SO1Ch' 4 Accrual Accounting Concepts Explain the revenue recognition principle and the matching prin

1
SO1--Ch. 4 Accrual Accounting ConceptsExplain
the revenue recognition principle and the
matching principle.

• The ____ principle
• requires that efforts be related to
  accomplishments.
• supports accrual accounting principles.

Answer Matching
2
SO1--Ch. 4 Accrual Accounting ConceptsExplain
the revenue recognition principle and the
matching principle.

• Applying ____ accounting results in a more
  accurate measurement of net income for the period
  than does ___ basic accounting.

Answer accrual, cash
3
SO1--Ch. 4 Accrual Accounting ConceptsExplain
the revenue recognition principle and the
matching principle.

• The ___ ___ assumption states that the economic
  life of a business can be divided into artificial
  time periods.

Answer time period
4
SO1--Ch. 4 Accrual Accounting ConceptsExplain
the revenue recognition principle and the
matching principle.

• An accounting time period that is one year in
  length is called a _____.

Answer fiscal year
5
SO1--Ch. 4 Accrual Accounting ConceptsExplain
the revenue recognition principle and the
matching principle.

• Management usually wants ___ financial statements
  and the IRS requires all businesses to file ___
  tax returns.

Answer monthly, annual
6
SO1--Ch. 4 Accrual Accounting ConceptsExplain
the revenue recognition principle and the
matching principle.

• An accounting period can be how long?

Answer month, quarter, year
7
SO1--Ch. 4 Accrual Accounting ConceptsExplain
the revenue recognition principle and the
matching principle.

• The revenue recognition principle dictates that
  revenue should be recognized in the accounting
  records when

Answer it is earned. (i.e. In a service-type
business, revenue is considered earned when the
service is performed)
8
SO1--Ch. 4 Accrual Accounting ConceptsExplain
the revenue recognition principle and the
matching principle.

• ABC Company follows the revenue recognition
  principle. ABC repairs a lawn mower on September
  30. The customer picks it up on October 1 and
  mails the payment on October 7. ABC receives the
  payment on October 10. When should ABC show that
  the revenue was earned?

Answer September 30
9
SO1--Ch. 4 Accrual Accounting ConceptsExplain
the revenue recognition principle and the
matching principle.

• A company buys an office building for 10
  million. Over what period should the cost be
  written off?

Answer Over the useful life of the building
10
SO2--Ch. 4 Accrual Accounting Concepts
Differentiate between the cash basis and the
accrual basis of accounting.

• The ___ basis of accounting is not in accordance
  with GAAP.

Answer Cash
11
SO2--Ch. 4 Accrual Accounting Concepts
Differentiate between the cash basis and the
accrual basis of accounting.

• When wages are incurred in one period and paid in
  the next period, which account would appear on
  the balance sheet at the end of the first period?

Answer Wages or Salaries Payable
12
SO2--Ch. 4 Accrual Accounting Concepts
Differentiate between the cash basis and the
accrual basis of accounting.

• Under the ____ basis of accounting events that
  change a companys financial statements are
  recognized in the period they occur rather than
  in the period in which cash is paid or received.

Answer Accrual
13
SO2--Ch. 4 Accrual Accounting Concepts
Differentiate between the cash basis and the
accrual basis of accounting.

• A small company may be able to justify using a
  cash basis of accounting if they have few

Answer receivables and payables.
14
SO3--Ch. 4 Accrual Accounting ConceptsExplain
why adjusting entries are needed and identify the
major types of adjusting entries.

• Revenue received before it is earned and expenses
  used or consumed before being paid are both
  initially reported as ____.

Answer Liabilities
15
SO3--Ch. 4 Accrual Accounting ConceptsExplain
why adjusting entries are needed and identify the
major types of adjusting entries.

• Expenses paid before being used or consumed are
  reported as a(n) _____.

