Financial Accounting Exam #1

Land owned by a company

Assets

a term that refers to a code or moral system that provides criteria for evaluating right or wrong

Ethics

When should supplies be recorded as an expense?

In the period the supplies are used, regardless of when they were purchased

Chronological record of all transactions

Journal

Format used to record transactions of a company

Journal entry

list of permanent accounts and their balances

Permanent accounts

Adjusting entries are needed...

before financial statement preparation and to update accounts to their prior balances.

A classified balance sheet ______.

groups asset and liabilities into current and long-term categories

assets, liabilities, stockholders equity

Adjusted Trial Balance

Receive cash in the current period that will be recorded as a revenue in a future period

Deferred Revenue

Which of the following are attributes of FASB?

Full-time board members Independence Private sector organization

Information that does not bias the decision maker

Neutrality

The purpose of a general ledger is to

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

An advantage of the corporate form of organization is that a corporation

provides limited liability to stockholders.

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

recording of adjusting entries

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

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

The system that maintains records of a company's operations and then communicates that information to decision makers is referred to as

Accounting

Reporting revenues only when cash is received and expenses only when cash is paid is called the ________ basis of accounting

CASH

right side of an account

Credit

An adjusting entry for accrued expenses involves

Credit to liability, debit to expense

left side of an account

Debit

Which type of account is increased with a debit?

Expense

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

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

A debit is on the _____ side of an account

Left

Workers salaries for the current period.

Liabilities

List of permanent and temporary account and their balances

Post-closing trial balance

Cash flows...

Report cash receipts Reports cash disbursements Are the financial statement that is typically prepared last

Simplified form of a general ledger account

T-account

revenues, expenses, dividends

Temporary accounts

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

decreased; increased

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

has already been incurred

A primary purpose of adjusting entries is to record events that

have occurred but that have not yet been recorded.

Information that best explains companies' stock price performance is reported on the

income statement

Revenues and expenses are reported in the:

income statement

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

income statement

A chronological record of all economic events affecting a firm are recorded in a

journal

The adjusting entry for a deferred revenue includes a debit to a(n)_______ account and a credit to a(n)________ account.

liability; revenue

The statement of stockholders' equity includes these amounts:

net income dividends for the period ending balance retained earnings

list of all accounts and their balances showing that debits equal credits

trial balance

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

Accounting cycle

A summary of the effects of all transactions relate to a particular item over a period of time

Accounts

Record an expense in the current period that will be paid in cash in a future period

Accrued expenses

Record a revenue in the current period that will be collected in cash in a future period

Accrued revenue

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

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

Transfer of temporary balances to retained earnings

Closing entries

All information to necessary to describe an item as reported

Completeness

Information provides feedback on past activities

Confirmatory value

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

Debit a liability account Credit a revenue account

Payments made to stockholders

Dividends

Adjusting entries are made at the ______ of the accounting period, while daily transactions are made throughout the accounting period.

End/Closing

Amounts owed to the bank

Expenses

A(n)________ transaction involves an exchange between the company and a separate economic entity.

External

Activities of the company conducted with separate economic entities.

External transactions

Which of the following statements is true?

Income statement accounts are temporary accounts, while balance sheet accounts are permanent accounts.

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

OWED

The information reported in the statement of cash flows is organized by these activities:

Operating Investing Financing

Information is useful in helping to forecast future outcomes

Predictive Value

Pay cash (or have an obligation to pay cash) in the current period that will be recorded as an expense in a future period

Prepaid expenses

Which of the following are attributes of FASB?

Private sector organization Full time board members Independence

Cleaning services provided to customers

Revenues

Common stock issued to investors

Stockholders' Equity

Information is presented in time to make useful decisions

Timeliness

Measurements that independent parties would agree upon

Verifiability

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

accrual

Deferred Revenue

arises when a business receives cash in one period, but does not provide all of the related goods or services until a later period.

prepaid insurance is an

asset in the balance sheet

Prepaid rent appears in the ______.

balance sheet because it is an asset

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

chart of accounts

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

closing entries

The primary functions of accounting are to:

communicate information to decision makers. measure a company's activities.

Adjusting entries help to ensure that all ______ are recorded in the period in which they are incurred.

expenses

events that affect the financial position of the company but do not include an exchange with a separate economic entity

internal transactions

Depreciation is

is an allocation of the cost of buildings, vehicles, and equipment to expense over time as they are used.

If an adjusting entry's debit is to an expense account, then the credit must be to...

pre paid expense and liability

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

prepaid expenses; assets

The hierarchy of qualitative characteristics of financial information require that, in order to be useful for decision making, information should possess the fundamental characteristics of

relevance and faithful representation