Acct Exam 2 Q and Brief exercises

what steps happen at the end of the year

9 and 10

temporary accounts keep track of the

changes in retained earnings component of shareholder's equity

what steps happen at the end of the accounting periods

5-8

the marchetti soup company entered into the following transaction during the month of june 1) purchased inventory on account for $165,000 2) paid $40,000 in salaries to employees for work performed during the month 3) sold merchandise that cost $120,000 to credit customers for $200,000 4) collected $180,000 in cash from credit customers 5) paid suppliers of inventory $145,000 analyze each transaction and show the effect of each on the accounting equation for a corporation

+ 165,000 (inventory) + 165,000 (accounts payable) 2. - 40,000 (cash) - 40,000 (expense) 3. + 200,000 (accounts receivable) + 200,000 (revenue) - 120,000 (inventory) - 120,000 (expense) 4. + 180,000 (cash) - 180,000 (accounts receivable) 5. - 145,000 (cash) - 145,000 (accounts payable)

steps of a worksheet

1) enter account titles in column a and the unadjusted account balances in columns b and c 2) determine end-of-period adjusting entries and enter them in columns d and e 3) adds or deducts the effects of the adjusting entries on the account balances 4) transfer the temporary retained earnings account balances to columns h and i 5) transfer the balances in the permanent accounts to columns j and k

what are the steps of the accounting processing cycle

1) obtain information about external transactions from source documents 2) analyze the transaction 3) record the transaction in a journal 4) post from the journal to the general ledger accounts 5) prepare an unadjusted trial balance 6) record adjusting entries and post to the general ledger accounts 7) prepare an adjusted trial balance 8) prepare financial statements 9) close the temporary accounts to retained earnings 10) prepare a post-closing trial balance

what steps happen during the accounting period

1-4

what is the purpose of a worksheet

A worksheet provides a way to organize the accounting information needed to prepare adjusting and closing entries and the financial statements.

define accrued liabilities. what adjusting journal entry is required to record accrued liabilities

Accrued liabilities are recorded when an expense has been incurred that will not be paid until a subsequent reporting period. The adjusting entry needed to record an accrued liability is a debit to an expense and a credit to a liability.

describe what is meant by posting, the fourth step in the processing cycle

After transactions are recorded in a journal, the debits and credits must be transferred to the appropriate general ledger accounts. This transfer is called posting.

What is an unadjusted trial balance? An adjusted trial balance?

An unadjusted trial balance is a list of the general ledger accounts and their balances at a time before any end-of-period adjusting entries have been recorded An adjusted trial balance is prepared after adjusting entries have been recorded and posted to the accounts.

describe how debits and credits affect assets, liabilities, and permanent owners' equity accounts

Assets are increased by debits and decreased by credits. Liabilities and equity accounts are increased by credits and decreased by debits.

if none of the adjusting entries prepared above were recorded would assets, liabilities, and shareholder's equity on the 12/31/2021 balance sheet be higher or lower and by how much

Assets would be higher by $1,000, the amount of prepaid advertising not adjusted as expired during the month. Liabilities would be lower by $13,600 (= - $4,000 + $16,000 + $1,600) for the deferred revenue not reduced upon completion of services and for accruals not increased by being recorded. Shareholders' equity (and net income for the period) would be higher by $14,600.

post the journal entries above to t accounts. assume that the opening balances in each of the accounts is zero except for cash, accounts receivable, and accounts payable that had opening balances of 65,000, 43,000, and 22,000 respectively

