Accy 201 Exam #1

At March 1, 2011, Candy Inc. had supplies on hand of $1,500. During the month, Candy purchased supplies of $2,900 and used supplies of $1,800. The March 31 balance sheet should report what balance in the supplies account?

$2,600

Hoosher Enterprises purchased an 18-month insurance policy on May 31, 2011 for $5,400. The December 31, 2011 balance sheet would report Prepaid Insurance of:

$3,300

At January 31, 2012, the balance in Goebel Inc.'s supplies account was $500. During February. Goebel purchased supplies of $600 and used supplies of $800. At the end of February, the balance in the Supplies account should be

$300 debit

In 2012 Grider Corporation had cash receipts of $28,000 and cash disbursements of $16,000. Grider's ending cash balance at December 31, 2012 was $44,000. What was Grider's beginning cash balance?

$32,000

In 2012 Grider Corporation had cash receipts of $42,000 and cash disbursements of $24,000. Grider's ending cash balance at December 31, 2012 was $66,000. What was Grider's beginning cash balance?

$48,000

Straight line depreciation=

(cost- salvage val)/ useful life

Liability Accounts Include:

-accounts payable (amounts we owe to creditors for assets purchased on account) -notes payable -unearned revenue (cash has been received but the product or service has not been delivered) -accrued liabilities

Asset Accounts Include (8):

-cash -accounts receivable (amounts owed to the company by customers) -notes receivable -prepaid accounts (also called prepaid expenses) -supplies -equipment -buildings -land

Equity Accounts Include:

-common stock -retained earnings -dividends -expenses -revenues

Adjusting entries are made to ensure that (3 things):

-expense are recognized in the period in which they are incurred. -revenues are recorded in the period in which they are earned -balance sheet and income statement accounts have correct balances at the end of an accounting period

Liabilities

-is a claim against assets, which means that the business is obligated to transfer assets or provide products or services to others to satisfy the debt. -represent the claims of creditors on the entity's assets.

Depletion

1. Depletion per unit= Cost - Salvage value/ Total units of capacity 2. Depletion expense= Depletion per unit x Units extracted and sold in period

Units-of-Production Method

1. Depreciation per unit= Cost - Salvage value / Total units of production 2. Depreciation expense= Depreciation per unit x Number of units producedin the period

Generally accepted accounting principles (GAAP) identify three major characteristics of information:

1. Relevant- impacts the decision of the informed user for financial information. 2. Reliable. 3. Comparability- helps us compare financial information from one period with that of the next period.

Double-Declining-Balance Method

1. Straight-line rate= 100 % ÷ Useful life 2.Double-declining-balance rate= 2 × Straight-line rate 3. Depreciation expense= Double declining balance rate x Beginning period book value

Accounting Process Steps:

1. analyze source documents to identify business transactions. 2. record it in a journal. 3. transactions in the journal are posted to a ledger accounts. 4. prepare a trial balance.

On May 18, Matrix, Inc. paid the amount owed for the purchase of May 9. Entry:

A/P..........DR Cash......................CR Inventory..............CR

On May 10, Matrix, Inc. returned $500 of defective merchandise to the supplier. Entry:

AP.................DR (500) Inventroy..................CR (500)

Smith & Jones, CPAs, had $31,200 of work completed but not yet billed to clients. Let's make the adjusting entry necessary on December 31, 2013, the end of the firm's fiscal year.

AR-- DR (31200) Serv. Rev--CR (31200)

Bank Reconciliation Bank Statement Balance

Add: Deposits in transit. Deduct: Outstanding checks Add or Deduct: Bank errors.

Bank Reconciliation Book Balance

Add: Collections made by the bank. Add: Interest earned on checking account. Deduct: Non-sufficient funds check (NSF). Deduct: Bank service charge. Add or Deduct: Book errors.

Accounts Receivable

Amounts due from customers for credit sales.

