to make the end-of-period adjusting entry to move the portion of these fees that has been earned to a revenue account, one effect will be: An overstatement of equity. An understatement of equity. An understatement of assets. An understatement of liabilities. An overstatement of assets.

An understatement of equity.

The accounting process begins with: Analysis of business transactions and source documents. Preparing financial statements and other reports. Summarizing the recorded effect of business transactions. Presentation of financial information to decision-makers. Preparation of the trial balance.

Analysis of business transactions and source documents.

What accounts will appear on the Post-Closing Trial Balance?

Assets Liabilities Capital

Prepaid accounts (also called prepaid expenses) are generally: Payments made for products and services that never expire. Classified as liabilities on the balance sheet. Decreases in equity. Assets that represent prepayments of future expenses. Promises of payments by customers.

Assets that represent prepayments of future expenses.

If a company mistakenly forgot to record depreciation on office equipment at the end of an accounting period, the financial statements prepared at that time would show: Assets overstated and equity understated. Assets and equity both understated. Assets overstated, net income understated, and equity overstated. Assets, net income, and equity understated. Assets, net income, and equity overstated.

Assets, net income, and equity overstated.

Adjusting entries made at the end of an accounting period accomplish all of the following except: Updating liability and asset accounts to their proper balances. Assigning revenues to the periods in which they are earned. Assigning expenses to the periods in which they are incurred. Assuring that financial statements reflect the revenues earned and the expenses incurred. Assuring that external transaction amounts remain unchanged.

Assuring that external transaction amounts remain unchanged.

False

At the end of a fiscal period, the balances of permanent accounts are summarized and transferred to the owner's capital account

True

At the end of a fiscal period, the balances of temporary accounts are summarized and transferred to the owner's capital account.

Accrued revenues: At the end of one accounting period result in cash receipts in a future period. At the end of one accounting period often result in cash payments in the next period. Are also called unearned revenues. Are listed on the balance sheet as liabilities. Are recorded at the end of an accounting period because cash has already been received for revenues earned.

At the end of one accounting period result in cash receipts in a future period.

An account used to record the owner's investments in a business is called a(n): Withdrawals account. Capital account. Revenue account. Expense account. Liability account.

Capital account.

The system of preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called: Accrual basis accounting. Operating cycle accounting. Cash basis accounting. Revenue recognition accounting. Current basis accounting.

Cash basis accounting.

Compare the list of accounts below and choose the list that contains only accounts that would be classified as asset accounts on the Chart of Accounts. Accounts Payable; Cash; Supplies. Unearned Revenue; Accounts Payable; Owner's Withdrawals. Building; Prepaid Insurance; Supplies Expense. Cash; Prepaid Insurance; Equipment. Notes Payable; Cash; Owner's Withdrawals.

Cash; Prepaid Insurance; Equipment.

A company's list of accounts and the identification numbers assigned to each account is called a: Source document. Journal. Trial balance. Chart of accounts. General Journal.

Chart of accounts.

The Income Summary account is used to: Adjust and update asset and liability accounts. Close the revenue and expense accounts. Determine the appropriate withdrawal amount. Replace the income statement under certain circumstances. Replace the capital account in some businesses.

Close the revenue and expense accounts.

Journal entries used to prepare temporary accounts for a new fiscal period

Closing Entries

Income Summary is debited and J. Nichols, Capital is credited

Closing entry for Income Summary with a net income

Capital Account is debited and Income Summary is credited

Closing entry for Income Summary with a net loss

Sales is debited and Income Summary is credited

Closing entry for Sales

Income Summary is debited and all expense accounts are credited

Closing entry for all expense accounts

Capital Account is debited and Drawing Account is credited

Closing entry for owner's capital account

Multiple-step income statements: Are required by the FASB and IASB. Contain more detail than a simple listing of revenues and expenses. Are required for the periodic inventory system. List cost of goods sold as an operating expense. Are only used in perpetual inventory systems.

Contain more detail than a simple listing of revenues and expenses.

How does a Net Loss affect Capital?

Decreases Capital with a Debit

A credit entry: Increases asset and expense accounts, and decreases liability, owner's capital, and revenue accounts. Is always a decrease in an account. Decreases asset and expense accounts, and increases liability, owner's capital, and revenue accounts. Is recorded on the left side of a T-account. Is always an increase in an account.

Decreases asset and expense accounts, and increases liability, owner's capital, and revenue accounts.

Net loss...

Decreases capital

Permanent accounts include all of the following except: Accumulated Depreciation—Equipment. Prepaid Insurance. Unearned Revenue. Accounts Receivable. Depreciation Expense—Equipment.

Depreciation Expense—Equipment.

The periodic expense created by allocating the cost of plant and equipment to the periods in which they are used, representing the expense of using the assets, is called: Accumulated depreciation. A contra account. The expense recognition (matching) principle. Depreciation expense. An accrued account.

Depreciation expense.

Ruling

Drawing a line under a column of amounts is known as __________.

Double Ruling

Drawing two lines under two column of amounts indicating that they're equal to one another

The information posted to the General Ledger comes from where?

General Journal

Information to complete the Post-Closing Trial Balance comes from where?

General Ledger

The following statements regarding gross profit are true except: Gross profit is also called gross margin. Gross profit less other operating expenses equals income from operations. Gross profit is not calculated on the multiple-step income statement. Gross profit must cover all operating expenses to yield a return for the owner of the business. Gross profit equals net sales less cost of goods sold.

Gross profit is not calculated on the multiple-step income statement.

Closing the temporary accounts at the end of each accounting period does all of the following except: Serves to transfer the effects of these accounts to the owner's capital account on the balance sheet. Prepares the withdrawals account for use in the next period. Brings the revenue and expense accounts to zero balances. Has no effect on the owner's capital account. Causes owner's capital to reflect increases from revenues and decreases from expenses and withdrawals.

Has no effect on the owner's capital account.

The closing entry for Supplies Expense would be a debit to Supplies Expense and a credit to Income Summary.

FALSE

When a note payable is repaid, the amount of cash paid equals the principal of the note.

FALSE

A balance shest reports financial information over a soecific period of time

False

An amount written in parentheses on a financial statement indicates an estimate

False

Component percentages on an income statement are calculated by dividing sales and total expenses by net income

False

Information needed to prepare an income statement coke from the trial balance columns and the income statement columns of a work sheet

False

Interest expense is reported as an operating expense

False

On and income statement double lines are rules across both amount columns to indicate the debuts equal credits

False

T/F Large businesses with many charge customers usually use the direct write-off method of accounting for uncollectible accounts.

False

T/F The Allowance for Uncollectible Accounts account is reported on the balance sheet as an addition to Accounts Receivable.

False

T/F The two general ledger accounts affected by the direct write-off method of accounting for uncollectible accounts are Uncollectible Accounts Expense and Accounts Payable.

False

T/F When a business sells goods or services on account, it knows which charge customer's accounts will be uncollectible.