Answer asset
16
SO3--Ch. 4 Accrual Accounting ConceptsExplain
why adjusting entries are needed and identify the
major types of adjusting entries.

• The balance of prepayment accounts prior to
  adjustments reflect the balance sheet accounts
  are __stated and income statement accounts are
  __stated.

Answer over, under
17
SO3--Ch. 4 Accrual Accounting ConceptsExplain
why adjusting entries are needed and identify the
major types of adjusting entries.

• The general term employed to indicate an expense
  that has not been paid or revenue that has not
  been received and has not yet been recognized in
  the accounts is ____.

Answer accrual
18
SO3--Ch. 4 Accrual Accounting ConceptsExplain
why adjusting entries are needed and identify the
major types of adjusting entries.

• Accounts often need to be adjusted because many
  transactions affect more than one ___ ___.

Answer time period
19
SO3--Ch. 4 Accrual Accounting ConceptsExplain
why adjusting entries are needed and identify the
major types of adjusting entries.

• _______ ______ are necessary to
• ensure that revenue recognition principles are
  followed.
• ensure that the matching principle is followed.
• Enable financial statements to be in conformity
  with GAAP.

Answer Adjusting entries
20
SO3--Ch. 4 Accrual Accounting ConceptsExplain
why adjusting entries are needed and identify the
major types of adjusting entries.

• An adjusting entry affects a ___ ___ account and
  an ___ ___ account.

Answer Balance sheet, income statement
21
SO3--Ch. 4 Accrual Accounting ConceptsExplain
why adjusting entries are needed and identify the
major types of adjusting entries.

• The preparation of adjusting entries is often an
  involved process requiring the skills of a _____.

Answer professional
22
SO3--Ch. 4 Accrual Accounting ConceptsExplain
why adjusting entries are needed and identify the
major types of adjusting entries.

• If a resource has been consumed but a bill has
  not been received at the end of the accounting
  period, then an adjusting entry should be made
  recognizing the ____.

Answer Expense
23
SO3--Ch. 4 Accrual Accounting ConceptsExplain
why adjusting entries are needed and identify the
major types of adjusting entries.

• An asset-expense relationship exists with ___
  ____ adjusting entries.

Answer prepaid expense
24
SO3--Ch. 4 Accrual Accounting ConceptsExplain
why adjusting entries are needed and identify the
major types of adjusting entries.

• A liability-revenue relationship exists with ___
  ___ adjusting entries.

Answer prepaid revenue
25
SO3--Ch. 4 Accrual Accounting ConceptsExplain
why adjusting entries are needed and identify the
major types of adjusting entries.

• XYZ Company purchased office supplies costing
  1,000 and debited Office Supplies for the full
  amount. At the end of the accounting period, a
  physical count of office supplies revealed 300
  still on hand. What would be the appropriate
  adjusting entry?

Answer Debit Office Supplies Expense for 700
and Credit Office Supplies for 700
26
SO3--Ch. 4 Accrual Accounting ConceptsExplain
why adjusting entries are needed and identify the
major types of adjusting entries.

• A law firm received 1,000 cash for legal
  services to be rendered in the future. The full
  amount was credited to the liability account
  Unearned Service Revenue. If the legal services
  have been rendered at the end of the accounting
  period and no adjusting entry is made,
  liabilities would be __stated and revenue would
  be __stated.

Answer Over, under
27
SO3--Ch. 4 Accrual Accounting ConceptsExplain
why adjusting entries are needed and identify the
major types of adjusting entries.

• Adjusting entries can be classified into what two
  categories?

Answer Accruals and prepayments
28
SO3--Ch. 4 Accrual Accounting ConceptsExplain
why adjusting entries are needed and identify the
major types of adjusting entries.

• An adjusting entry can include
• Debit to an asset and a credit to a ___.
• Debit to a liability and a credit to a ___.

