Foundations of Accounting - Exam One Study Guide

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insurance expense

operating expense

salaries and wages expense

operating expense

supplies expense

operating expense

utilities expense

operating expense

provide examples of temporary accounts

1. fees earned 2. wages expense

a bank reconciliation is typically divided into two sections. what are they?

1. the bank section 2. the company section

why are temporary accounts not carried forward?

they relate only to one period

list the steps of the closing process:

1. revenue account balances are transferred to an account called income summary 2. expense account balances are transferred to an account called income summary 3. the balance of income summary (net income/net loss) is transferred to the retained earnings account 4. the balance of the dividends account is transferred to the retained earnings account

list the objectives of internal control

1. assets are safeguarded and used for business purposes 2. business information is accurate 3. employees and managers comply with laws and regulations

provide examples of permanent accounts

1. cash 2. accounts receivable 3. equipment 4. accumulated depreciation 5. accounts payable 6. common stock 7. retained earnings

list the elements of internal control

1. control environment 2. risk assessment 3. control procedures 4. monitoring 5. information and communication

what do other receivables include?

1. interest receivable 2. taxes receivable 3. receivables from officers or employees

salaries and wages payable

current liability

unearned service revenue

current liability

if the accrual is for an expense, the adjusting entry should credit what?

a liability

unadjusted trial balance

a list of accounts and balances prepared before adjustments are recorded

define adjusted trial balance

a list of accounts and their balances after all adjustments have been made

balance sheet

a list of the assets, liabilities, and stockholders' equity as of a specific sate, usually at the close of the last day of a month or a year

define the normal balance

a part of the double-entry bookkeeping method, referring to the expected debit or credit balance in a specified account. for example, accounts on the left-hand side of the accounting equation will increase with a debit entry and will have a debit normal balance. accounts on the right-hand side of the accounting equation will have a normal credit balance

statement of cash flows

a summary of the cash receipts and cash payments for a specific period of time, such as a month or a year

retained earnings statement

a summary of the changes in the retained earnings that have occurred during a specific period of time, such as a month or a year

income statement

a summary of the revenues and expenses for a specific period of time, such as a month or a year

permanent or real accounts

accounts that are relatively permanent from year to year

define permanent or real accounts

accounts that are reported on the balance sheet and carry forward from year to year

define temporary or nominal accounts

accounts that are reported on the income statement and are not carried over from year to year

what are the two classifications of accounts requiring adjustments?

accruals and deferrals

what are contra asset accounts?

accumulated depreciation accounts. accumulated depreciation accounts are deducted from their related fixed asset accounts on the balance sheet. the normal balance of a contra account is opposite to the account from which it is deducted

which type of journal entries are made at the end of each accounting period so that the financial statements better reflect the accrual method of accounting?

adjusting

define notes receivable

amounts that customers owe for which a formal, written instrument of credit has been issued

define t-account

an accounting tool used to show changes in balance sheet items

define bank reconciliation

an analysis of the items and amounts creating the difference between the cash balance reported in the bank statement and the balance of the cash account in the ledger

define depreciation expense

as a fixed asset depreciates, a portion of its cost should be recorded as an expense

state the accounting equation

assets = liabilities + equity

name the standard accounts that will have a debit normal balance

assets, expense, and dividends

closing entries

at the beginning of the next period, temporary accounts should have zero balances. to achieve this, temporary account balances are transferred to permanent accounts at the end of the accounting period. the entries for that transfer of balances are called what?

which financial statement's structure is closest to that of the basic accounting equation?

balance sheet

let's say you own a café and you purchase $450 of coffee beans from your local supplier. you're sitting down in the evening to update your books, and you're presently recording all of your accounting transactions by hand. using the double-entry method of bookkeeping, you will record the transaction twice: one entry under the cash account to decrease it, and one entry under the supplies account to show an increase in supply. how would this be recorded using a t-account?

both accounts belong to assets, so they have a normal debit balance and will increase with a debit entry and decrease with a credit entry

sales returns and allowances

contra revenue

inventory turnover

cost of goods sold/average inventory

accounts receivable

current asset

cash

current asset

inventory

current asset

prepaid insurance

current asset

prepaid rent

current asset

stock investments

current asset

supplies

current asset

a corporation's working capital is calculated using which amounts?

current assets and current liabilities

current ratio

current assets/current liabilities

accounts payable

current liability

dividends payable

current liability

on december 31, the following data were accumulated for preparing the adjusting entries for the atlanta rhythm company: at the end of the year, $13,680 of fees have been earned, but have not been billed to clients, wages of $12,500 are paid on friday for a five-day work week. the accounting period ends on thursday, december 31. what would be debited and what would be credited on the adjusting entry?

debit accounts receivable $13,680, credit fees earned $13,680 debit wages expense $10,000, credit wages payable $10,000

paid on account

debit to accounts payable, credit to cash

services provided on account

debit to accounts receivable, credit to fees earned

purchased on account

debit to asset account, credit to accounts payable

paid cash

debit to asset or expense account, credit to cash

issued common stock

debit to cash and/or other asset, credit to common stock

received cash on account

debit to cash, credit to accounts receivable

received cash for services provided

debit to cash, credit to fees earned

paid dividends

debit to dividends, credit to cash

the combination of the Social Security tax and the Medicare tax is referred to by what acronym?

fica

the generally accepted accounting principles used in the financial statements of U.S corporations are researched and developed by which organization?

financial accounting standards board (fasb)

define journal entry

how transactions get recorded in a company's books on a daily basis. every transaction that gets entered into a general ledger starts with this entry and includes the date of the transaction, amount, affected accounts, and a description

how are other receivables reported on the balance sheet?

if they are expected to be collected within one year, they are classified as current assets. if collection is expected beyond one year, they are classified as noncurrent assets and reported under the caption investments

define receivables

includes all money claims against other entities, including people, companies, and other organizations. typically a significant portion of the total current assets

depreciation expense

operating expense

which financial statement will allow you to determine the gross margin for a retailer or manufacturer?

income statement

copyrights

intangible assets

patents

intangible assets

name the standard accounts that will have a credit normal balance

liabilities, stockholder's' equity, revenue, and retained earnings

define solvency

long-term creditors, such as bondholders, loan money for long period of time. thus, they are interested in evaluating a company's ability to make its periodic interest payments and repay the face amount of debt at maturity

debt investments

long-term investment

bonds payable

long-term liability

comprehensive income is defined as _______________ plus other comprehensive income.

net income

return on total assets

net income/average total assets

asset turnover

net sales/average total assets

define defferals

occurs when cash related to a future revenue or expense has been initially recorded as a liability or an asset

define accruals

occurs when revenue has been earned or an expense has been incurred but has not been recorded

sales revenue

operating revenue

income tax expense

other expense

interest expense

other expense

does the heading of a balance sheet indicate a period of time or a point in time?

point in time

accumulated depreciation - buildings