Adjusting Accounts

An adjusting entry is recorded to bring an asset or liability account balance to its proper amount as well as update any related revenue or expense account. Prepaid (Deferred) Expenses

Control of Cash

An effective system of internal controls that protects cash and cash equivalents should meet three basic guidelines: Handling cash is separate from recordkeeping of cash. Cash receipts are promptly deposited in a bank. Cash disbursements are made by check.

normal balances of accounts: Assets ____ Liabilities ____ Common Stock ____ Revenues ____ Expenses ____

Assets Debit Liabilities Credit Common Stock Credit Revenues Credit Expenses Debit

Balance Sheet

Assets Liabilities Accounts Acc. Total Total Equity C. stock R. Eanrings Total Liab and Equity

Which accounts normally have debit balances?

Assets, expenses, and dividends.

Trail balance organization

Assets- most liquidable Liabilities Equity ----> income statement

Otto's Tune-Up Shop follows the revenue recognition principle. Otto services a car on August 31. The customer picks up the vehicle on September 1 and mails the payment to Otto on Sept 5. Otto receives the check in the mail on Sept 6. When should Otto show that the revenue was earned?

August 31

Statement of Retained earnings

Beg Retained earnings: Plus: Net Income (from Inc. Statement) Less: Cash Dividends End Retained earnings:

Specific ID

Beg inventory+ purchases-cogs=ending inventory

Ending retained earnings for a period is equal to:

Beginning retained earnings + Net income - Dividends

Bond Interest payment =

Bond par value ´ Contract interest rate x Time

Which of the following items has no effect on retained earnings? A) Expense B) Dividends C) Land purchase D) Revenue

C) Land purchase

On October 1, 2013, Ox University sold 1,000 season tickets to its 20 home basketball games for $100 each. Ox University makes the following entry:

Cash DR (100000) Unearned Revenue CR (100000)

Recording Closing Entries

Close revenue accounts. Close expense accounts. Close income summary account. Close dividends account.

Accrued Expenses

Costs incurred in a period that are both unpaid and unrecorded.

Mary Richardo has performed $500 of CPA services for a client but has not billed the client as of the end of the accounting period. What adjusting entry must Mary make?

Debit Accounts Receivable and credit Service Revenue

On May 9, Matrix, Inc. purchased $20,000 of merchandise inventory on account, credit terms are 2/10, n/30. Entry:

Inventory .......DR (20,000) A/P....................... CR (20,000)

Matching refers to

Letting expenses follow revenues.

Credit sales require:

Maintaining a separate account receivable for each customer. Accounting for bad debts that result from credit sales.

On March 1, 2012, Freeze Company hires a new employee who will start to work on March 6. The employee will be paid on the last day of each month. Should a journal entry be made on March 6? Why or why not?

No, hiring an employee is an important event; however it is not an economic event that should be recorded.

Prepaid (Deferred) Expenses

Resources paid for prior to receiving the actual benefits.

Close dividends account.

Retained Earnings.

Income Statement

Revenues : Accounts- CR Totals- DR Expenses: Accounts- CR Totals- DR Net Income (= Revenues- Expenses) DR

Cash Basis Accounting

Revenues are recognized when cash is received and expenses recorded when cash is paid NOT GAAP

Accrual Basis Accounting

Revenues are recognized when earned and expenses are recognized when incurred. MATCHING PRINC.

Which accounts normally have credit balances?

Revenues, liabilities, and retained earnings.

Barton, Inc. pays its employees every Friday. Year-end, 12/31/13, falls on a Thursday. As of 12/31/13, the employees have earned salaries of $47,250 for Monday through Thursday.

Salaries Exp DR (47250) Salaries Pay CR (47250)

During 2013, Scott Company purchased $9,720 of supplies. Scott recorded the expenditures as Supplies. On December 31, a count of the supplies indicated $8,670 on hand. What adjustment is required?

Serv. Rev......... DR (1500) Supplies ...............CR (1500)

Cash Equivalents

Short-term, highly liquid investments that are: Readily convertible to a known cash amount. Close to maturity (due) date and not sensitive to interest rate changes.

Revenue recognition requires:

That revenue be recognized in the period in which it is earned.

On December 31, Ox University has played 10 of its regular home games

Unearned rev DR (50000) Basketball Rev CR (50000)

A voucher system establishes procedures for:

Verifying, approving, and recording obligations for eventual cash disbursements. Issuing checks for payment of verified, approved, and recorded obligations

Close expense accounts.

a credit to each expense account and a debit to Income Summary for the total.