False

The current capital to be reported in a balanxe sheet is calculated as the capitals account balance plus net income equals current capital

False

The formula for calculating the total expenses component percentage is total expenses divided by total sales equals total expenses component percentage

False

The owners capital amount reported on a balance sheet is calculated as capital account balance plus drawing account balance less net income

False

Two main accounting principles used in accrual accounting are expense recognition and full closure. True False

False

When a business had two different sources of revenue a separate income statement should be prepared for each kind of revenue

False

When prepaid expenses are initially recorded as expenses, no adjusting entry is required prior to preparing financial statements

False

Closing entries are required: If management has decided to cease operating the business. Only if the company adheres to the accrual method of accounting. If a company's bookkeeper does not choose to prepare reversing entries. If the temporary accounts are to reflect correct amounts for each accounting period. In order to satisfy the Internal Revenue Service guidelines.

If the temporary accounts are to reflect correct amounts for each accounting period.

Unearned revenues are generally: Revenues that have been earned and received in cash. Revenues that have been earned but not yet collected in cash. Liabilities created when a customer pays in advance for products or services before the revenue is earned. Recorded as an asset in the accounting records. Increases to owners' capital.

Liabilities created when a customer pays in advance for products or services before the revenue is earned.

4. Which accounting concept applies when expenses are reported in the same fiscal period that they are used to produce revenue?

Matching Expenses with Revenue

Pt 4. Which accounting concept applies when expenses are reported in the same fiscal period that they are used to produce revenue?

Matching Expenses with Revenue

Which accounting concept applies when expenses are reported in the same fiscal period that they are used to produce revenue?

Matching Expenses with Revenue

What if the total of revenues were more than the total of expenses?

Mean that you gained money (Net gain)

What if the total of expenses were more then the total of revenues?

Means that you lost money (Net loss)

Beginning inventory plus net purchases is: Cost of goods sold. Merchandise (goods) available for sale. Ending inventory. Sales. Shown on the balance sheet.

Merchandise (goods) available for sale.

The 12-month period that ends when a company's sales activities are at their lowest level is called the: Natural business year. Answers: Fiscal year. Calendar year. Natural business year. Accounting period. Interim period.

Natural business year.

If Revenue (Sales) is greater than Expenses, the business will incur what?

Net Income

If Expenses are greater than Revenue (Sales), the business will incur what?

Net Loss

Profit margin is defined as: Revenues divided by net sales. Net sales divided by assets. Net income divided by net sales. Net income divided by assets. Net sales divided by net income.

Net income divided by net sales.

Pt 3. Advertising Expense

No

Pt 3. Income Summary

No

Pt 3. Insurance Expense

No

Pt 3. J. Nichols, Drawing

No

Pt 3. Miscellaneous Expense

No

Pt 3. Rent Expense

No

Pt 3. Sales

No

Pt 3. Supplies Expense

No

Pt 3. Utilities Expense

No

Another name for a temporary account is a(n): Selected Answer: Real account. Contra account. Accrued account. Balance column account. Normal account.

Nominal account.

A company's formal promise to pay (in the form of a promissory note) a future amount is a(n): Unearned revenue. Prepaid expense. Credit account. Note payable. Account receivable.

Note payable.

Which of the following accounts could not be classified as a current liability? Unearned revenues. Accounts payable. Notes payable (due in 11 months). Current portion of long-term note payable. Notes payable (due in 5 years).

Notes payable (due in 5 years).

Which of the following is classified as a current asset? Office equipment. Patent. Unearned revenue. Office supplies. Land.

Office supplies.

A classified balance sheet: Measures a company's ability to pay its bills on time. Organizes assets and liabilities into important subgroups that provide more information. Broadly groups items into assets, liabilities and equity. Reports operating, investing, and financing activities. Reports the effect of profit and withdrawals on owner's capital.

Organizes assets and liabilities into important subgroups that provide more information.

An adjusting entry could be made for each of the following except: Prepaid expenses. Depreciation. Owner investments. Unearned revenues. Accrued expenses.

Owner investments.

Accounts used to accumulate information from one fiscal period to the next

Permanent Accounts

Accounts that remain open at the end of the fiscal period are called what?

Permanent accounts

Assets, Liabilities, and Capital are all examples of what kind of accounts?

Permanent accounts

False

Permanent accounts are also referred to as temporary accounts.

False

Permanent accounts are used to accumulate information until it is transferred to the owner's capital account

Assets, liabilities, and equity accounts are not closed; these accounts are called: Nominal accounts. Temporary accounts. Permanent accounts. Contra accounts. Accrued accounts.

Permanent accounts.

A trial balance prepared after the closing entries are posted

Post-closing Trial Balance

Temporary accounts include all of the following except: Consulting revenue. Withdrawals. Rent expense. Prepaid rent. Income Summary.

Prepaid rent.

Step 6

Prepare a work sheet

Which of the following is the usual final step in the accounting cycle? Journalizing transactions. Preparing an adjusted trial balance. Preparing a post-closing trial balance. Preparing the financial statements. Preparing a work sheet.

Preparing a post-closing trial balance.

True

Preparing a work sheet at the end of each fiscal period to summarize the general ledger information needed to prepare financial statements in an application of the accounting concept Accounting Period Cycle.

True

Preparing a work sheet at the end of each fiscal period to summarize the general ledger information needed to prepare financial statements is an application of the account concept Accounting Period Cycle.

True

Preparing a work sheet at the end of each fiscal period to summarize the general ledger information needed to prepare financial statements is an application of the accounting concept Accounting Period Cycle.

Matching Principle

Principle stating that expenses are compared to revenues for same period

All of the following statements regarding profit margin are true except: Profit margin reflects the percent of profit in each dollar of revenue. Profit margin is also called return on sales. Profit margin can be used to compare a firm's performance to its competitors. Profit margin is calculated by dividing net income by net sales. Profit margin is not a useful measure of a company's operating results.

Profit margin is not a useful measure of a company's operating results.

The operating cycle for a merchandiser that sells only for cash moves from: Purchases of merchandise to inventory to cash sales. Purchases of merchandise to inventory to accounts receivable to cash sales. Inventory to purchases of merchandise to cash sales. Accounts receivable to purchases of merchandise to inventory to cash sales. Accounts receivable to inventory to cash sales.

Purchases of merchandise to inventory to cash sales.

Income Statement Section

The __________ of the work sheet includes only the temporary general ledger accounts.

Trial Balance Section

The __________ of the worksheet includes all the general ledger accounts.

What does it mean when an account is closed?

The account has a zero balance

Net Income

The amount left after expenses for the period have been subtracted from revenue for the period is __________.

Net income

The amount left after expenses for the period have been subtracted from revenue for the same period

True

The balances of the expense accounts must be reduced to zero to prepare the accounts for the next fiscal period.

False

The balances of the liability accounts must be reduced to zero to prepare the accounts for the next period

True

The capital account's new balance after all closing entries are posted is verified by checking it with the amount of capital shown on the balance sheet at the end of the fiscal period.

True

The capital account's new balance after all closing entries are posted is verifies by checking it with the amount of capital shown on he balance sheet at the end of the fiscal period

True

The series of accounting activities included in recording financial information for a fiscal period is called an accounting cycle

Pt 1. Accounting Cycle

The series of accounting activities included in recording financial information for a fiscal period.

Accounting Cycle

The series of accounting activities included in recording financial information.

