Accounting Final
When preparing your statements what is 1,2,3,4?
(Before these 4 steps, must do journalize the transactions and do T accounts) 1. Trial Balance 2. Income Statement 3. Statement of Retained Earnings 4. Balance Sheet
A company using the perpetual inventory system purchase inventory worth $550, 000 on account with credit terms of 2/15, n/45. Defective inventory of 70,000 was returned three days later and the accounts were probably adjusted. If the company pay the invoice 25 days later, the journal entry to record the payment would be
480,000 debit to Accounts Payable and 480,000 credit to cash you would do 550,000-70,000
Account
A detailed record of all increases and decreases that have occurred in a particular asset, liability, or equity during a period
Compound journal entry
A journal entry that is characterized by having multiple debits and/or multiple credits
Chart of accounts
A list of all accounts with their account numbers
Trial balance
A list of all accounts with their balances at a point in time
Journal
A record of transactions in date order
Which is usually longer? Accounting cycle, revenue cycle, operating cycle, matching cycle?
Accounting cycle
represents the right to receive cash in the future from customers for goods sold or for services perfoemed
Accounts Receivable
A company that uses a perpetual inventory system purchase inventory on account and later return goods worth $500 to the vendor. Which of the following would be the correct journal entry to record these returns?
Accounts payable 500 debit, merchandise inventory 500 credit
Which of the following statements is true of accrual basis accounting? A. Accrual basis the county records expenses only one cat has been paid for them B. Accrual basis accounting is required by the generally excepted accounting principles (GAAP) C. Accrual basis accounting records revenue only when cash is received D. Accrual basis accounting always results in greater net income then cash basis accounting
Accrual basis accounting is required by generally excepted accounting principles GAAP
This report can be used to prepare financial statements Unadjusted trial balance, adjusted trial balance, post closing trial balance, statement of financial position
Adjusted trial balance
The company hired on October 31 to perform services for six months at 3000 per month. Fiscal year ends December 31 A. Adjusting entry involves $3000 credit to revenue B. Adjusting entry involves 18,000 C. Adjusting entry involves 6000 credit to revenue D. No adjusting entry because revenue was not earned
Adjusting entry involve $6000 credit to revenue
Asset
An economic resource that is expected to be of benefit in the future
Office Supplies Asset/Liability/Equity? Credit/Debit? Normal Balance side?
Asset, Debit, NB: Debit
Prepaid Rent Asset/Liability/Equity? Credit/Debit? Normal Balance side?
Asset, Debit, NB: Debit
What is the Accounting Equation?
Assets= Liabilities+ Equity
Return on Assets Equation (ROA)
Average on the 2 total Assets (Add them together then divide by how many there are usually 2) then do Net Income/ Average of Total Assets
Which is True of Sole Proprietorship? A: Have to pay Business income taxes b: they are personally liable for the liabilities of the business c: joins 2 or more individuals as co-owners d: is taxed seperately from the owner
B: They are personally liable for the liabilities of the business
The four types of adjusting entries include all except A: defereed expense B: accrued cash C: deferred revenue D: accrued revenue
B: accrued cash missing accrued expense
Real accounts appear on the Balance sheet, closing statement, income statement, income summary
Balance sheet
Net Income for beginning and end of year
Beginning Assets + Ending Assets - Beginning Liabilities- Ending Liabilities= NET INCOME
Total Long-Term Assets
Building, Furniture, Land
Total Current Assets
Cash, Office Supplies, Prepaid Insurance, Accounts Recievable
Equity is?
Common Stock-Dividends+Revenues-Expenses
Which of the following states at the business should use the same accounting methods from period to period A. Consistently principal B. Materiality concept C. Conservatism D. Disclosure principle
Consistency principal
How is current ratio calculated?
Current Assets/ Current Liabilities
Journalising Accounts
Date | Accounts | Debit | Credit
Liability
Debts that are owed to creditors
Expense
Decreases in equity that occur in the course of selling goods or services
What appears on both the statement of retained earnings and the balance sheet?
ENDING retained earnings
A business purchases equipment for $8,000 cash. Which of the following accounts is debited?
Equipment
Common Stock Asset/Liability/Equity? Credit/Debit? Normal Balance side?
Equity, Credit, Credit
Interest Revenue Asset/Liability/Equity? Credit/Debit? Normal Balance side?
Equity, Credit, NB: Credit
Service Revenue Asset/Liability/Equity? Credit/Debit? Normal Balance side?
Equity, Credit, NB: Credit
Advertising Expense Asset/Liability/Equity? Credit/Debit? Normal Balance side?
Equity, Debit, NB: Debit
Dividends Asset/Liability/Equity? Credit/Debit? Normal Balance side?
Equity, Debit, NB: Debit
Utilities Expense Asset/Liability/Equity? Credit/Debit? Normal Balance side?
Equity, Debit, NB: Debit
T accounts
Ex: Cash ________ D$ | C$
Net loss
Excess of total expenses over total revenues
Net income
Excess of total revenues over total expenses
In an accounting cycle, an analysis of transactions is performed at the end of each accounting period.
False
T or F? Only temporary accounts appear on the post-closing trial balance
False
T or F? Under cash basis accounting, revenue is recorded when it is earned, regardless of when cash is received.
False
Under cash basis accounting revenue was recorded when it is earned, regardless of when cash is received true or false
False
T or F? Grace Paper Company has a debt ratio of 25%, which means that 75% of the assets are financed by creditors
False creditors should be replaced by equity component the debt ratio = 25% creditors
True or false only temporary accounts appear on the post closing trial balance
False permanant
T or F? In a corporation, the board of directors is elected by the chairperson of the company
False the shareholders elect them
The Time Period Concept states that A. All expenses should be recorded when they are incurred during the period B. Company should record revenue when it has been earned C. Expenses incurred during a period should be matched against the revenues of the period D. Financial statements can be prepared for specific periods
Financial statements can be prepared for specific periods
Which of the following financial statements reports expenses in decreasing order of their amounts?