Cash Accounts receivable 6/1 Bal. 65,000 6/1 Bal. 43,000 4. 180,000 40,000 2. 3. 200,000 180,000 4. 145,000 5. 6/30 Bal. 60,000 6/30 Bal. 63,000 Inventory Accounts payable 6/1 Bal. 0 6/1 Bal. 22,000 1. 165,000 120,000 3. 5. 145,000 165,000 1. 6/30 Bal. 45,000 6/30 Bal. 42,000 INCOME STATEMENT ACCOUNTS Sales revenue Cost of goods sold 0 6/1 Bal. 6/1 Bal. 0 200,000 3. 3. 120,000 200,000 6/30 Bal. 6/30 Bal. 120,000 Salaries expense 6/1 Bal. 0 2. 40,000 6/30 Bal. 40,000

prepare the necessary adjusting entries at is year-end of december, 2021, for the jamesway corporation for each of the following situations. no adjusting entries were recorded during the year 1) on december 10, 2021 jamesway received a $4,000 payment from a customer for services begun on that date and which were completed by december 31, 2021. deferred service revenue was credited 2) on december 1, 2021 the company paid a local radio station $2,000 for 40 radio ads that were to be aired, 20 per month, throughout december and january. prepaid advertising was debited 3) employee salaries for the month of december totaling $16,000 will be paid on January 7, 2022 4) on august 31, 2021 jamesway borrowed $60,000 from a local bank. a note was signed with principal and 8% interest to be paid on August 31, 2022

Deferred service revenue 4,000 Service revenue 4,000 2. Advertising expense ($2,000 x 1/2) 1,000 Prepaid advertising 1,000 3. Salaries expense 16,000 Salaries payable 16,000 4. Interest expense ($60,000 x 8% x 4/12) 1,600 Interest payable 1,600

explain the difference between external events and internal events. give an example of each type of event

External events involve an exchange transaction between the company and a separate economic entity. For every external transaction, the company is receiving something in exchange for something else Examples of external events are the purchase of inventory, a sale to a customer, and the borrowing of cash from a bank. Internal events do not involve an exchange transaction but do affect the financial position of the company.Examples of internal events include the recording of depreciation expense, the expiration of prepaid rent, and the accrual of salary expense.

prepare the necessary adjusting entries at december 31 for each of the items listed above. depreciation on the equipment is $12,000 per year

Insurance expense ($12,000 x 3/12) 3,000 Prepaid insurance 3,000 2. Interest receivable ($10,000 x 6% x 6/12) 300 Interest revenue 300 3. Depreciation expense 12,000 Accumulated depreciation 12,000

prepare journal entries for each of the transactions listed above

Inventory 165,000 Accounts payable 165,000 2. Salaries expense 40,000 Cash 40,000 3. Accounts receivable 200,000 Sales revenue 200,000 Cost of goods sold 120,000 Inventory 120,000 4. Cash 180,000 Accounts receivable 180,000 5. Accounts payable 145,000 Cash 145,000

if the adjusting entries prepared above were not recorded would net income be higher or lower and by how much

Net income would be higher by $14,700 (= $3,000 - $300 + $12,000).

explain the difference between permanent accounts and temperorary accounts? why does an accounting system include both types of accounts?

Permanent accounts represent the financial position of a company—assets, liabilities and owners' equity—at a particular point in time. Temporary accounts represent the changes in shareholders' equity, the retained earnings component of equity for a corporation, caused by revenue, expense, gain, loss, and dividend transactions. It would be cumbersome and less informative to record revenue/expense, gain/loss, and dividend transactions directly into the permanent retained earnings account. Recording these transactions in temporary accounts facilitates the preparation of the financial statements.

define prepaid expenses and provide at least two examples

Prepaid expenses represent assets recorded when a cash disbursement creates benefits that extend beyond the current reporting period. Examples are supplies on hand at the end of a period, prepaid rent, and prepaid insurance.

prepare journal entries for each of the following transactions for a company that has a fiscal year-end of december 31: 1) on october 1 $12,000 was paud for a one-year fire insurance policy 2) on june 30 the company advanced its chief financial officer $10,000 principial and interest at 6% on the note are due in one year 3) equipment costing $60,000 was purchased at the beginning of the year for cash

Prepaid insurance 12,000 Cash 12,000 2. Notes receivable 10,000 Cash 10,000 3. Equipment 60,000 Cash 60,000

describe how debits and credits affect temporary owner's equity accounts

Revenues and gains are increased with credits and decreased with debits. Expenses, losses, and dividends are increased with debits (thus causing owners' equity to decrease) and decreased with credits (thus causing owners' equity to increase).

