Acct 101 Exam 2

straight line depreciation

(cost - salvage value) / useful life in months

A company's adjusted balance shows wages expense and rent expense with debit balances. Closing these accounts would include:

- Crediting wages and rent expense - debiting income summary

The postclosing trial balance is prepared to:

-confirm revenue, expense, and drawing accounts have a zero balance -prove the equality of total debits and credits

Four steps in the closing process

1. Transfer the balance of the revenue account to the Income Summary account. 2. Transfer the expense account balances to the Income Summary account. 3. Transfer the balance of the Income Summary account to the owner's capital account. 4. Transfer the balance of the drawing account to the owner's capital account.

Steps in the Accounting Cycle

1. analyze transactions, 2. journalize the transactions, 3. post the transactions, 4. prepare a worksheet, 5. prepare financial statements, 6. record adjusting entries, and 7. record closing entries. 8. prepare a postclosing trial balance 9. interpret the financial information.

Place the activities used to prepare the trial balance in order that they would be completed

1. enter the general ledger account names 2. transfer the general ledger account balances to the debit and credit columns 3. total the columns to prove the trial balance is balanced 4. place a double rule under each trial balance column to show the work is done

Interpreting financial statements include asking which questions:

1. how much cash does the company have 2. how much does the business owe suppliers? 3. how much is the net income?

Identify various state requirements in regards to sales tax

1. retailer is required to collect sales tax from customer 2. the retailer must make periodic payments to the taxing authority 3. some states allow the retailer to keep part of the sales tax as compensation for collecting it 4. payment of sales tax must be collected periodically (usually monthly)

Identify the reasons that accountants use a sales return and allowances account:

1. to calculate operating efficiency 2. to keep a complete record of sales returns and allowances

place the sections (from left to right) in the order they appear on the worksheet

1. trial balance 2. adjustments 3. adjusted trial balance 4. income statement 5. balance sheet

When done properly, how many journal entries are involved in the closing process?

4

Account form balance sheet:

A balance sheet that lists assets on the left and liabilities and owner's equity on the right (see also Report form balance sheet)

Report form balance sheet:

A balance sheet that lists the asset accounts first, followed by liabilities and owner's equity

Retail business:

A business that sells directly to individual consumers

Merchandising business:

A business that sells goods purchased for resale

Manufacturing Business:

A business that sells goods that it has produced

Service business:

A business that sells services

Sales discount:

A cash discount offered by the supplier for payment within a specified period

Sales return and allowance:

A contra revenue account where sales returns and sales allowances are recorded; sales returns and allowances are subtracted from sales to determine net sales

Sales return:

A firm's acceptance of a return of goods from a customer

Worksheet

A form used to gather all data needed at the end of an accounting period to prepare financial statements.

Depreciation:

Allocation of the cost of a long-term asset to operations during its expected useful life

Control account:

An account that links a subsidiary ledger and the general ledger since its balance summarizes the balances of the accounts in the subsidiary ledger

Contra revenue account:

An account with a debit balance, which is contrary to the normal balance for a revenue account

Contra account:

An account with a normal balance that is opposite that of a related account

Contra asset account:

An asset account with a credit balance, which is contrary to the normal balance of an asset account

List price:

An established retail price

Periodic inventory system:

An inventory system in which the merchandise inventory balance is only updated when a physical inventory is taken

Perpetual inventory system:

An inventory system that tracks the inventories on hand at all times

Which of the following is a common example of the distribution channel?

Manufacturer sells to Wholesaler who sells to Retailer who sells to Customer

On July 1, Sidney Consulting Services paid $18,000 for 12 months of advance rent on its office building. Select the adjusting entry made on December 31, to record the amount of rent that had expired during the year.

Rent Expense...........$9,000 Prepaid Rent................ $9,000

Net sales:

The difference between the balance in the Sales account and the balance in the Sales Returns and Allowances account

Merchandise inventory:

The stock of goods a merchandising business keeps on hand

to record depreciation for equipment

debit depreciation expense, credit accumulated depreciation

To close the revenue account:

debit revenue, credit income summary

If $500 was debited to supplies and at the end of the month only $200 of supplies was at hand, then the necessary adjustments include:

debit to supplies expense for $300

The owner's drawing account is closed by:

debiting the owner's capital account and crediting the owner's drawing account.

