Accounting 202 2nd Exam

What do you do if the cash has not been paid and the expense has been incurred?

A) Accrue the expense and corresponding liability Dr. Rent Expense Cr. Rent Payable

What do you do if the cash has been paid and the expense has not been incurred?

A) Record the cash B) Defer the expense Dr. Prepaid Rent Expense Cr. Cash

What do you do if the cash has been collected and the revenue has not been earned?

A) Record the cash B) Defer the revenue Dr. Cash Cr. Unearned Revenue

What do you do if the cash has been paid and the expense has been incurred?

A) Record the cash B) Record the expense Dr. Rent Expense Cr. Cash

What do you do if the cash has been collected and the revenue has been earned?

A) Record the cash B) Record the revenue Dr. Cash Cr. Sales Revenue Dr. COGS Cr. Merchandise Inventory

Accrual Accounting(GAAP)

A) Revenue is recognized when it is realized and earned no matter when cash is collected or received. B) Expenses are matched against the revenue that they helped to generate. Expense is recorded on the books when it is uncared, regardless of when cash is paid.

What do you do if the cash has not been collected but the revenue has been earned?

A)Accrue the revenue Dr. A/R Cr. Sales Revenue Dr. COGS Cr. Merchandise Inventory

What costs should be capitalized?

All costs associated with acquiring the asset and preparing it for its intended purpose. EX: import tariffs, freight(if the buyer is legally responsible for shipping aka FOB Shipping Point), insurance(also storage, rent, supplies or even salaries could be capitalized if incurred while the asset is prepared for its intended purpose)

What's an asset?

An asset is something owned by the business that has future value.

1E Starts- Cost

An economic sacrifice made with the expectation of receiving a particular benefit in return

What's an expense?

An expense has no future value remaining; its benefit has been full consumed in operations.

Non-current/Long-lived Assets

Assets held for more a year

Current Assets

Assets held for one year or less

What is a deferred expense?

Cash Spent in advance -Asset

Accrual

Cash may be received or paid AFTER the proper time to recognize revenue or match expense

What is a deferred revenue?

Cash received in advance -Liability

What is a deferral?

Cash was received or paid in advance of the proper time to recognize revenue or match expense and the expenditure was therefore deferred on the B/S

The expense is initially____________

Deferred until the proper time to record the expense. This is accomplished by recording the cash "expenditure" as an asset on the B/S. EX: Prepaid Rent, Supplies, Furniture & Fixture

Product Costs

Direct Materials, Direct Labor, Manual Overhead

A recurring theme this semester

Holding/defer a particular cost on the B/S until the proper time to charge it off as expense on the I/S

The asset cost is depreciated and expensed over the useful life of the asset for what asset?

Land

Is expenditure an expense?

NO

Plant Assets or PP&E

Non-current assets used in operations and that are necessary in order to conduct business. All reasonable expenditures necessary to get the asset in place and ready for its intended use are capitalized to the asset account. EX: cash registers

1E Ends- Intangible Asset

Non-physical items such as patents, trademarks, goodwills, and copyrights

Period Costs

Not necessarily part of the manufacturing process, have to do with selling of the product and its general administration. Are reported as expenses in the accounting period in which they best match with revenue on the I/S.

What do you do if the cash has not been collected and the revenue has not been earned?

Nothing

What do you do if the cash has not been paid and the expense has not been incurred?

Nothing.

Tangible Asset

Physical Assets such as land, vehicles or equipment

What does it mean to capitalize a cost?

The cost is included in the asset value on the balance sheet.

2a Begins- What is recognition?

The process of formally recording or capturing a transaction in the accounting records so that it is included in the financial statements.

What are bulk or lump-sum purchases?

The purchase price is allocated amongst the different types of assets based on their relative market values. EX: purchase of land usually has machinery and equipment part of it because they are inseparable

When do service providers recognize revenue?

They recognize revenue in the period that the revenue generating activity is provided.

Costs are capitalized as part of the purchase only while the asset is being prepared for its intended purpose, true or false?

True.

When else do you treat the item as a revenue expenditure and expense it in the current accounting period?

When the expenditure does not only serve to maintain the asset in its normal operating condition and it doesn't not improve the asset and it does not extend the asset's useful life

When else do you treat the item as a capital expenditure and record it to the asset account?

When the expenditure does not only serve to maintain the asset in its normal operating condition, the expenditure does not improve the asset beyond its normal condition, but it does extend the asset's useful life.

When do you treat the item as a capital expenditure and record it to the asset account?

When the expenditure does not only serve to maintain the asset in its normal operation condition but when the expenditure does improve the asset beyond its normal condition.

When do you treat the item as a revenue expenditure and expense it in the current accounting period?

When the expenditure only serves to maintain the asset in its normal operating condition aka "Ordinary Repair"

Is inventory a current asset?

Yes because it will be bought and sold within a year, unless stated otherwise

The asset's historical cost is the asset's_______

recorder value

Basket Purchase

the acquisition of a number of assets as a group, in a single purchase transaction