Answer revenue, revenue
29
SO3--Ch. 4 Accrual Accounting ConceptsExplain
why adjusting entries are needed and identify the
major types of adjusting entries.

• ___ revenues are earned but not yet received or
  recorded.
• ___ expenses are paid and recorded in an asset
  account before they are used or consumed.
• ___ expenses are incurred but not yet paid or
  recorded.

Answer Accrued, Prepaid, Accrued
30
SO3--Ch. 4 Accrual Accounting ConceptsExplain
why adjusting entries are needed and identify the
major types of adjusting entries.

• ____ ____ are received and recorded as
  liabilities before they are received.

Answer Unearned revenues
31
SO3--Ch. 4 Accrual Accounting ConceptsExplain
why adjusting entries are needed and identify the
major types of adjusting entries.

• Goods purchased for future use in the business,
  such as supplies, are called ____ ___.

Answer prepaid expenses
32
SO4--Ch. 4 Accrual Accounting ConceptsPrepare
adjusting entries for prepayments.

• The cost of a depreciable asset less accumulated
  depreciation reflects the __ __ of the asset.

Answer Book value
33
SO4--Ch. 4 Accrual Accounting ConceptsPrepare
adjusting entries for prepayments.

• The balances of the Depreciation Expense and the
  Accumulated Depreciation accounts will not be the
  same. Why?

Answer Depreciation Expense is a temporary
account and will be closed each fiscal period.
Accumulated Depreciation will continue on as a
permanent account.
34
SO4--Ch. 4 Accrual Accounting ConceptsPrepare
adjusting entries for prepayments.

• Unearned revenue is a prepayment that requires an
  adjusting entry when ___ ___ ____.

Answer Services are performed.
35
SO4--Ch. 4 Accrual Accounting ConceptsPrepare
adjusting entries for prepayments.

• On January 1 we paid 3,000 for 6 months of rent
  beginning January 1. Prepaid Rent was debited
  for the full amount. If financial statements are
  prepared on January 31, what would be the
  adjusting entry?

Answer Debit Rent Expense for 500 and Credit
Prepaid Rent for 500
36
SO4--Ch. 4 Accrual Accounting ConceptsPrepare
adjusting entries for prepayments.

• Unearned revenue is classified as a(n) ___.

Answer Liability
37
SO4--Ch. 4 Accrual Accounting ConceptsPrepare
adjusting entries for prepayments.

• Accumulated Depreciation is classified as a(n)
  ____.

Answer contra asset account
38
SO4--Ch. 4 Accrual Accounting ConceptsPrepare
adjusting entries for prepayments.

• We purchased a computer for 6,000 on December 1.
  It is estimated that annual depreciation on the
  computer will be 1,200. If financial statements
  are prepared on December 31, what adjusting entry
  should be made?

Answer Debit Depreciation Expense for 100 and
Credit Accumulated Depreciation for 100.
39
SO4--Ch. 4 Accrual Accounting ConceptsPrepare
adjusting entries for prepayments.

• 123 Realty Company received a check on July 1 for
  12,000 which represents a 6-month advance
  payment of rent on a building it rents to a
  client. Unearned Rental Revenue was credited for
  the full 12,000. Financial statements will be
  prepared on July 31. What adjusting entry should
  be made on July 31?

Answer Debit Unearned Rental for 2,000 and
credit Rental Revenue for 2,000.
40
SO4--Ch. 4 Accrual Accounting ConceptsPrepare
adjusting entries for prepayments.

• A company usually determines the amount of
  supplies used during a period by taking the
  difference between the balance of the Supplies
  account and the cost of ________.

Answer Supplies on hand
41
SO4--Ch. 4 Accrual Accounting ConceptsPrepare
adjusting entries for prepayments.

• If a company fails to make an adjusting entry to
  record supplies expense, then expenses will be
  ___stated.

Answer Under
42
SO4--Ch. 4 Accrual Accounting ConceptsPrepare
adjusting entries for prepayments.

