Accounting Ch 6
Cash basis of accounting
Reporting income when the cash is received and expenses when the cash is paid
Income Statement
A financial statement showing the revenue and expenses for a fiscal period
Balance Sheet
A financial statement that reports assets, liabilities, and owner's equity on a specfic date
Fiscal Year
A fiscal period consisting of 12 consecutive months
Trial Balance
A proof of equality of debits and credits in a general ledger
Prepaid Expense
Cash paid for an expense in one fiscal period that is not used until a later period
Adjustments
Changes recorded on a work sheet to update general ledger accounts at the end of a fiscal period
1. The accounting concept Consistent Reporting is being applied when a delivery business reports revenue for the number of deliveries made one year and the amount of revenue received for the deliveries made the next year
False
11. The income statement and balance sheet are prepared from the Trial Balance columns on the work sheet
False
18. The best way to prevent errors is to use a calculator
False
2. A fiscal period must be 12 months in length
False
3.Journals, ledgers, and work sheets are considered permanent records
False
5. Only accounts with a balance are listed on a trial balance
False
6. The 4 questions asked when analyzing an adjustment are: Why? Where? When? and How?
False
8. The two accounts affects by the adjustment for insurance are Prepaid Insurance Expense and Insurance
False
Net Loss
The difference between total revenue and total expenses when total expenses are greater
Net Income
The difference between total revenue and total expenses when total revenue is greater
Fiscal Period
The length of time for which a business summarizes its financial information and reports its financial performance
10. Totaling and ruling the Adjustments columns of a work sheet are necessary to prove the equality of debits and credits
True
12. Net income on a work sheet is calculated by subtracting the Income Statement Debit column total from the Income Statement Credit column total
True
13. If errors are found on a work sheet, they must be erased and corrected before any further work is completed
True
14. When two column totals are not in balance on the work sheet, the difference between the two totals is calculated and checked
True
15. If the difference between the totals of Debit and Credit columns on a work sheet can be evenly divided by 9, then the error is most likely a transposed number
True
16. If there are errors in the work sheet's Trial Balance columns, it might be because a general ledger account balance was recorded in the wrong Trial Balance column
True
17. Most errors occur in doing arithmetic
True
19. Adjusting entries must be posted to the general ledger accounts
True
20. The balance in Supplies Expense after adjusting entries are recorded represents the amount of supplies used during the fiscal period
True
4. The heading on a work sheet contains the name of the business, the name of the report, and the date of the report
True
7. The two accounts affected by the adjustments for supplies are Supplies and Supplies Expense
True
9. The balance in Prepaid Insurance after adjusting entries are recorded represents the amount of insurance premium still remaining
True
Work Sheet
A columnar accounting form used to summarize the general ledger information needed to prepare financial statements
Adjusting Entries
Journal entries recorded to update general ledger accounts at the end of fiscal period
Accrual basis of accounting
Reporting income when it is earned and expenses when they are incurred