define reversing entries and discuss their purpose

Reversing entries are recorded at the beginning of a reporting period. They reverse the effects of some of the adjusting entries recorded at the end of the previous reporting period. This simplifies the journal entries recorded during the new period by allowing cash payments or cash receipts to be entered directly into the expense or revenue account without regard to the accrual recorded at the end of the previous period.

deferred revenues represent liabilities recorded when cash is received from customers in advance of providing a good or service. what adjusting journal entry is required at the end of a period to recognize the amount of deferred revenues that were recognized during the period

The adjusting entry required when deferred revenues are recognized is a debit to the deferred revenue liability and a credit to revenue.

what is the first step in the accounting processing cycle? what role do source documents fullfill in this step

The first step in the accounting processing cycle is to identify external transactions affecting the accounting equation. Source documents, such as sales invoices, bills from suppliers, and cash register tapes, help to identify the transactions and then provide the information necessary to process the transaction.

explain the difference between the general ledger and a subsidiary ledger

The general ledger is a collection of control accounts representing assets, liabilities, and permanent and temporary shareholders' equity accounts. The subsidiary ledger contains a group of subsidiary accounts associated with a particular general ledger control account. For example, there will be a subsidiary ledger for accounts receivable that will keep track of the increases and decreases in the account receivable balance for each of the company's customers purchasing goods or services on credit. At any point in time, the balance in the accounts receivable control account should equal the sum of the balances in the accounts receivable subsidiary ledger accounts.

what is the purpose of a journal?what is the purpose of a general ledger

The purpose of a journal is to capture, in chronological order, the dual effect of a transaction in storage areas called accounts. A general ledger is an organized collection of accounts. The purpose is to keep track of the increases, decreases, and balances in each account.

balance sheet

The purpose of the balance sheet is to present the financial position of a company at a particular point in time. It is an organized list of assets, liabilities, and permanent shareholders' equity accounts

income statement

The purpose of the income statement is to summarize the profit-generating activities of a company during a particular period of time. It is a "change statement" that reports the changes in shareholders' (owners') equity that occurred during the period as a result of revenues, expenses, gains, and losses.

statement of comprehensive income

The purpose of the income statement is to summarize the profit-generating activities of a company during a particular period of time. It is a "change statement" that reports the changes in shareholders' (owners') equity that occurred during the period as a result of revenues, expenses, gains, and losses.

statement of cash flow

The purpose of the statement of cash flows is to disclose the events that caused cash to change during the period.

statement of shareholder's equity

The purpose of the statement of shareholders' equity is to disclose the sources of the changes in the various shareholders' equity accounts that occurred during the period. This statement includes changes resulting from investments by owners, distributions to owners, net income, and other comprehensive income.

describe what is meant by transaction analysis

Transaction analysis is the process of reviewing the source documents to determine the dual effect on the accounting equation and the specific elements involved.

define adjusting entries and discuss their purpose

We use adjusting entries to record the effect on financial position of internal events, those that do not involve an exchange transaction with another entity. We record them at the end of any period when financial statements are prepared to properly reflect financial position and results of operations according to the accrual accounting model, that is, to update accounts to their proper balances before we report those balances in the financial statements.

comprehensive income can be reported in one of two ways

a single continuous statement of comprehensive income two separate but consecutive statements

accountants often must make estimates in order to comply with the q

accrual accounting model

reversing entries are most often used with

accruals

also we use it to a

accumulate information needed for the income statement we use separate accounts to keep track of the changes in retained earnings caused by revenues, expenses, gains, and losses

a worksheet often is used to organize the accounting information needed to prepare

adjusting and closing entries and the financial statements

a general journal is used to record

any type of transaction

adjusting entries are used to record changes in

assets and liabilities that have occurred during the period but which we have not yet recorded

what is the equation

assets= liabilities + stockholder's equity

permanent accounts represent the

basic financial position elements of the accounting equation

the accounting equation underlies the process used to

capture the effect of economic events

journal is a

chronological record of all economic events affecting financial position

Define closing entries and their purpose

closing entries transfer the balances in the temporary owners' equity accounts (revenues, expenses, gains, losses, dividends) to a permanent owners' equity account, retained earnings for a corporation. This occurs only at the end of a reporting period in order to reduce the temporary accounts to zero before beginning the next reporting year.