• If a company fails to adjust for accrued
  expenses, what effect will this have on that
  months financial statements?

Answer Expenses will be understated and net
income and stockholders equity will be
overstated.
43
SO4--Ch. 4 Accrual Accounting ConceptsPrepare
adjusting entries for prepayments.

• Adjusting entries affect at least one income
  statement account and one ______ account.

Answer balance sheet
44
SO4--Ch. 4 Accrual Accounting ConceptsPrepare
adjusting entries for prepayments.

• From an accounting standpoint, the acquisition of
  long-lived assets is essentially a(n) ____ for
  services.

Answer prepayment
45
SO4--Ch. 4 Accrual Accounting ConceptsPrepare
adjusting entries for prepayments.

• If service for 100 had been performed but not
  billed, the adjusting entry to record this would
  include a credit to

Answer Service Revenue for 100.
46
SO4--Ch. 4 Accrual Accounting ConceptsPrepare
adjusting entries for prepayments.

• As prepaid expenses expire with the passage of
  time, the correct adjusting entry will be

Answer debit to an expense account and a credit
to an asset account.
47
SO4--Ch. 4 Accrual Accounting ConceptsPrepare
adjusting entries for prepayments.

• Prepayments are either

Answer Prepaid Expenses or Unearned Revenue
48
SO4--Ch. 4 Accrual Accounting ConceptsPrepare
adjusting entries for prepayments.

• Adjusting entries for prepayments are required at
  the statement date to record the portion of the
  prepayment that represents the expense ___ or the
  revenue ___ in the current accounting period.

Answer incurred, earned
49
SO5--Ch. 4 Accrual Accounting ConceptsPrepare
adjusting entries for accruals.

• The accounts of a business before an adjusting
  entry is made to record an accrued revenue
  reflect an __stated asset and an __stated revenue.

Answer under, under
50
SO5--Ch. 4 Accrual Accounting ConceptsPrepare
adjusting entries for accruals.

• Failure to prepare an adjusting entry at the end
  of the period to record an accrued expense would
  cause an __statement of expenses and an
  __statement of liabilities.

Answer under, under
51
SO5--Ch. 4 Accrual Accounting ConceptsPrepare
adjusting entries for accruals.

• __ __ are revenues that have been earned, but not
  yet received before financial statements have
  been prepared.

Answer Accrued revenue
52
SO5--Ch. 4 Accrual Accounting ConceptsPrepare
adjusting entries for accruals.

• ABC Company borrowed 10,000 from the bank
  signing a 12, 3-month note on July 1. Principal
  and interest are payable to the bank on October
  1. If the company prepares monthly statements,
  the adjusting entry that the company should make
  for interest on July 31, would be

Answer Debit Interest Expense 100 Credit
Interest Payable 100
53
SO5--Ch. 4 Accrual Accounting ConceptsPrepare
adjusting entries for accruals.

• John Doe has performed 1000 of CPA services for
  a client but has not billed the client as of the
  end of the accounting period. What adjusting
  entry must John make?

Answer Debit Accounts Receivable and credit
Service Revenue
54
SO5--Ch. 4 Accrual Accounting ConceptsPrepare
adjusting entries for accruals.

• John Doe, CPA, has billed his clients for
  services performed. He subsequently received
  payments. What entry will he make upon receipt
  of the payments?

Answer Debit Cash and credit Accounts Receivable
55
SO5--Ch. 4 Accrual Accounting ConceptsPrepare
adjusting entries for accruals.

• 123 Company paid employee wages on and through
  Friday, March 26. The next payroll will be paid
  in April. There are three more working days in
  March (29-31). Employees work 5 days a week and
  the company pays 1000 a day in wages. What will
  be the adjusting entry to accrue wages expense at
  the end of March?

Answer Wages Expense 3,000 Debit and Wages
Payable 3,000 Credit
56
SO5--Ch. 4 Accrual Accounting ConceptsPrepare
adjusting entries for accruals.