While in the process of posting from the journal to the ledger, a company failed to post a $500 debit to the Equipment account. The effect of this error will be that: The Equipment account balance will be overstated. The trial balance will not balance. The error will overstate the debits listed in the journal. The total debits in the trial balance will be larger than the total credits. The error will overstate the credits listed in the journal.

The trial balance will not balance.

After the Adjusting Entries are posted, the Insurance Expense account balance represents what?

The value of prepaid insurance used

After the Adjusting Entries are posted, the Supplies Expense account balance represents what?

The value of supplies used

Pt 4. The accounts listed on a post-closing trial balance are ___?

Those that appear in the work sheet's Trial Balance columns

A broad principle that requires identifying the activities of a business with specific time periods such as months, quarters, or years is the: Operating cycle of a business. Time period assumption. Going-concern assumption. Expense recognition (matching) principle. Accrual basis of accounting.

Time period assumption.

Temporary accounts are used for what purpose?

To accumulate information until it is transferred to the owner's capital account

True

To close a temporary account, an amount equal to its balance is recorded in the account on the side opposite to its balance

True

To close a temporary account, an amount equal to its balance is recorded in the account on the side opposite to its balance.

What is the purpose of the Post-Closing Trial Balance

To verify equality of debits and credits in the General Ledger

Extending

Transferring balances fromn the Trial Balance section is called __________ the balances.

Post-closing trial balance

Trial balance prepared after the closing entries are posted

A report that lists a business's accounts and their balances, in which the total debit balances should equal the total credit balances, is called a(n): Account balance. Trial balance. Ledger. Chart of accounts. General Journal.

Trial balance.

T/F When an account is written off as uncollectible, an explanation should be written on the account.

Tru

A balance sheet reports financial information on a specific date and includes the assets, liabilities, and owners equity

True

A classified balance sheet organizes assets and liabilities into important subgroups that provide more information to decision makers. True or False

True

A component percentage is the percentage relationship between one financial statement item and the. Total that includes that item

True

A reversing entry is usually the opposite of the adjusting entry made to the same accounts

True

Accrued Warranty Liability and Allowance for Uncollectable Accounts each have natural credit balances

True

An income statement reports information over a period of time indicating the financial progress of a business in earning a net income or a net loss

True

Cost of goods sold represents the cost of buying and preparing merchandise for sale. True False

True

For a service business the revenue reported on an income statement includes components for total expenses and net income

True

If an adjusting entry creates a balance in an asset or a liability account, the adjusting entry is reversed

True

Recording repair costs during a warranty period as an expense in the same period the merchandise is sold is an application of the accounting concept Matching Expenses with Revenue

True

Reporting in the same fiscal period the revenue earned and the expenses incurred to earn that revenue is an application of the accounting concept Matching Expenses with Revenue

True

T/F Another term for uncollectible accounts is bad debts.

True

T/F Businesses that sell on credit usually expect to sell more than if they accepted only cash.

True

T/F The Allowance for Uncollectible Accounts account is classified as a contra asset account.

True

T/F The normal balance of Allowance for Uncollectible Accounts is a credit.

True

T/F Under the allowance method, Allowance for Uncollectible Accounts is debited when a charge customer's account is written off as a bad debt.

True

T/F When a business uses the allowance method, an adjusting entry must be made.

True

T/F When the direct write-off method of accounting is used, Accounts Receivable and the customer's account in the subsidiary ledger are credited when it is determined that the charge customer is not going to pay.

True

The Adequate Disclosure accounting concept is applied when financial statements contain all information necessary to understand a businesses financial condition

True

The Matching Expenses with Revenue accounting concept is applied when the revenue earned and the expenses incurred to earn that revenue are reported in the same fiscal period

True

The amount of note interest is slightly higher using a 360-day year compared to a 365-day year

True

The financial condition of a business refers to its financial strength

True

The formula for calculation net income is total revenue minus total expenses equals net income

True

The interest rate on a credit line can change, based on market interest rates

True

The net income calculated for the income statement and the net income in the work sheet must be the same

True

The owners equity section of a balance sheet may report different kinds of details about owners equity depending on the need of the business

True

The proceeds of a non-interest-bearing note are less than its maturity value

True

The reversing entry for an accrued expense results in a temporary credit balance in the expense account

True

Identify the account below that is classified as a liability in a company's chart of accounts: Cash Unearned Revenue Salaries Expense Accounts Receivable Supplies

Unearned Revenue

Which of the following is NOT an equity account: Unearned Revenue Owner, Capital Services Revenue Wages Expense Owner, Withdrawals

Unearned Revenue

Identify the account below that impacts the Equity of a business: Utilities Expense Accounts Payable Accounts Receivable Cash Unearned Revenue

Utilities Expense

A credit is used to record an increase in all of the following accounts except: Accounts Payable Service Revenue Unearned Revenue Wages Expense Owner's Capital

Wages Expense

Information to complete Adjusting & Closing Entries comes from where?

Work Sheet

Information needed for journalizing the adjusting entries is obtained from the

Work Sheet's Adjustments columns

Information needed for recording the closing entries is obtained from the

Work Sheet's Income Statement and Balance sheet columns

Pt 4. Information needed for journalizing the adjusting entries is obtained from the ___?

Work sheet's Adjustments columns

Pt 4. Information needed for recording the closing entries is obtained from the ___?

Work sheet's Income Statement and Balance Sheet columns

Pt 3. Accounts Payable - Suburban Office Supplies

Yes

Pt 3. Accounts Receivable - Imagination Station

Yes

Pt 3. Cash

Yes

Pt 3. J. Nichols, Capital

Yes

Pt 3. Petty Cash

Yes

Pt 3. Prepaid Insurance

Yes

Pt 3. Supplies

Yes

At the beginning of each new fiscal period, Temporary Accounts have what kind of balance?

Zero

a post-closing trial balance of the general ledger is prepared

eight

A balance sheet reports financial information over a specific period of time

false

A ledger account having a zero balance is not listed on the Trial Balance section of the work sheet.

false

If the debit column of the Income Statement section of the work sheet is greater than the credit column of the Income Statement section, there is a net income for the period.

false

The work sheet has four sections: the heading, the Trial Balance section, the Income Statement Section, and the Balance Sheet section.

false

The work sheet is prepared in pen because it is a formal document

false

When a business has two different sources of revenue, a separate income statement should be prepared for each kind of revenue

false

a component percentages on an income statement are calculated by dividing sales and total expenses by net income

false

an amount written in ( ) on a financial statement indicates an estimate

false

on an income statement the double lines are ruled across both amount columns to show that debits = credits

false

the current capital account to be reported on a balance sheet is calculated as:capital account balance + net income = current capital

false

the formula for calculating net income is total revenue - total expenses = net income

false

the maximum period covered by the accounting cycle is one month

false

adjusting entries are journalized and posted to the general ledger

five

Information needed to record the four closing entries

found in the Income Statement and Balance Sheet columns of the work sheet.

a work sheet, including a trial balance, is prepared from the general ledger

four

10. The accounts listed on a post-closing trial balance are

general ledger accounts with balances after the closing entries are posted

The accounts listed on a post-closing trial balance are

general ledger accounts with balances after the closing entries are posted

The accounts listed on a post-closing trial balance are ___.