a general ledger is a

collection of storage areas called accounts used to keep track of increases, decreases, and balances in financial position elements

the number of accounts depends on the

complexity of the company's operations

double entry system refers to the

dual effect that each transaction has on the accounting equation

statement of cash flows is to report the

events that caused cash to change during the period

post trial closing balance is comprised of

final balances in permanent accounts that will be used to open the records in the next period

elements of the accounting equation are represented in a

general ledger

what is the purpose of special journals? in what ways do they simplify the recording process

he purpose of special journals is to record, in chronological order, the dual effect of repetitive types of transactions, such as cash receipts, cash disbursements, credit sales, and credit purchases. journalizing the effects of a particular transaction is made more efficient through the use of specifically designed formats; (2) individual transactions are not posted to the general ledger accounts, but are accumulated in the special journals and a summary posting is made on a periodic basis; and (3) the responsibility for recording journal entries for the repetitive types of transactions is placed on individuals who have specialized training in handling them.

what are the 5 basic financial statements

income balance sheet statement of cash flows statement of shareholder's equity statement of comprehensive income

operating activities

inflows and outflows of cash related to transactions entering into the determination of net income

adjusting entries are

internal transactions recorded at the end of any period when financial statements are prepared

Financing Activities

involve cash inflows and outflows from transactions with creditors and owners

investing activities

involve the acquisition and sale of long-term assets used in the business and non-operating investment assets.

the purpose of the post trial closing balance is to

make sure that the closing entries were prepared and posted correctly and that the accounts are now ready for next year's transactions

the statement classifies all transactions affecting cash into what 3 categories

operating activities investing activities financing activities

reversing entries

optional entries that remove the effects of some of the adjusting entries made at the end of the previous reporting period for the sole purpose of simplifying journal entries made during the new period

estimates

predictions of future events

special journal is a record of

repetitive type of transaction

prepaid expenses

represent assets recorded when a cash disbursement creates benefits beyond the current reporting period

accrued liabilities

represent liabilities recorded when an expense has been incurred prior to cash payment

deferred revenues

represent liabilities recorded when cash is received from customers in advance of providing a good or service

transaction analysis is the process of

reviewing the source documents to determine the dual effect on the accounting equation and the specific elements involved

which side do credits represent

right

source documents are

sales invoices, bills from suppliers, and cash register tapes

Each economic event or transaction will have a dual effect on financial position. Explain what is meant by this dual effect.

since resources must always equal claims, the net effect of any transaction cannot affect one side of the accounting equation differently than the other side.

Statement of Shareholders' Equity

statement disclosing the source of changes in the shareholders' equity accounts.

most companies must convert from an accrual basis to a cash basis when preparing the

statement of cash flows

subsidiary ledger records a group of

subsidiary accounts associated with a particular general ledger control account

closing entries serve what two purposes

temporary accounts are reduced to zero balances temporary account balances are clsoed to retained earnings to reflect the changes that have occurred in that account during the period

accruals involve transactions where

the cash flow or inflow takes place in a period subsequent to expense or revenue recognition

prepayments/deferrals

the cash flow precedes either expense or revenue recognition.

a journal entry captures

the effect of a transaction on financial position in debit/credit card form

balance sheet is to present

the financial position of the company on a particular date

which side do debits represent

the left

adjusted trial balance

the other trial balance we prepare after all account balances have been updated by adjusting entries

income statement is used to summarize

the profit-generating activities of a company that occurred during a particular period of time

accrued receivables involve situations when

the revenue is recognized in a period prior to the cash receipt

what two purposes do closing entries serve

transfer the balances of temporary accounts to the retained earnings account to reduce the balances of these temporary accounts to zero to wipe clean the slate

posting involves

transferring debits and credits recorded in individual journal entries to the specific accounts affected

Accrurals

when the cash flow comes after either expense or revenue recognition