Income Statement
Revenue
Increases in equity that occur in the course of selling goods or services
Debit
Left side of a T-account
The Salaries Payable account is an
Liability with a normal credit balance
Accounts Payable Asset/Liability/Equity? Credit/Debit? Normal Balance side?
Liability, Credit, NB: Credit
Unearned Revenue Asset/Liability/Equity? Credit/Debit? Normal Balance side?
Liability, Credit, NB: Credit
Buildings, Land, Equipment are considered long or current assets?
Long-term assets
The classified balance sheet includes which category? A. Accounts Receivable B. Long-term liabilities C. Bonds D. Retained earnings
Long-term liabilities
a business borrows cash by signing a note payable, which account is credited?
Notes payable
This account must be adjusted to the passage of time. Prepaid insurance unearned revenue accounts receivable or office supplies
Prepaid insurance
The gross profit percentage is one of the most carefully watch measures of
Profitability
Stmt. of ret. earnings
Report how the company's ret. earnings balance changed from the beg. to the end of the period.
Stmt. of cash flows
Reports on a business's cash receipts and cash payments during a period
Balance sheet
Reports on an entity's assets, liabilities, and stockholders' equity as of a specific date
Income statement
Reports on an entity's revenues, expenses, and net income or loss for the period
Credit
Right side of a T-account
Staff work December 2016 and were paid January 2017. Which should appear on the income statement for the year? Salary expense salaries payable prepaid expense or maintenance expense
Salaries expense
Which of the following accounts will be close by debiting the income summary account?
Salaries expense
Normal balance
Side of an account where increases are recorded
The explanation of why the net income differs from the change in cash balance for the period is explained in the which financial statement
Statement of Cash Flows
******Which financial statement shows the dividends distributed to stockholders?
Statement of Retained Earnings
Understated means
The amount is not the correct amount, and the amount is less than the true amount. In other words, the amount is too small.
Accounting equation
The basic tool of accounting, stated as Assets = Liabilities + Equity
Ledger
The record holding all the accounts of a business, the changes in those accounts, and their balances
Overstated means
The reported amount is incorrect, and the reported amount is more than the true or correct amount.
The accountant of Zeus Legal Services failed to make an adjusting entry for supplies that had been used for the year. Assume the supplies were initially recorded as an asset. Which of the following statements is true?
The total assets will be overstated
When analyzing a current ratio, what is the rule of thumb?
Though the ideal current ratio depends to some extent on the type of business, a general rule of thumb is that it should be at least 2:1
4. Balance Sheet
Top of Page Center: Title of Company Balance Sheet Month Day, Year List in 3 separate columns Left side: Right side: Assets Liabilities List account titles List account titles Total Assets Total Liabilities Stockholders Equity Retained Earnings: Common Stock: Total Stockholders Equity: Total Liabilities and Stockholders Equity: (Assets side and Total L and SE should be same amount)
2. Income Statement
Top of Page Center: Title of Company Income Statement Month Ended on Month Day, Year Revenues: list the different ones (Service Revenue) Expenses list the different ones (Utilities Expense) Total Expenses: (if more than one expense) Net Income: (revenues- expenses) ________
3. Statement of Retained Earnings
Top of Page Center: Title of Company Statement of Retained Earnings Month Ended on Month Day, Year Retained Earnings (starting $) usually $0 Net Income for the month (from income statement) ADD Dividends Retained Earnings (END of month)--- (Subtract dividends from NI and RE(starting) ________
1. Trial Balance Format
Top of Page in Center: Title of Company Trial Balance Month Day, Year 3 columns: Account Title- Debit- Credit List the titles and amounts then add each side up MUST BE SAME NUMBER ON BOTH SIDES
5. Debt Ratio
Total Liabilities/ Total Assets= Debt Ratio
The accountant for Belden Jewelry Repair Services, Inc. forgot to make an adjusting entry for Depreciation Expense for the current year. Which of the following is an effect of this error?
Total assets are overstated
Posting
Transferring amounts from the journal to the ledger
T or F? Assets are something of value that the business owns or has control of.
True
T or F? Balancing errors can be detected by computing the difference between total debits and total credits on the trial balance.
True
T or F? Equity increases when revenues are earned.
True
T or F? In a balance sheet, assets are classified as either current or long-term depending on their liquidity.
True
T or F? The normal balance of an account is the increase side of an account
True
Which part of the accounting cycle is optional? Closing entries, adjusted trial balance, worksheet, cash cycle?
Worksheet
Which is true of Common Stock? a: equity account that has a normal credit balance b: equity account that has a normal debit balance c: Liability account that has a normal debit balance d: Liability account that has a normal credit balance
equity account that has a normal credit balance
Time Period Concept States?
financial statements can be prepared for specific periods
The accounting principle that ensures all expenses are recorded during the period when they are incurred and offsets those expenses against the revenues of the period is called the
matching
What does current ratio measure?
measure a company's liquidity or ability to pay off short-term debts.
Which is true of Accrual Basis Accounting? -records expenses only when cash has been paid for them - required by Generally Accepted Accounting Principles (GAAP) - records revenue only when cash is received - always results in greater net income than cash basis accounting
required by the GAAP
The matching principle requires A: statements to be prepaired with 2 years of data B: revenues be recorded when collected C: that revenues and expenses be recorded in the same period D: expenses match price periods
that revenues and expenses be recorded in the same period