general ledger accounts with balances after the closing entries are posted

the accounts listed on a post-closing trial balance are...

general ledger accounts with balances after the closing entries are posted

9. After the closing entries are posted, the owner's capital account balances should be the same as shown

on the balance sheet for the fiscal period

after the closing entries are posted, the owner's capital account balances should be the same as shown...

on the balance sheet for the fiscal period

source documents are checked for accuracy, and transactions are analyzed into debit and credit parts

one

1. Accounts used to accumulate information from one fiscal period to the next.

permanent accounts

Accounts used to accumulate information from one fiscal period to the next. (p. 214)

permanent accounts

accounts used to accumulate information from one fiscal period to the next

permanent accounts

4. A trial balance prepared after the closing entries are posted.

post-closing trial balance

A trial balance prepared after the closing entries are posted. (p. 227)

post-closing trial balance

a trial balance prepared after the closing entries are posted

post-closing trial balance

which of the following accounts is a temporary account?

rent expense

closing entries are journalized and posted to the general ledger

seven

After the closing entries are posted, the owner's capital account balance should be the same as

shown on the balance sheet for the fiscal period

After the closing entries are posted, the owner's capital account balance should be the same as ___.

shown on the balance sheet for the fiscal period

financial statements are prepared from the work sheet

six

2. Accounts used to accumulate information until it is transferred to the owner's capital account.

temporary accounts

Accounts used to accumulate information until it is transferred to the owner's capital account. (p. 214)

temporary accounts

accounts used to accumulate information until it is transferred to the owner's capital account

temporary accounts

2. The ending account balances of permanent accounts for one fiscal period are

the beginning account balances for the next fiscal period

the ending account balances of permanent accounts for one fiscal period are...

the beginning account balances for the next fiscal period

Whenever a temporary account is closed,

the closing entry must have equal debits and credits

After adjusting entries are posted, the supplies account balance will be equal to

the cost of the supplies on hand at the end of the fiscal period

After adjusting entries are posted, the supplies account balance will be equal to ___.

the cost of the supplies on hand at the end of the fiscal period.

journal entries are posted to the general ledger

three

A double rule across both amount columns of the Trial Balance section means that no more entries will be made

true

A single rule under a column of amounts means that the amounts are ready to be added or subtracted

true

Information needed to compare an a income statement comes from the trial balance columns and income statement columns of a worksheet

true

The matching expenses with revenue accounting concept is applied is when the revenue earned and the expenses incurred to earn that revenue are reported in the same fiscal period

true

The owners capital amount reported on a balance sheet is calculated as: capital account balance + drawing account balance - net income switch +-

true

The owners equity section of a balance sheet may report different kinds of details bout owners equity, depending on the need of business

true

a component percentages is the percentage relationship between financial statement item and the total that includes that item

true

account titles are listed on the work sheet in the same order as the appear in the general ledger

true

amounts from the trial balance section are first extended to the balance sheet section

true

an income statement reports information over a period of time, indicating the financial progress of a business in earning a net income or a net loss

true

for a service business, the revenue reported on an income statement includes components for total expenses and net income

true

reporting in the same fiscal period the revenue earned and the expenses incurred to earn that revenue is an application concept matching expenses with revenue

true

the adequate disclosure accounting concept is applied when financial statements contain info necessary to understand a business financial condition

true

the balance sheet reports financial info on a specific date and includes the assets, liabilities, and owners equity

true

the financial condition of a business refers to its financial strength

true

the formula for calculating the total expenses component percentage is: total expense/ total sales = total expenses component percentatge

true

the net income calculated for the income statement and net income on the worksheet must be the same

true

the work sheet is used to pull to gather al the information needed to prepare financial statements and the end-of-period activities

true

transactions, from information on source documents, are recorded in a journal

two

6. Information needed for recording the closing entries is obtained from the

work sheet's Income Statement and Balance Sheet columns

information needed for journalizing the adjusting entries is obtaining from the ___.

work sheet's adjustments columns

Information needed for recording the closing entries is obtained form the ___.

work sheet's income statement and balance sheet columns

information needed for recording the closing entries is obtained from the ...

work sheet's income statement and balance sheet columns

8. After the closing entries are posted, the Sales account balance should be

zero

after the closing entries are posted, the sales account balance should be...

zero

Which of the following assets is not depreciated? Selected Answer: Store fixtures. Computers. Land. Buildings. Equipment.

Land.

Balance Sheet Section

The __________ of the work sheet includes all permanent general ledger accounts.

A company had $7,000,000 in net income for the year. Its net sales were $15,200,000 for the same period. Calculate its profit margin. 85.4%. 117.1%. 53.9%. 217.1%. 46.1%.

46.1%.

A company's net sales are $775,420, its costs of goods sold are $413,890, and its net income is $117,220. Its gross margin ratio equals: 46.6%. 53.4%. 28.3%. 31.5%. 40.5%.

46.6%

Financial statements are prepared from the work sheet

5

Pt 5. Financial statements are prepared from the work sheet.

5

Garza Company had sales of $135,000, sales discounts of $2,000, and sales returns of $3,200. Garza Company's net sales equals: Selected Answer: $5,200. $129,800. $133,000. $135,000. $140,200.

129,800

Pt 5. Transactions, from information on source documents, are recorded in a journal.

2

Transactions, from information on source documents, are recorded in a journal

2

Journal entries are posted to the general ledger

3

Pt 5. Journal entries are posted to the general ledger.

3

Post-Closing Trial Balance

A trial balance prepared after the closing entries are poste

Post closing trial balance

A trial balance prepared after the closing entries are posted

Post-Closing Trial Balance

A trial balance prepared after the closing entries are posted.

Pt 1. Post-Closing Trial Balance

A trial balance prepared after the closing entries are posted.

Work sheet

A working paper used to collect information from the ledger accounts is a(n) __________.

Temporary Accounts

Accounts used to accumulate information until it is transferred to the owners capital account

Temporary Accounts

Accounts used to accumulate information until it is transferred to the owners capital account.

Pt 2. Closing entry for owner's drawing account

Debited - J. Nichols, Capital (310) Credited - J. Nichols, Drawing (320)

Pt 2. Closing entry for Sales

Debited - Sales (410) Credited - Income Summary (330)

A work sheet, including a trial balance, is prepared from the general ledger

4

Pt 5. A work sheet, including a trial balance, is prepared from the general ledger.

4

Pt 2. Adjusting entry for Supplies

Debited - Supplies Expense (550) Credited - Supplies (150)

A company's current assets are $23,420, its quick assets are $13,890 and its current liabilities are $12,220. Its acid-test ratio equals: 0.88. 1.91. 1.14. .52. 1.41.

1.14

Ruling

"drawing a line" A single rule or line drawn under a column of amounts indicates that the entries above are ready to be totaled.

A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. The amount of the cash paid on July 28 equals: $200. $1,564. $1,568. $1,600. $1,800.

$1,600.

In its first year of operations, Grace Company reports the following: Earned revenues of $60,000 ($52,000 cash received from customers); Incurred expenses of $35,000 ($31,000 cash paid toward them); Prepaid $8,000 cash for costs that will not be expensed until next year. Net income under the cash basis of accounting is: $17,000 $21,000. $13,000. $25,000. None of the above.