On January 14, Decker industries purchased supplies of $500 on account. The entry to record the purchase will include.

a debit to Supplies and a credit to Accounts Payable

Trial balance

a listing of all account balances to make sure that all information has been transferred properly.

Generally accepted accounting principles (GAAP)

a set of rules financial accounting is governed by

A T account is

a way of depicting the basic form of an account.

Temporary (nominal) accounts

accumulate data related to one accounting period. They include all income statement accounts, the dividends account, and the Income Summary account. These accounts are "closed" at the end of the period to get ready for the next accounting period.

The closing entry process consists of closing:

all temporary accounts.

Depreciation is the process of:

allocating the cost of an asset to expense over its useful life in a rational and systematic manner

A balance sheet shows

assets, liabilities, and stockholders' equity.

Adjusting entries are required:

because some costs expire with the passage of time and have not yet been journalized.

Closing entries:

cause the revenue and expense accounts to have zero balances.

Equipment costing $20,000 machine is purchased by paying $5,000 cash and signing a note payable for the remainder. The journal entry should include a

credit to Notes Payable.

What is the order in which assets are generally listed on a classified balance sheet?

current; long-term investments; property, plant and equipment, intangibles

When a company receives a utility bill but will not pay it right away, it should

debit Utilities Expense and credit Accounts Payable.

When a company performs a service but has not yet received payment, it

debits Accounts Receivable and credits Service Revenue

A company that receives money in advance of performing a service

debits Cash and credits Unearned Service Revenue.

Dividends paid

decrease retained earnings.

The payment of a liability

decreases assets and liabilities.

A paid dividend

decreases assets and stockholders' equity

An expense

decreases stockholders' equity.

Bonds

do not affect owner control Interest on bonds is tax deductible. Bonds can increase return on equity.

Accrued revenues are:

earned but not yet received or recorded.

Debits:

increase assets and decrease liabilities

Accrued expenses are:

incurred but not yet paid or recorded.

Ledger

is a collection of all accounts for an information system. A company's size anddiversity of operations affect the numberof accounts needed.

general ledger

is a record containing all accounts used by the company.

account

is a record of increases and decreases in a specific asset, liability, equity, revenue, or expense item

A revenue account

is increased by credits

The purchase of an asset on credit

leaves total assets unchanged.

The Unearned Service Revenue account is classified as a(n):

liability

Trial Balance:

lists all account balances in the general ledger. If the books are in balance, the total debits will equal the total credits.

Business entity assumption

means that a business is accounted for separately from its owner or other business entities.

Going-concern assumption

means that accounting information reflects a presumption the business will continue operating.

Monetary unit assumption

means we can express transactions in money.

The business entity assumption states that economic events

of every entity can be separately identified and accounted for.

Equity

owner's claim on assets. investments by owners, contributed capital, payments to those owners (dividends). -retained earnings represents all of the accumulated earnings of a corporation that have not been distributed to shareholders.

Prepaid expenses are:

paid and recorded in an asset account before they are used or consumed

Bank Reconciliation

prepared regularly to explain the difference between cash reported on the bank statement and the cash balance on company's books.

Matching principle (expense recognition)

prescribes that a company must record its expenses incurred to generate the revenue.

Time period assumption

presumes that the life of a company can be divided into time periods, such as months and years.

The primary purpose of the trial balance is to:

prove the equality of the debit and credit amounts after posting.

Revenue recognition principle

provides guidance on when a company must recognize revenue.

Full disclosure principle

requires a company to report the details behind financial statements that would impact users' decisions.

Assets

resources owned or controlled by a company.

An income statement shows

revenues, expenses, and net income

Stockholders' equity is increased by

revenues.

The classification and normal balance of the Dividends account is

stockholders' equity with a debit balance.

Depreciation

the process of allocating the costs of plant assets over their expected useful lives

Close income summary account.

to Retained Earnings.

An accounting record that includes a list of accounts and their balances at a given time is called a

trial balance.

T-account

used represent a general ledger account and is a quick way to understand the effects of one or more transaction before we enter the information in the journal. left side = debit side right side = credit side

Using accrual accounting, expenses are recorded and reported only:

when they are incurred whether or not cash is paid.

Close revenue accounts.

with a debit to each revenue account and a credit to Income Summary for the total.