Which accounts are closed to the income summary account?

expenses & revenue

A consecutive, twelve-month accounting period is called a(n):

fiscal year

Long-term assets include

furniture, equipment, and land

The Ending Capital balance would appear on all of the following except the:

income statement.

A credit policy that is too tight may result in

low level of losses at the expense of increases in sales volume.

After remitting a sales tax, a small remaining balance in the sales tax payable account is recorded as a credit to:

miscellaneous income

A schedule of accounts receivable is prepared

monthly.

The Sales Returns and Allowances account is reported

on the income statement as a deduction from Sales.

Adjusting entries can be journalized:

only once a month.

Which of the following is recorded in the accounts receivable subsidiary ledger?

running balance, customer address, debits and credits to customer's accounts receivable account

The balance due from an individual customer can be found in:

the accounts receivable subsidiary ledger.

After all postings have been made, the total of the schedule of accounts receivable should equal

the balance of the Accounts Receivable account in the general ledger.

The book value of long-term assets is reported on:

the balance sheet.

Book value is

the difference between the cost of a long-term asset and accumulated depreciation

salvage value

the estimated value of a fixed asset at the end of its useful life

The first step in the closing process is to close:

the revenue account(s).

Accumulated Depreciation

the total amount of depreciation expense that has been recorded since the purchase of an asset

Adjusting Entries are:

updating entries for previously unrecorded expenses or revenues.

If the prepaid expenses are not adjusted, assets on the balance sheet:

will be overstated.

A wholesale business sells goods with a list price of $800 and a trade discount of 36 percent. The net sales price is

$512.00.

If a firm had sales of $84,000 during a period and sales returns and allowances of $6,000, its net sales were

$78,000.

Supplies has $2000 debit balance with $400 credit in adjustments section. New balance would be:

$1600 debit

If Lacy's Department Store charges 8 percent sales tax, the amount of sales tax collected on a $525 sale would be

$42.00.

During its first year of business, XYZ Inc. purchased $1,600 of supplies. By the end of the year, only $500 of supplies remain in the supply cabinet. Determine the amount to be reported in the Supplies account in the Adjusted Trial Balance section of the worksheet prepared on December 31.

$500

Sales: $15,000, sales return and allowances: $3000, cost of goods sold: $4000, net sales equal:

$12000

Subsidiary ledger:

A ledger dedicated to accounts of a single type and showing details to support a general ledger account

Schedule of accounts receivable:

A listing of all balances of the accounts in the accounts receivable subsidiary ledger

Wholesale business

A manufacturer or wholesaler that sells goods to a retailer

Credit memorandum (accounts receivable):

A note verifying that a customer's account is being reduced by the amount of a sales return or sales allowance plus any sales tax that may have been involved

Trade discount:

A reduction from list price

Sales allowance:

A reduction in the price originally charged to customers for goods or services

Accounts receivable ledger:

A subsidiary ledger that contains credit customer accounts

Open-account credit:

A system that allows the sale of services or goods with the understanding that payment will be made at a later date

Identify the accounts below that are ALL permanent accounts.

Accounts Receivable, Accumulated Depreciation, Accounts Payable

Prepaid expenses

Expense items acquired, recorded, and paid for in advance of their use

A post-closing trial balance could include all of the following accounts except the:

Fees Income account.

Which of the following accounts is a permanent account?

Supplies

Credit terms:

Terms for payment on credit by buyer to seller

he Sales Returns and Allowances account is classified as

a contra revenue account.

The entry to transfer a net loss to the owner's capital account would include:

a debit to the Capital account and a credit to Income Summary.

Which of the following need not be completed separately if a worksheet is prepared?

a trial balance

The adjustments made on the worksheet:

are recorded in the journal and then posted to the general ledger accounts.

On a balance sheet, Accumulated Depreciation—Equipment is reported:

as a contra-asset on the Balance Sheet.