Financial Accounting Module 6 7%

On November 17 of the current year, the company signed a contract to provide services worth $10,000. By December 31, services worth $4,000 had been provided and cash of $3,000 had been collected. The remaining $6,000 in services will be provided next year, and the remaining $7,000 in cash will be collected next year. What amount of revenue should be reported in the current year?

$ 4,000 revenue should be reported in current year

On November 6 of the current year, the company provided services worth $12,000. By December 31, cash of $5,000 had been collected. The additional $7,000 in cash will be collected next year. What amount of revenue should be reported in the current year?

$12,000 revenue should be reported in the current year.

On October 11 of the current year, the company received $20,000 in cash in advance for consulting services to be provided in the future. By December 31, services worth $8,000 had been provided. The additional $12,000 in services will be provided next year. What amount of revenue should be reported in the current year?

$8,000 revenue should be reported in current year.

What are the three steps for adjusting entries?

1. Debit or Credit to fix the balance sheet 2. Debit or credit to fix the income statement 3. do not include cash

On October 1 of Year 1, Quiet Flag Industries made a $50,000 cash loan to another company. The interest rate on the loan is 13 percent. No cash payments will be collected on the loan until September 30 of Year 2. Which debit or credit is correctly included in the adjusting journal entry necessary on Quiet Flag's books (the lender) on December 31 with respect to this loan? a. Credit to Interest Revenue for $1,625 b. Debit to Interest Revenue for $1,625 c. Debit to Interest Revenue for $4,875 d. Credit to Interest Revenue for $4,875

A. Credit to interest revenue for $1,625

On May 1 of Year 1, Bullzai, Inc., paid $2,400 cash for rent. This $2,400 rental payment covers the period from May 1 of Year 1 to April 30 of Year 2. On May 1, the payment of the cash was recorded as an asset as prepaid rent. Which debit or credit is correctly included in the adjusting journal entry necessary on December 31 with respect to this prepaid rent? a. debit to rent expense for $1,600 b. debit to rent expense for $800 c. credit to rent expense for $1,600 d. credit to rent expense for $800

A. Debit to rent expense for $1,600

How does the time period concept impact the process of financial reporting? a. Financial statements are provided on a regular basis, at least once a year. b. Financial statements are provided at the time a corporation issues new shares. c. Financial statements are provided only under special circumstances, usually once every five years. d. Financial statements are not provided until the owners are preparing to sell the business.

A. Financial statements are provided on a regular basis, at least once a year.

Expenses incurred during a period that have not been recorded by the end of that period. a. unrecorded liabilities b. unrecorded receivables c. unearned revenue d. prepaid expenses

A. Unrecorded liabilities

The process of recording expenses and revenues when incurred and earned, regardless of when cash is received, and of adjusting original transaction data into refined measures of a firm's past economic performance and current economic condition.

Accrual accounting

Entries required at the end of each accounting period to recognize, on an accrual basis, revenues and expenses for the period and to report proper amounts for asset, liability, and owners' equity accounts.

Adjusting entries

Which statement is correct? a. Asset basis accounting provides a more accurate picture of a company's profitability. b. Accrual basis accounting provides a more accurate picture of a company's profitability. c. Cash basis accounting provides a more accurate picture of a company's profitability. d. Valuation basis accounting provides a more accurate picture of a company's profitability.

B. Accrual basis accounting provides a more accurate picture of a company's profitability.

Revenues earned during a period that have not been recorded by the end of that period. a. unrecorded liabilities b. unrecorded receivables c. unearned revenue d. prepaid expenses

B. Unrecorded receivables

In which type of business would accrual basis accounting result in the same income measure as cash basis accounting? a. A large manufacturing business, in which orders are received now, cash advances are collected from customers now, and delivery of manufactured products occurs many years from now b. A medium-sized construction business, in which most of the assets are long-term construction equipment items that can last for up to 15 years c. A small business, in which all sales amounts are collected in cash at the time of the sale and all expenses are paid in cash immediately d. A small manufacturing business, in which routine inventory items are produced in bulk now, stored for two or three years, and then sold to customers

C. A small business, in which all sales amounts are collected in cash at the time of the sale and all expenses are paid in cash immediately

On September 1 of Year 1, the company received $3,600 cash for rent in advance. This $3,600 rental receipt covers the period from September 1 of Year 1 to August 31 of Year 2. Assuming that this is not an adjusting journal entry, which debit or credit is correctly included in the journal entry necessary to record this cash received for rent in advance? a. Debit to Unearned Rent for $3,600 b. Credit to Rent Revenue for $3,600 c. Credit to Unearned Rent for $3,600 d. Debit to Rent Revenue for $3,600

C. Credit to Unearned Rent for $3,600

On September 1 of Year 1, the company received $3,600 cash for rent in advance. This $3,600 rental receipt covers the period from September 1 of Year 1 to August 31 of Year 2. On September 1, the receipt of the cash was recorded as a liability. Which debit or credit is correctly included in the adjusting journal entry necessary on December 31 with respect to this rent received in advance? a. Credit to Rent Revenue for $2,400 b. Debit to Rent Revenue for $2,400 c. Credit to Rent Revenue for $1,200 d. Debit to Rent Revenue for $1,200