$13,000.

A company shows a $600 balance in Prepaid Rent in the Unadjusted Trial Balance columns of the work sheet. The Adjustments columns show expired rent of $200. This adjusting entry results in: $200 decrease in net income. $200 increase in net income. $200 difference between the debit and credit columns of the Unadjusted Trial Balance. $200 of prepaid insurance. An error in the financial statements.

$200 decrease in net income.

A company has sales of $375,000 and its gross profit is $157,500. Its cost of goods sold equals: $(217,000). $375,000. $157,500. $217,500. $532,500.

$217,500.

In its first year of operations, Grace Company reports the following: Earned revenues of $60,000 ($52,000 cash received from customers); Incurred expenses of $35,000 ($31,000 cash paid toward them); Prepaid $8,000 cash for costs that will not be expensed until next year. Net income under the accrual basis of accounting is: $17,000. $21,000. $13,000. $25,000. None of these options are correct

$25,000.

Use the information in the adjusted trial balance presented below to calculate the current ratio for Taron Company:

1.87.

A business's source documents may include all of the following except: Sales tickets. Ledgers. Checks. Purchase orders. Bank statements.

Ledgers.

Accounting cycle

1.Analyze transactions 2.Journaling 3.Post 4.Prepare worksheet 5.Adjusting entries 6.prepare financial statements 7. Journalist and posting closing entries 8.prepare post closing trial balance

Account title and trail balance sections

- taken from general ledger accounts - be sure to list all accounts, even those without balances. - Horizontal lines in amount columns to signify "0" balances - Single rule; signify addition - Total debit and credit amount columns - Double rule; when totals are equal

Permanent Accounts

-Accounts used to accumulate information from one fiscal period to the next -Include the asset and liability accounts and the owner's capital account -Ending account balances of permanent accounts for one fiscal period are the beginning account balances for the next fiscal period

Temporary Accounts

-Accounts used to accumulate information until it is transferred to the owner's capital account -Also referred to as nominal accounts -Include the revenue, expense, and owner's drawing accounts plus the Income Summary account -Show changes in the owner's capital for a single fiscal period -Temporary accounts begin a new fiscal period with zero balances

Account Titled Income Summary

-Used to summarize the closing entries for the revenue and expense accounts - does not have a normal balance side- determined by the amounts posted to the account at the end of a fiscal period

Pt 5. Source documents are checked for accuracy, and transactions are analyzed into debit and credit parts.

1

Source documents are checked for accuracy, and transactions are analyzed into debit and credit parts

1

Steps in an Accounting Cycle

1 Check source documents for accuracy and analyze transactions into debit and credit parts. 2 Record transactions from information on source documents in a journal. 3 Post journal entries to the general ledger. 4 Prepare a work sheet, including a trial balance, from the general ledger. 5 Journalize adjusting entries and post them to the general ledger. 6 Prepare financial statements from the work sheet. 7 Journalize and post closing entries. 8 Prepare a post-closing trial balance of the general ledger.

Journaling closing entries

1. Closing Entries 2. Sales Income summary 3. Income summary Expenses 4. Income summary Capital 5. Capital Drawing

Steps of accounting cycle

1. Collect and verify source documents 2. Analyze each transaction 3. Journalize each transaction 4. Post to ledger 5. Prepare a trial balance 6. Prepare a work sheet 7. Prepare financial statements 8. Journalize and post closing entries 9. Prepare a post-closing trial balance

Five sections of work sheet

1. Heading 2. Acct. No. and Title (Acct name section) 3. Trial Balance 4. Income Statement 5. Balance Sheet

Work sheet heading

1. Name of the business 2. Name of the accounting form 3. Fiscal period covered

Preparing worksheet

1. Write the heading on the work sheet 2. In the Account Name and Trial Balance sections, enter the amount numbers, names and balances for all general ledger accounts 3. Prove the equality of the Trial Balance total debits and total credits 4. Extend the amounts of the Trial Balance section to the appropriate columns in the Balance Sheet and Income Statement sections 5. Total the columns in the Income Statement and Balance Sheet sections 6. Determine the amount of the net income or net loss for the period 7. Enter the amount of the net income or net loss in the appropriate columns in the Income Statement and Balance Sheet sections 8. Total and rule the Income Statement and Balance sections

A classified balance sheet differs from an unclassified balance sheet in that An unclassified balance sheet is never used by large companies. A classified balance sheet groups items into the broad categories of asset, liability, and equity. A classified balance sheet presents information in a manner that makes it easier to calculate a company's current ratio. A classified balance sheet will include more accounts than an unclassified balance sheet for the same company on the same date. A classified balance sheet is not usually provided to outside parties.

A classified balance sheet presents information in a manner that makes it easier to calculate a company's current ratio.

On May 1, Sellers Marketing Company received $1,500 from Franco Marcelli for a marketing campaign effective from May 1 this year to April 30 of the following year. The Cash receipt was recorded as unearned fees and at year-end on December 31, $1,000 of the fees had been earned. Assuming adjustments are only made at year-end, the adjusting entry on December 31 would be: A debit to Unearned Fees and a credit to Cash for $500. A debit to Fees Earned and a credit to Unearned Fees for $500. A debit to Unearned Fees and a credit to Fees Earned for $1,000. A debit to Fees Earned and a credit to Cash for $1,000. A debit to Fees Earned and a credit to Cash for $500.

A debit to Unearned Fees and a credit to Fees Earned for $1,000.

A business uses a credit to record: An increase in an expense account. A decrease in an asset account. A decrease in an unearned revenue account. A decrease in a revenue account. A decrease in a capital account.

A decrease in an asset account.

Unearned revenue is reported in the financial statements as: A revenue on the balance sheet. A liability on the balance sheet. An unearned revenue on the income statement. An asset on the balance sheet. A financing activity on the statement of cash flows.

A liability on the balance sheet.

Debit

A net income is entered in the _________ column of the Income Statement section.

Credit

A net income is entered in the __________ column of the Balance Sheet section.

Capital

A net income or loss will increase or decrease the __________ account.

Which of the following statements is true? Owner's capital must be closed each accounting period. A post-closing trial balance should include only permanent accounts. The work sheet can be substituted for preparing financial statements. By using a work sheet to prepare adjusting entries you need not post these entries to the ledger accounts. Closing entries are only necessary if errors have been made.

A post-closing trial balance should include only permanent accounts.

True

A post-closing trial balance verifies the equality of debits and credits in a general ledger after the closing entries are posted

True

A post-closing trial balance verifies the equality of debits and credits in a general ledger after the closing entries are posted.

A company's ledger is: A record containing increases and decreases in a specific asset, liability, equity, revenue, or expense item. A journal in which transactions are first recorded. A collection of documents that describe transactions and events entering the accounting process. A list of all accounts a company uses with an assigned identification number. A record containing all accounts and their balances used by the company.

A record containing all accounts and their balances used by the company.

False

A source document is prepared for adjusting entries.

False

A source document is prepared for closing entries.

Pt 4. Income Summary is ___?

A temporary account

Income Summary

A temporary account used to accumulate and summarize the closing entries for the revenue and expense accounts for a fiscal period.