• At the end of the fiscal year, the usual
  adjusting entry for accrued salaries owed to
  employees was omitted. Expenses would be
  __stated and liabilities would be __stated.

Answer Under, Under
57
SO5--Ch. 4 Accrual Accounting ConceptsPrepare
adjusting entries for accruals.

• A company shows a balance in Salaries Payable of
  30,000 at the end of the month. The next
  payroll amounting to 50,000 is to be paid in the
  following month. What will be the journal entry
  to record the payment of salaries?

Answer Salaries Expense 20,000 and Salaries
Payable 30,000 debited Cash 50,000 Credit
58
SO6--Ch. 4 Accrual Accounting ConceptsDescribe
the nature and purpose of the adjusted trial
balance.

• Financial statements can be prepared from the
  information provided by a(n) ____

Answer Adjusted Trial Balance
59
SO6--Ch. 4 Accrual Accounting ConceptsDescribe
the nature and purpose of the adjusted trial
balance.

• A(n) ____ must be prepared after the adjusting
  entries have been recorded.

Answer Adjusted Trial Balance
60
SO6--Ch. 4 Accrual Accounting ConceptsDescribe
the nature and purpose of the adjusted trial
balance.

• An adjusted trial balance proves the equality of
  the total debit and total credit balances of ____
  after all adjustments have been made.

Answer ledger accounts
61
SO6--Ch. 4 Accrual Accounting ConceptsDescribe
the nature and purpose of the adjusted trial
balance.

• An adjusted trial balance can be used to prepare
  ___ ___.

Answer financial statements.
62
SO6--Ch. 4 Accrual Accounting ConceptsDescribe
the nature and purpose of the adjusted trial
balance.

• An adjusted trial balance proves the ___ ___ of
  debits and credits in the ledger.

Answer mathematical equality
63
SO7--Ch. 4 Accrual Accounting ConceptsExplain
purpose of closing entries.

• The post-closing trial balance will contain only
  ___--balance sheetaccounts.

Answer Permanent
64
SO7--Ch. 4 Accrual Accounting ConceptsExplain
purpose of closing entries.

• ___ entries cause the revenue and expense
  accounts to have zero balances.

Answer Closing
65
SO7--Ch. 4 Accrual Accounting ConceptsExplain
purpose of closing entries.

• Revenues and Expenses are closed to the ____
  account.

Answer Income Summary
66
SO7--Ch. 4 Accrual Accounting ConceptsExplain
purpose of closing entries.

• The closing entry process consists of closing
  _____.

Answer all temporary accounts
67
SO8Ch. 4 Accrual Accounting ConceptsDescribe
the required steps in the accounting cycle.

• Closing entries result in the transfer of net
  income or net loss into the ____ account.

Answer Retained Earnings
68
SO8Ch. 4 Accrual Accounting ConceptsDescribe
the required steps in the accounting cycle.

• The final step in the accounting cycle is to
  prepare a

Answer post-closing trial balance
69
SO8Ch. 4 Accrual Accounting ConceptsDescribe
the required steps in the accounting cycle.

• The entry to close the revenue accounts would be

Answer Debit Revenues and Credit Income Summary
70
SO8Ch. 4 Accrual Accounting ConceptsDescribe
the required steps in the accounting cycle.

• The entry to close the expenses accounts would be
  a

Answer debit to Income Summary and credit
Expenses
71
SO8Ch. 4 Accrual Accounting ConceptsDescribe
the required steps in the accounting cycle.

• When there is a net income, the entry to close
  the Income Summary includes a

Answer Debit Income Summary and Credit Retained
Earnings
72
SO8Ch. 4 Accrual Accounting ConceptsDescribe
the required steps in the accounting cycle.

• The entry to close dividends is a

Answer Debit to Retained Earnings and a Credit
to Dividends