ACC 212 Final

In May, Sea the World Cruises, Inc. collected $1,000 cash in advance from a customer for services to be performed in June. Which of the following is true assuming accrual accounting?

$1,000 of revenue should be recorded in June. Revenue should be recorded when services are performed, regardless of when the cash is collected.

Margot starts a new business and contributes $20,000 in cash; she also borrows $25,000 from her local bank. She utilizes the cash to purchase supplies for $5,000 and a computer system for $10,000. After these transactions, the total claims to the company's total resources are

$45,000

Under accrual-basis accounting

Economic events that affect assets, liabilities, revenues, and expenses are recorded as they occur

Norbert, Incorporated, delivered goods during December. Payment is expected during the first week of January. The related adjustment will

Increase assets and increase revenues

The adjustment for an accrued revenue always results in a(n

Increase in assets, increase in liabilities

Which of the following prepayments requires an adjustment at the end of the accounting period on December 31?

On November 1st, the company pays rent for the next six months

Adam Corporation uses the cash-basis of accounting. Adam Corporation should record expenses when:

Paid

When cash is paid for rent in advance

Prepaid Rent (an asset) is recorded Rent Expense will be recognized for the cost of rent expired during the period

The accounting basis that records revenues in the period that goods and services are provided to customers is referred to as

accrual basis accounting

Which of the following is (are) permitted under current U.S. GAAP?

accrual basis accounting

What is managerial accounting?

deals with the concepts and methods used to provide information to an organization's internal users. deals with the concepts and methods used to provide information to an organization's internal users.

A primary purpose of adjustments is to record events that

have occurred but that have not yet been recorded.

On May 1, Cut Above, Incorporated, collected $3,000 from customers to mow their lawns in June. Under cash-basis accounting, revenues in May will equal:

$3,000

In May, Just In Thyme, Inc. billed a customer $1,000 for services performed in May. In June, Just In Thyme collected the $1,000. Which of the following is true assuming accrual accounting?

1,000 of revenue should be recorded in May

On December 30, Superior Strategies, Incorporated, collected $10,000 in advance from clients relating to consulting engagements to be performed during January of the following year. Under cash-basis accounting, revenues recorded in December will equal:On December 30, Superior Strategies, Incorporated, collected $10,000 in advance from clients relating to consulting engagements to be performed during January of the following year. Under cash-basis accounting, revenues recorded in December will equal:

10,000

An adjusted trial balance

A list of all accounts and their balances for adjusting entries

Which of the following transactions are examples of prepayments that will require an adjustment at the end of the accounting period on December 31? (Select all that apply.)

A. A company pays for 4 months of advertising in the Wall Street Journal on November 1. B. A company pays a utility bill for charges incurred in the previous month. C. A company pays a 6-month insurance premium at the beginning of October. D. A company records interest expense that has accrued, but will not be paid until next year. -A & C

Under accrual-basis accounting, which of the following result in an expense being recorded in May? (Select all that apply.)

A. The company pays cash in May for salaries earned in April. B. The company pays cash in May for supplies used in June. C. The company pays cash in June for salaries earned in May. D. The company pays cash in April for supplies used in May. C & D

Cash-basis accounting ______. (Select all that apply.)

A. records revenues when collected and expenses when paid B. provides a better measure of net income than accrual-based accounting C. records revenue in the period earned and expenses in the period incurred D. is generally not accepted in preparing financial statements A & D

Under both accrual-basis and cash-basis accounting

All revenues are eventually recorded for the same amount

Contra account

An account with a balance opposite or "contra" to that of its related accounts

Prepaid expenses

Arise when a company pays cash to acquire an asset that is not used until a later period

How are timing differences recorded under accrual-basis accounting?

As assets and liabilities

In the balance sheet, equipment is recorded at its...

Book value

Adjustments are also needed for

Cash flows occurring after the revenues and expenses are recognized

On November 15, Kelton Corporation received cash for services to be provided in December. After providing the service in December, Kelton will recognize an adjustment that includes a(n)

Decrease in liabilities -the adjustment decreases deferred revenue (a liab) and increases service revenue

True or False: cash-basis accounting is part of generally accepted accounting principles (GAAP)

False

An adjustment for accrued expenses results in a(n

Increase in liabilities, increase in expenses

A company owes employees $10,000 for work performed in the previous period. The adjustment for salaries owed but not yet paid includes a(n)

Increase in salaries expense

In January, Pizza Company bought pizza ingredients on account for $100, with payment due to the supplier in April. The pizza ingredients were used for pizzas made in January. In which month should Pizza Company record the cost of the pizza ingredients as an expense?

January

Accrued expenses

Occur when a company has used costs in the current period, but the company hasn't yet paid cash for those costs

Accrued expenses

Occur when a company incurs costs, such as salaries, by the end of the current period but will not pay those salaries until the following period. -adjustments are needed in the current period to record salaries payable (a liability) and to recognize salaries expense for the amount to be paid

Accrued revenues

Occur when a company provides products or services but hasn't yet received cash

Accrued revenues

Occurs when a company provides goods and services therefore generates the right to receive cash from a customer -an adjustment is needed in the current period to record the amount receivable (an asset) and to recognize revenue, even though that cash won't be received until a future period

Deferred Revenue

Occurs when cash is received from customers in advance of the services to be provided -the company is obligated to provide services in the future, when services are provided an adjustment is needed to decrease deferred revenue and recognize service revenue

Costs of assets acquired in one period that will be recorded as expense in a future period are referred to as Blank______ and are initially recorded as Blank______.

Prepaid expenses; assets

Revenue recognition principle

Record revenue in the period in which we provide goods and services to customers

On November 1, 2022, Movers, Inc., paid $24,000 for 2 years' rent beginning on November 1 (assume rent is the same amount each month). Movers' year-end financial statements as of December 31, 2022 will show: (Select all that apply.)

Rent expense of $2,000 Prepaid rent of $22,000

Which of the following transactions would normally be recorded as an asset when cash is paid?

Rent paid in advance

Under accrual-basis accounting, expenses are

Reported at the time costs are used in running the company

Under accrual-basis accounting, revenues are

Reported at the time goods and services are provided to customers

Under accrual-basis accounting, liabilities are

Reported at the time those obligations occurred

Under accrual-basis accounting, assets are

Reported at the time those resources are obtained

Under cash-basis accounting

Revenues are recorded when we receive cash, and we record expenses when we pay cash. Cash-basis accounting is not allowed for financial reporting purposes for most major companies

After adjustments have been completed, the adjusted balance in the Deferred Revenue account represents:

The amount of sales or services to be provided in the future

Depreciation

The process of allocating the cost of an asset, such as equipment, to expense over the asset's useful life

The difference between accrual-basis accounting and cash-basis accounting is

The timing of when we record revenues and expenses

Adjustments are used...

To update balances of assets and liabilities (and their related revenues and expenses)

Cash Basis Accounting

Transactions are recorded at the time when cash is received or paid

Adjustments are needed because...

Transactions have occurred during the period but have not yet been recorded

Prepaid expenses occur...

When a company pays cash to purchase an asset in advance of using that asset

The primary functions of accounting are to:

communicate information to decision makers. measure a company's activities.

Consistent with accrual-basis accounting, expenses should be recognized

in the period when the related revenue is generated

Accrual Basis Accounting attempts to

report economic events as they occur with the intent to provide accurate and timely information to financial statement users to make better decisions

There is a cause-and-effect relationship between revenues and expenses that dictates:

when costs are recognized as expenses on the income statement