Matching Principle

According to the __________, expenses are matched against revenue for the same period.

A balance sheet that places the liabilities and equity to the right of the assets is a(n): Selected Answer: Account form balance sheet. Report form balance sheet. Interim balance sheet. Classified balance sheet. Unclassified balance sheet.

Account form balance sheet.

A business's record of the increases and decreases in a specific asset, liability, equity, revenue, or expense is known as a(n): Journal. Posting. Trial balance. Account. Chart of accounts.

Account.

The series of accounting activities included in recording financial information for a fiscal period

Accounting Cycle

1. Which accounting concept applies when a work sheet is prepared at the end of each fiscal cycle to summarize the general ledger information needed to prepare financial statements?

Accounting Period Cycle

Pt 4. Which accounting concept applies when a work sheet is prepared at the end of each fiscal cycle to summarize the general ledger information needed to prepare financial statements?

Accounting Period Cycle

Which accounting concept applies when a work sheet is prepared at the end of each fiscal cycle to summarize the general ledger information needed to prepare financial statements

Accounting Period Cycle

Which accounting concept applies when a work sheet is prepared at the end of each fiscal cycle to summarize the general ledger information needed to prepare financial statements?

Accounting Period Cycle

A debit is used to record an increase in all of the following accounts except: Supplies Cash Accounts Payable Owner's Withdrawals Prepaid Insurance

Accounts Payable

Identify the account below that is classified as a liability account: Cash Accounts Payable Salaries Expense J. Jackson, Capital Equipment

Accounts Payable

Identify the account below that is classified as an asset in a company's chart of accounts: Accounts Receivable Accounts Payable Owner's Capital Unearned Revenue Service Revenue

Accounts Receivable

Which of the following accounts would be included in a post-closing trial balance? Accounts Receivable. S. Stills, Withdrawal. Consulting Fees Earned. Depreciation Expense—Equipment. Salaries Expense.

Accounts Receivable.

Which of the following statements is not true: Accounts receivable are held by a seller. Accounts receivable arise from credit sales. Accounts receivable are increased by customer payments. Accounts receivable are classified as assets. Accounts receivable are increased by billings to customers.

Accounts receivable are increased by customer payments.

Permanent Account

Accounts used to accumulate information from one fiscal period to the next

Permanent Accounts

Accounts used to accumulate information from one fiscal period to the next

Permanent accounts

Accounts used to accumulate information from one fiscal period to the next

Pt 1. Permanent Accounts

Accounts used to accumulate information from one fiscal period to the next.

Temporary accounts

Accounts used to accumulate information until it is transfered to the owners capital account

Pt 1. Temporary Accounts

Accounts used to accumulate information until it is transferred to the owner's capital account.

After all Closing Entries have been posted, the owner's Capital account balance will equal the Capital amount listed on what other financial form?

Balance Sheet's Capital

Extend which sheet first?

Balance sheet

Which financial statement reports an organization's financial position at a single point in time? Income statement. Balance sheet. Statement of owner's equity. Cash flow statement. Trial balance.

Balance sheet.

The difference between the cost of an asset and the accumulated depreciation for that asset is called Depreciation Expense. Unearned Depreciation. Prepaid Depreciation. Depreciation Value. Book Value.

Book Value.

Post closing trial balance

Business name Cash Petty cash Acc. Rec. Acc. Rec. Supplies Prepaid insurance Acc. Pay. Acc. Pay. Capital Totals

Temporary accounts are eventually summarized and transferred to what account?

Capital

An account linked with another account that has an opposite normal balance and is subtracted from the balance of the related account is a(n): Accrued expense. Contra account. Accrued revenue. Intangible asset. Adjunct account.

Contra account.

Capital has what kind of normal balance?

Credit

Liabilities have what kind of normal balance?

Credit

Revenue accounts have what kind of normal balance?

Credit

Pt 4. When revenue is greater than total expenses, resulting in a net income, the income summary account has a ___?

Credit balance

When revenue is greater than total expenses, resulting in a net income, the income summary account has a

Credit balance

The right side of a T-account is a(n): Debit. Increase. Credit. Decrease. Account balance.

Credit.

The assets section of a classified balance sheet usually includes the subgroups: Current assets, long-term investments, plant assets, and intangible assets. Current assets, long-term assets, revenues, and intangible assets. Current assets, long-term investments, plant assets, and equity. Current liabilities, long-term investments, plant assets, and intangible assets. Current assets, liabilities, plant assets, and intangible assets.

Current assets, long-term investments, plant assets, and intangible assets.

All of the following regarding the current ratio are true except: Current ratio is calculated by dividing current assets by current liabilities. Current ratio helps to assess a company's ability to pay its debts in the near future. Current ratio does not affect a creditor's decision on whether to allow a company to buy on credit. Current ratio can affect a creditor's decision about whether to lend money to a company. Current ratio can reveal challenges in covering short-term obligations if it is less than 1.

Current ratio does not affect a creditor's decision on whether to allow a company to buy on credit.

The time period assumption assumes that an organization's activities may be divided into specific reporting time periods including all of the following except: Months. Quarters. Fiscal years. Calendar year Days.

Days

Assets have what kind of normal balance?

Debit

Drawing has what kind of normal balance?

Debit

Expenses have what kind of normal balance?

Debit

A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 12, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, the correct journal entry to record the payment on July 12 is: Debit Merchandise Inventory $1,600; credit Cash $1,600. Debit Cash $1,600; credit Accounts Payable $1,600. Debit Accounts Payable $1,600; credit Merchandise Inventory $32; credit Cash $1,568. Debit Accounts Payable $1,800; credit Cash $1,800. Debit Accounts Payable $1,600; credit Cash $1,600.

Debit Accounts Payable $1,600; credit Merchandise Inventory $32; credit Cash $1,568.

A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, the correct journal entry to record the merchandise return on July 7 is: Debit Merchandise Inventory $1,600; credit Cash $1,600. Debit Merchandise Inventory $200; credit Accounts Payable $200. Debit Merchandise Inventory $200; credit Sales Returns $200. Debit Accounts Payable $200; credit Merchandise Inventory $200. Debit Accounts Payable $1,800; credit Purchase Returns $200; credit Merchandise Inventory $1,600.

Debit Accounts Payable $200; credit Merchandise Inventory $200.

Prior to recording adjusting entries, the Office Supplies account had a $359 debit balance. A physical count of the supplies showed $105 of unused supplies available. The required adjusting entry is: Debit Office Supplies $105 and credit Office Supplies Expense $105. Debit Office Supplies Expense $105 and credit Office Supplies $105. Debit Office Supplies Expense $254 and credit Office Supplies $254. Debit Office Supplies $254 and credit Office Supplies Expense $254. Debit Office Supplies $105 and credit Supplies Expense $254.

Debit Office Supplies Expense $254 and credit Office Supplies $254.

If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees, the end-of-period adjusting entry to record the portion of those fees that has been earned is: Debit Cash and credit Legal Fees Earned. Debit Cash and credit Unearned Legal Fees. Debit Unearned Legal Fees and credit Legal Fees Earned. Debit Legal Fees Earned and credit Unearned Legal Fees. Debit Unearned Legal Fees and credit Accounts Receivable.