C. Credit to rent revenue

On February 1 of Year 1, Sparkit Company received $100,000 cash from a one-year bank loan. The interest rate on the loan is 8 percent. No payments are due on the loan until January 31 of Year 2. Which debit or credit is correctly included in the adjusting journal entry necessary on December 31 with respect to this loan? a. Credit to Interest Payable for $8,000 b. Debit to Interest Payable for $7,333 c. Debit to Interest Expense for $7,333 d. Credit to Interest Expense for $8,000

C. Debit to interest expense for $7,333

What name is given to a 12-month accounting period? a. Accrual year b. Calendar year c. Fiscal year d. Recognition year

C. Fiscal year

Where and when should an expense already paid in cash be reported if it cannot be directly matched with an associated revenue? a. In the income statement as an asset in the accounting period in which it is incurred b. In the balance sheet as an asset in the accounting period in which it is incurred c. In the income statement as an expense in the accounting period in which it is incurred d. In the balance sheet as a liability in the accounting period in which it is incurred

C. In the income statement as an expense in the accounting period in which it is incurred.

Cash amounts received before they have been earned. a. unrecorded liabilities b. unrecorded receivables c. unearned revenue d. prepaid expenses

C. Unearned revenue

An entity's reporting year, from Jan 1 - Dec 31.

Calendar year

A system of accounting in which transactions are recorded and revenues and expenses are recognized only when cash is received or paid.

Cash basis accounting

The revenue recognition principle states that revenues are recorded when two main criteria have been met. One of those criteria is that the earnings process is substantially complete. What is the other criterion? a. Necessary documentation has been filed with the appropriate government agency. b. Revenue targets for the period have been reached. c. Standard forecasting procedures are implemented. d. Cash has been collected or collectability is reasonably assured.

D. Cash has been collected or collectability is reasonably assured.

On September 1 of Year 1, Endothon Company paid $36,000 cash for insurance. This $36,000 insurance payment covers the period from September 1 of Year 1 to August 31 of Year 2. On September 1, the payment of the cash was recorded as an asset as prepaid insurance. Which debit or credit is correctly included in the adjusting journal entry necessary on December 31 with respect to this prepaid insurance? a. Credit to Insurance Expense for $24,000 b. Debit to Insurance Expense for $24,000 c. Credit to Insurance Expense for $12,000 d. Debit to Insurance Expense for $12,000

D. Debit to insurance expense of $12,000

Payments made in advance for items normally charged to expense. a. unrecorded liabilities b. unrecorded receivables c. unearned revenue d. prepaid expenses

D. Prepaid expense

What is accrual accounting? a. Recording the amount of revenues and the amount of expenses when cash is received or paid b. Recording the amount of revenues and the amount of expenses when process cycles are complete c. Recording the amount of revenues and the amount of expenses when budgets are approved and adopted d. Recording revenues and expenses when earned or incurred, not when cash is received or paid

D. Recording revenues and expenses when earned or incurred, not when cash is received or paid

What is cash basis accounting? a. Payment of all income taxes in cash in the period legally required b. Recording revenues when earned and expenses when incurred c. Separation of accounting items into operating, investing, and financing activities d. Recording revenues when cash is received and expenses when cash is paid

D. Recording revenues when cash is received and expenses when cash is paid

An entity's reporting year, covering a 12-month accounting period.

Fiscal year

On June 1, the company purchased a $100,000 certificate of deposit (CD). The CD earns 6% per year. Principal and interest on this investment will be collected next year on May 31.

Interest receivable 3500 (debit) interest revenue 3500 (credit)

The concepts that all costs and expenses incurred to generate revenues must be recognized in the same accounting period.

Matching principle

Cash-basis accounting is _____ and acccrual-basis accounting is _____.

Objective, Subjective

On August 1, the company paid $12,000 cash for rent for one year beginning on August 1.

Rent Expense 5,000 (debit) Prepaid rent 5,000 (credit)

The idea that revenues should be recorded when (1) the earnings process has been substantially completed and (2) cash has either been collected or collectability is reasonable assured.

Revenue recognition principle

The idea that the life of a business is divided into distinct and relatively short time periods so that accounting information can be timely.

Time period concept

T or F: Revenue is "recognized: when the customer receives value.

True

On October 1, the company received $18,000 cash for consulting services that it will provide evenly over 12 months starting on October 1.

Unearned consulting revenue 4,500 (debit) consulting revenue 4500 (credit)

what are the four types of adjusting entries?

Unrecorded receivables Unrecorded liabilities Prepaid expenses Unearned revenue

The company pays its employees on the 15th of each month. The total amount paid each month is $80,000. [Note: Round your calculations to the nearest half month; do not worry about counting the exact number of days in December.]

Wages expense 40,000 (debit) wages payable 40,000 (credit)