Financial Accounting Test #1

Common Stock

(aka contribute capital) Used to keep track of money invested in the business by the stockholders

An account that is not part of any of the adjusting entries we have covered is:

Cash

Which of the following accounts would appear on the balance sheet?

Cash

Which of the following accounts increases with credit entries?

Common Stock

Dividends

Company's share profits to the shareholders based on the corporation's performance.

Which of the following is accurate regarding retained earnings for a company?

Prior period retained earnings + Current period net income - Current period dividends = End of period retained earnings

Which accounts are closed each month?

Revenue, Expense, and Dividend

Revenue Recognition Principle

Revenues are recorded in the accounting period in which they are earned, rather than in the period when we receive the money

Deferral Adjustments

a. Supplies Expense Supplies b. Depreciation Expense Accumulated Depreciation c. Rent (or insurance) Expense Prepaid Rent (or insurance) d. Unearned Revenue Revenue

Accrual Adjustments

a. Tax Expense Taxes Payable b. Interest Expense Interest Payable c. Wages (or salaries) Expense Wages (or salaries) Payable d. Account Receivable Revenue

Source Document

an invoice, receipt, bill, deposit slip, or other evidence of a transaction which is necessary to record a journal entry

What is the carrying value of an asset?

cost - accumulate depreciation

Assets

money and other valuables belonging to an individual or business that will continue to benefit the company after current month is over

Depreciation Expense

ordinary expense account that will appear on the income statement and them be closed out and made zero.

Posting

process of updating the ledger accounts using the data in the journal entries

Income Statement

reports the revenue we earned this period, and the cost (expenses) of earning that revenue

Ledger

the "book of accounts"; collection of accounts used by the company. Transactions recorded in the journal provide the info from which the accounts in the ledger are updated.

Journal

the "book of original entry"; the first place where a transaction is recorded in the accounting system. A journal entry should include the date of transaction, names of the accounts to be updated, amount by which each of the accounts will be updated, and a brief explanation of the transaction with references to appropriate source document.

Accrual Adjustment Definition

to record unpaid wages, unpaid interest, unpaid taxes (wages payable, interest payable, taxes payable are called the accrued liabilities) and to record revenue that has been earned but not received (or even billed yet)

Deferral Adjustment Definition

to reduce assets for a loss in value and to reduce unearned revenue for the portion that has been earned

Liabilities

what a company owes

Contra Account

Used to keep track of certain subtractions from one of the main accounts

Accumulated Depreciation

A contra account that is permanent (until the asset is sold) and shows the total depreciation accumulated on the asset since it was purchased

Expenses

A cost that will have no benefit to the company beyond the end of the current month

Barnes Co. sold $4,000 of equipment on credit to a customer last month. Barnes has just received a check from the customer for $2,000 as half payment of the account. Which of the following would be part of the journal entry Barnes should record upon receipt of this payment?

A credit to accounts receivable for $2,000

Smith Company owes $1,000 to Jones Company for supplies purchased on credit. When Smith sends Jones a check for $1,000, what journal entry would Smith record?

A debit to accounts payable and a credit to cash for $1,000

James Company paid $1,000 to a vendor to make a payment toward what they owe the vendor on account. Which is part of the correct journal entry that James should record?

A debit to accounts payable for $1,000

Hanson Company provided $3,000 of services to a customer; the customer paid $1,000 immediately upon completion of the services and Hanson extended credit to the customer for the rest. At the time of completion of the services, Hanson would record:

A debit to accounts receivable for $2,000; debit cash $1,000; and credit service revenue $3,000

Darcy Co. performed $4,000 of legal services for a customer who will be billed in the future. Which of the following would be part of the journal entry Darcy should record?

A debit to accounts receivable for $4,000

Our company receives $3,000 for legal services to be performed in the future. The related journal entry would be:

A debit to cash and a credit to unearned revenue for $3,000

Interest of $500 has accrued on a note payable to the bank. The adjusting entry to record this debt would be:

A debit to interest expense and a credit to interest payable for $500

Johnson Co. paid $2,400 for 8 months' rent on the first day of the month. At the end of the month what adjusting entry must be made relating to this transaction?

A debit to rent expense and a credit to prepaid rent for $300

Jacob Company receives a $150 bill for repair services on the last day of the month. Jacob will not pay the bill until next month. Which of the following should Jacob record upon receiving the bill?

A debit to repairs expense $150; credit accounts payable $150

At Williams Co., total employee salaries are $6,000 each Friday for a 5-day work week (Mon-Fri). Assuming the month ends on Monday. What adjusting entry must be made at the end of the month relating to employee salaries?

A debit to salaries expense and a credit to salaries payable for $1,200

Which of the following accounts would not be part of a closing entry?

Accumulated Depreciation

What kind of entry is made on the right?

Credit

What kind of entry is made on the left?

Debit

Jackson Company purchased $5,000 of office furniture on credit. What journal entry should be made?

Debit furniture and credit accounts payable for $5,000

Which of the following pairs of accounts would be found in a deferral adjusting entry?

Depreciation Expense and Accumulated Depreciation

What does DEALER stand for?

Dividend +Expenses + Assets = Liabilities + Equity + Revenues DEA on the left LER on the right

Matching Principle

Expenses are recorded in the accounting period in which the company receives the benefit from them, rather than in the period in which they are paid

A credit (right) entry to an account will always decrease the balance of the account, regardless of which account it is.

False

To debit an account is to make an entry to the right side of the account.

False

Revenues

Income, sales, earnings, etc. The total values of work performed or sales earned during the month. Earnings = Revenue

The T-accounts that company transactions are recorded in, taken as a whole, are called the company's:

Ledger

Jacey Tax Services completed a tax return for a client for $500 and sends the client a bill for the services. What account should be debited?

Prepaid Rent

If a company repays a bank loan with cash, but does not record the transaction at all in any accounts, then:

The company's account will balance in spite of the error, but both assets and liabilities will be too high as a result of not recording the transaction

Our company agrees to hiring a landscaping company to provide $500 in lawn services. No payment is made at the time of the agreement and no work has yet been performed by the landscaping company. The related journal entry would be:

There would be no journal entry made at this time

An accrual adjusting entry will always include a 'receivable' or 'payable' account.

True

Closing entries are made in order to prepare revenue, expense, and dividend accounts for the upcoming new accounting period by bringing these accounts to a zero balance.

True

Dividends paid to stockholders are reported on the statement of retained earnings

True