Debit Unearned Legal Fees and credit Legal Fees Earned.

What is the entry to close Income Summary if there is a Net Loss?

Debit: Capital Credit: Income Summary

What is the entry to close Income Summary if there is a Net Income?

Debit: Income Summary Credit: Capital

Pt 2. Closing entry for all expense accounts

Debited - Income Summary (330) Credited - Advertising Expense, Insurance Expense, Supplies Expense (510, 520, 550)

Pt 2. Closing entry for Income Summary with a net income

Debited - Income Summary (330) Credited - J. Nichols, Capital (310)

Pt 2. Closing entry for Income Summary with a net loss

Debited - Income Summary (330) Credited - J. Nichols, Capital (310)

Pt 2. Adjusting entry for Prepaid Insurance

Debited - Insurance Expense (520) Credited - Prepaid Insurance (160)

A merchandiser: Earns net income by buying and selling merchandise. Receives fees only in exchange for services. Earns profit from commissions only. Earns profit from fares only. Buys products from consumers.

Earns net income by buying and selling merchandise.

The closing process is necessary in order to: Calculate net income or net loss for an accounting period. Ensure that all permanent accounts are closed to zero at the end of each accounting period. Ensure that the company complies with state laws. Ensure that net income or net loss and owner withdrawals for the period are closed into the owner's capital account. Ensure that management is aware of how well the company is operating.

Ensure that net income or net loss and owner withdrawals for the period are closed into the owner's capital account.

The broad principle that requires expenses to be reported in the same period as the revenues that were earned as a result of the expenses is the: Recognition principle. Cost principle. Cash basis of accounting. Expense recognition (Matching) principle. Time period principle.

Expense recognition (Matching) principle.

3. Which of the following accounts is a temporary account?

Expenses, revenue, and owners drawing

A benefit of self-imposed budgeting is that it may allow lower-level managers to create budgetary slack.

F

A continuous or perpetual budget is a budget that almost never needs to be revised.

F

A periodic inventory system requires updating of the inventory account only at the beginning of an accounting period. True False

F

A retailer buys products from manufacturers and sells them to wholesalers. True False

F

A service company earns net income by buying and selling merchandise. True False

F

A wholesaler buys products from manufacturers or other wholesalers and sells them to consumers. True False

F

Both variable and fixed manufacturing overhead costs are included in the selling and administrative expense budget.

F

FOB shipping point means that the buyer accepts ownership when the goods arrive at the buyer's place of business. True False

F

One disadvantage of a self-imposed budget is that budget estimates prepared by front-line managers are often less accurate and reliable than estimates prepared by top managers.

F

Only variable manufacturing overhead costs are included in the manufacturing overhead budget.

F

Quick assets include cash and cash equivalents, inventory, and current receivables. True False

F

The budgeted selling and administrative expense is calculated by multiplying the budgeted unit sales by the selling and administrative expense per unit.

F

The cash budget is typically prepared before the direct materials budget.

F

The direct materials budget is typically prepared before the production budget.

F

The manufacturing overhead budget lists all costs of production other than selling and administrative expenses.

F

The number of units to be produced in a period can be determined by adding the expected sales to the beginning inventory and then deducting the desired ending inventory.

F

Adjusting entries for Prepaid Expenses recognize the portion of the asset used in the current period as an asset.

FALSE

Companies reverse accrued warranty entries so that they do not have to remember that the warranty liability accounts reflect an expense from the previous accounting period.

FALSE

What is the Normal Balance for Income Summary?

Income Summary does not have a Normal Balance

Financial statements are typically prepared in the following order: Balance sheet, statement of owner's equity, income statement. Statement of owner's equity, balance sheet, income statement. Income statement, balance sheet, statement of owner's equity. Income statement, statement of owner's equity, balance sheet. Balance sheet, income statement, statement of owner's equity.

Income statement, statement of owner's equity, balance sheet.

The adjusting entry to record an accrued revenue is: Selected Answer: Increase an expense; increase a liability. Increase an asset; increase revenue. Decrease a liability; increase revenue. Increase an expense; decrease an asset. Increase an expense; decrease a liability.

Increase an asset; increase revenue.

The adjusting entry to record an accrued expense is: Increase an expense; increase a liability. Increase an asset; increase revenue. Decrease a liability; increase revenue. Increase an expense; decrease an asset. Increase an expense; decrease a liability.

Increase an expense; increase a liability.

How does a Net Income affect Capital?

Increases Capital with a Credit

Net income...

Increases capital

True

Information needed to record closing entries is found in the Income Statement and Balance Sheet columns of the work sheet

Merchandise inventory: Is a long-term asset. Is a current asset. Includes supplies the company will use in future periods. Is classified with investments on the balance sheet. Must be sold within one month.

Is a current asset.

The accrual basis of accounting: Is generally accepted for external reporting because it is more useful than cash basis for most business decisions. Is flawed because it gives complete information about cash flows. Recognizes revenues when received in cash. Recognizes expenses when paid in cash. Eliminates the need for adjusting entries at the end of each period.

Is generally accepted for external reporting because it is more useful than cash basis for most business decisions.

The total amount of depreciation recorded against an asset over the entire time the asset has been owned: Is referred to as depreciation expense. Is referred to as accumulated depreciation. Is shown on the income statement of the final period. Is only recorded when the asset is disposed of. Is referred to as an accrued asset.

Is referred to as accumulated depreciation.

A debit: Always increases an account. Is the right-hand side of a T-account. Always decreases an account. Is the left-hand side of a T-account. Is not needed to record a transaction.

Is the left-hand side of a T-account.

Cost of goods sold: Is another term for merchandise sales. Is the term used for the expense of buying and preparing merchandise for sale. Is another term for revenue. Is also called gross margin. Is a term only used by service firms.

Is the term used for the expense of buying and preparing merchandise for sale.

The current ratio: Is used to measure a company's profitability. Is used to measure the relation between assets and long-term debt. Measures the effect of operating income on profit. Is used to help assess a company's ability to pay its debts in the near future. Is calculated by dividing current assets by equity.

Is used to help assess a company's ability to pay its debts in the near future.

Prepaid expenses, depreciation, accrued expenses, unearned revenues, and accrued revenues are all examples of: Items that require contra accounts. Items that require adjusting entries. Asset and equity. Asset accounts. Income statement accounts.

Items that require adjusting entries.

Closing entries

Joirnal entries used to prepare temporary accounts for a new fiscal period

Adjusting Entries

Journal entries recorded to update general ledger accounts at the end of a fiscal period

Pt 1. Adjusting Entries

Journal entries recorded to update general ledger accounts at the end of a fiscal period.

Adjusting entroes

Journal entries recorded to update general ledger acvounts at the end of a fiscal period

Closing Entries

Journal entries used to prepare temporary accounts for a new fiscal period

Closing entries

Journal entries used to prepare temporary accounts for a new fiscal period

True

Journal entries used to prepare temporary accounts for a new fiscal period are closing entries

True

Journal entries used to prepare temporary accounts for a new fiscal period are closing entries.

Closing Entries

Journal entries used to prepare temporary accounts for a new fiscal period.

