ACCT 2010 Chapter 3

cash, accounts payable, prepaid advertising

accounts that may be credited when Advertising Expense is debited

cash, accounts receivable, deferred revenue

accounts that may be debited when Service Revenue is credited

credit to Cash and debit to Prepaid Rent

A company prepaid store rent. The journal entry to record this transaction includes _____________

amounts owed, a liability

Accounts Payable represents ____________ and is ____________

balance sheet; amount not yet collected for sales made on account to customers

Accounts Receivable is on the ___________ and reports the ______________

revenues in the period when the services are performed or goods are delivered even though the cash has not yet been collected, and expenses in the period incurred even though cash has not yet been paid

Accrual basis accounting differs from cash basis accounting in that accrual basis accounting records ______________________

ending balance

After increases and decreases in an account are recorded, the amount remaining in the account is its _______________

distort a company's financial performance

Cash basis of accounting is not allowed by GAAP because it may __________________

multiple obligations

Identifying the performance obligation is an important step in determining whether to recognize revenue especially when the contract involves _______________

the supplies are used

In accordance with the expense recognition principle, Supplies Expense should be recorded in the accounting period _____________________

right

Increases to stockholders' equity are recorded on the ____________ side of the T-account

Assets, Liabilities, Common Stock, Retained Earnings; Revenues, Expenses

List main headings in order of the unadjusted trial balance

credit to Cash and debit to Advertising Expense

On June 1, a company paid $100 for advertisements to be run on June 1. The company's entry to record this payment will include $100 _______________

credit to Cash and debit to Wages Expense

On May 31, a company pays its employees $10,000 for work done in May. The entry to record the payment includes _____________ for $10,000

revenues and expenses, earns a profit, incurs a loss

Operating activities are the primary source of _________________ and affect whether a company __________________ or __________________

have no effect on total assets

Receiving cash from a customer for payment on account for a sale that was recorded previously will ________________

cash basis of accounting

Reporting revenues only when cash is received and expenses only when cash is paid is called the ________________

services are provided even if cash has not yet been collected, cash is collected from customers

Revenue is recognized when ________________ if using accrual basis accounting, and ________________ if using cash basis accounting

retained earnings

Revenues and expenses are subcategories of ________________

services are performed and/or goods are delivered

Revenues are recognized when ________________, even when the cash is collected in a different accounting period than the obligation to the customer has been performed

common stock, retained earnings

Stockholders' equity consists of ___________, which is the amount contributed, and ____________, which is generated from profitable operations

adding the debits, subtracting the credits recorded during the period to the beginning debit balance, ending debit balance

The ending balance of Accounts Receivable in the ledger is calculated by _______________ and _________________ to arrive at the ______________

debit to Cash and credit to Deferred Revenue

The entry to record cash collected from customers in advance includes _______________

debit to Cash and credit to Service Revenue

The entry to record the sale of services for cash includes _______________

net income, revenues and expenses

The income statement reports the results of transactions that affect ___________, including _____________

whether the seller has provided the goods or services to the customer

The key factor in determining whether revenue should be recognized is _______________

indicates how well expenses are controlled and means improved performance if it increases

The net profit margin ratio ____________

from buying goods and services through to collecting cash

The operating cycle is the period ______________________

dividing the long life of a company into shorter periods, reporting purposes

The time period assumption is _______________________ for _______________

total debits, total credits

The totals on a trial balance reveal whether the ____________ equal the ___________

income statement, the amount of services received during the year; balance sheet, the amount owed at the end of the year for services received

Wages Expense, on the ________________, reports __________________. Wages Payable, on the _____________, reports _______________

net income equals cash, net income does not include estimates, net income reports all changes of value that occurred during the accounting period

What are 3 common misconceptions users of an income statement may have?

an increase in the net profit margin ratio

What ratio change provides good news about a company?

the advertisement is run prior to the payment

When Advertising Expense is debited and Accounts Payable is credited, this means ______________

payment occurs in the same period as advertisement is run

When Advertising Expense is debited and Cash is credited, this means _______________

payment occurs in advance of when the advertisement is run

When Advertising Expense is debited and Prepaid Advertising credited, this means _____________

the service is performed prior to the collections

When Service Revenue is credited and Accounts Receivable is debited, this means _______________

collections occur in the same period as the services

When Service Revenue is credited and Cash is debited, this means ______________

collections occur in advance of the performance of the service

When Service Revenue is credited and Deferred Revenue is debited, this means _____________

deferred revenue

When a company collects cash in advance form customers it records a liability called ____________

accounts receivable, sales revenue

When a company delivers goods to customers on account and bills its customers accounts, it should record a debit to _____________ and a credit to _____________

income statement, statement of retained earnings, statement of cash flows

Which financial statement(s) cover a period of time rather than amounts at a specific point in time?

balance sheet

Which financial statement(s) report amounts at a specific point in time rather than covering a period of time?

expenses

____________ are the costs of operating a business that are incurred to generate revenues in the period covered by the income statement

revenues

amounts charged to customers for sales of goods or services provided

expenses

costs of business activities undertaken to generate revenues