Pt 1. Closing Entries

Journal entries used to prepare temporary accounts for a new fiscal period.

The main purpose of adjusting entries is to: Record external transactions and events. Record internal transactions and events. Recognize assets purchased during the period. Recognize debts paid during the period. Correct errors in the accounting records.

Record internal transactions and events.

An asset created by prepayment of an insurance premium is: Recorded as a debit to Unearned Revenue. Recorded as a debit to Prepaid Insurance. Recorded as a credit to Unearned Revenue. Recorded as a credit to Prepaid Insurance. Not recorded in the accounting records until the insurance period expires.

Recorded as a debit to Prepaid Insurance.

What is the order of the Closing Entries?

Revenue (Sales) Expenses Income Summary Drawing

The accounting principle that requires revenue to be recorded when earned is the: Expense recognition (matching) principle. Revenue recognition principle. Time period assumption. Accrual reporting principle. Going-concern assumption.

Revenue recognition principle.

Acvounting cycle

Series of accounting activities included in recording financial information for a fiscal period

Which of the following is NOT an asset account: Cash Land Services Revenue Buildings Equipment

Services Revenue

Pt 4. After the closing entries are posted, the owner's capital account balance should be the same as ___?

Shown in the work sheet's Income Statement Debit column

Identify the account below that is classified as an asset account: Unearned Revenue Accounts Payable Supplies J. Jackson, Capital Service Revenue

Supplies

All of the following are asset accounts except: Accounts Receivable. Buildings. Supplies expense. Equipment. Prepaid insurance.

Supplies expense.

A common rule of thumb is that a company's acid-test ratio should have a value near or higher than 1 to conclude that a company is unlikely to face near-term liquidity problems. True False

T

A merchandiser's classified balance sheet reports merchandise inventory as a current asset. True False

T

A perpetual inventory system continually updates accounting records for merchandising transactions. True False

T

A self-imposed budget is a budget that is prepared with the full cooperation and participation of managers at all levels.

T

A single-step income statement includes cost of goods sold as another expense and shows only one subtotal for total expenses. True False

T

Beginning inventory plus net purchases equals merchandise available for sale. True False

T

Cost of goods sold is also called cost of sales. True False

T

Credit terms of 2/10, n/30 imply that the seller offers the purchaser a 2% cash discount if the amount is paid within 10 days of the invoice date. Otherwise, the full amount is due in 30 days. Selected Answer: True False

T

Gross profit is also called gross margin. True False

T

In companies that do not have "no lay-off" policies, the total direct labor cost for a budget period is computed by multiplying the total direct labor hours needed to make the budgeted output of completed units by the direct labor wage rate.

T

On a cash budget, the total amount of budgeted cash payments for manufacturing overhead should not include any amounts for depreciation on factory equipment.

T

Self-imposed budgets prepared by lower-level managers should be scrutinized by higher levels of management.

T

Successful use of a just-in-time inventory system can narrow the gap between the acid-test and the current ratio. True False

T

The acid-test ratio is also called the quick ratio. True False

T

The sales budget is usually prepared before the production budget.

T

The sales budget often includes a schedule of expected cash collections.

T

A company can elect to repay any portion of a line of credit at any time.

TRUE

Dalton Industries records insurance as an expense; therefore it should record a reversing entry for insurance.

TRUE

If Forrest Co. initially records supplies as an expense, the amount in the expense account before adjustment equals the beginning balance in the Supplies Expense account plus all supplies bought during the current fiscal period.

TRUE

Insurance may be originally recorded as an expense or an asset.

TRUE

The accrual of warranty expenses is an application of the Matching Expenses with Revenue concept.

TRUE

The proceeds of a non interest bearing note are less than its maturity value.

TRUE

Accounts used to accumulate information until it is transferred to the owner's capital account

Temporary Accounts

Accounts that are closed at the end of the fiscal period are called what?

Temporary accounts

Drawing, Income Summary, Revenue (Sales), and Expenses are all what kinds of accounts?

Temporary accounts

True

Temporary accounts are also called nominal accounts

True

Temporary accounts are not listed on a post-closing trial balance.

False

Temporary accounts include assets, expenses, and the owner's drawing account

True

Temporary accounts must start each fiscal period with a zero balance

True

Temporary accounts must start each fiscal period with a zero balance.

Revenues, expenses, and withdrawals accounts, which are closed at the end of each accounting period are: Real accounts. Temporary accounts. Closing accounts. Permanent accounts. Balance sheet accounts.

Temporary accounts.

False

The Income Summary account has a normal debit balance

Heading

The __________ explains the who, what, and when of the work sheet.

Pt 4. After adjusting entries are posted, the supplies account balance will be equal to ___?

The cost of supplies used during the fiscal period

An account balance is: The total of the credit side of the account. The total of the debit side of the account. The difference between the total debits and total credits for an account including the beginning balance. Assets = liabilities + equity. Always a credit.

The difference between the total debits and total credits for an account including the beginning balance.

False

The drawing account is a permanent account

False

The drawing account is a permanent account.

True

The ending account balances for the next fiscal period.

True

The ending account balances of permanent accounts for one fiscal period are the beginning account balances for the next fiscal period

True

The ending account balances of permanent accounts for one fiscal period are the beginning accounting balances for the next fiscal period.

True

The income summary account balance must be reduced to zero to prepare the account for the next fiscal period.

False

The income summary account has a normal debit balance.

The current period's ending inventory is: The next period's beginning inventory. The current period's cost of goods sold. The prior period's beginning inventory. The current period's net purchases. The current period's beginning inventory.

The next period's beginning inventory.

The following statements are true regarding the operating cycle of a merchandising company except: The operating cycle begins with the purchase of merchandise. The operating cycle is shortened by credit sales. The operating cycle ends with the collection of cash from the sale of merchandise. The operating cycle can vary in length among different merchandising companies. The operating cycle sometimes involves accounts receivable.

The operating cycle is shortened by credit sales.

Identify the account used by businesses to record the transfer of assets from a business to its owner for personal use: A revenue account. The owner's withdrawals account. The owner's capital account. An expense account. A liability account

The owner's withdrawals account.

Net Loss

When the Income Statement debit column total is greater than the Income Statement credit column total, a(n) __________ occurs.

7. Income Summary is

a temporary account

Income Summary is ___.

a temporary account

income summary is ...

a temporary account

Work sheet

a working paper used to collect information from the ledger accounts in one place.

5. The series of accounting activities included in recording financial information for a fiscal period.

accounting cycle

The series of accounting activities included in recording financial information for a fiscal period. (p. 228)

accounting cycle

the series of accounting activities included in recording financial information for a fiscal period

accounting cycle

which accounting concept applies when a worksheet is prepared at the end of each fiscal cycle to summarize the general ledger information needed to prepare financial statements?

accounting period cycle

Income Summary

is a temporary account

When an account has a zero balance,

lines are drawn in both the Balance Debit and Balance Credit columns. The lines assure a reader that a balance has not been omitted.

Which accounting concept applies when expenses are reported in the same fiscal period that they are used to produce revenue?

matching expenses with revenue

which accounting concept applies when expenses are reported in the same fiscal period that they are used to produce revenue?

matching expenses with revenue