Financial Accounting Chp. 4


Terms in this set (...)

The time period assumption is often referred to as the matching principle
expense recognition often follows revenue recognition
adjusting entries are not necessary if the trial balance debit and credit columns balances are equal
An adjusting entry always involves two balance sheet accounts
accrued revenues are revenues which have been received but not yet earned
the cost of a depreciable asset less accumulated depreciation reflects the book value of the asset
accumulated depreciation is a liability account and has a credit normal account balance
the balances of the depreciation expense and the accumulated depreciation accounts should always be the same
acures revenues are revenues that have been earned and received before financial statements have been prepared
rent received in advance and credited to a rent revenue account which is still unearned at the end of the period, will require an adjusting entry crediting a liability account for the amount still unearned
management usually desires ______ financial statements and the IRS requires all businesses to file ______ tax returns
monthly, annual
in general, the shorter the time period, the difficulty of making the proper adjustments to accounts
is increased
the fiscal year of a business is usually determined by
the business
the revenue recognition principle dictates that revenue should be recognized in the accounting records
when it is earned
in a service-type business, revenue is considered earned
when the service is performed
a company spends $2 million dollars to build a restaurant. over what period should the cost be written off?
over the useful life of the building
a catering company supplies food for a large event for $20,000 on October 30. the customer is sent a statement on November 5 and a check is received on November 10.The catering company follows GAAP and applies the revenue recognition principle. When is the $20,000 considered to be earned?
October 30
Under the accrual basis of accounting
events that change a company financial statements are recognized in the period they occur rather than in the period in which cash is paid or received
Accounts often need to be adjusted because
many transactions affect more than one time period
an adjusting entry
affects a balance sheet account and an income statement account
arnold's asian restaurant company purchased office supplies costing $5,000 and debited office supplies for the full amount. at the end of the accounting period, a physical count of office supplies revealed $1,500 still on hand. the appropriate adjusting journal entry to be made at the end of the period would be.
debit office supplies expense, $3,500; Credit office supplies, $3500
accrued revenues are
earned but not yet received or recorded
prepaid expenses are
paid and recorded in an asset account before they are used or consumed
accrued expenses are
incurred but not yet paid or recorded
unearned revenues are
received and recorded as liabilities before they are earned
while of the following reflect the balances of prepayment accounts prior to adjustment?
balance sheet accounts are overstated and income statement accounts are understated
the latin restaurant purchased $5,000 worth of laundry supplies on July 2and recorded the purchase as an asset. on June 30, an inventory of the laundry supplies indicated only $2,000 on hand. the adjusting entry that should be made by the hotel on July 30 is
debit laundry supplies expense, $3,000; credit laundry supplies, $3,000
Depreciation expense for a period is computed by taking the
cost of the asset / useful life
accumulated depreciation is a(n)
liability account
the rose bakery purchased a computer for $4,000 on December 1, it is estimated that annual depreciation on the computer will be $800. if financial statements are to be prepared on December 31,the company should make the following adjusting entry
debit depreciation expense, $67; credit accumulated depreciation $67
brown management received a check for $24,000 on July , which represents a 12-month advance payment of rent on a restaurant it rents to a client. unearned rent was credited for the full $24,000. if financial statements are to be prepared on December 3, the compant should make the following adjusting entry:
debit unearned rent, $2,000; credit rent revenure, $2,000
depreciation is the process of
allocating the cost of an asset to expense over its useful life in a rational and systematic manner
A new accountant working for Frenchies Catering Company records $1,000 Depreciation Expense on service equipment as follows:
Dr. Depreciation Expense 1,000
Cr. Cash 1,000
The effect of this entry is to
overstate the book value of the depreciable assets at December 31
The accounts of a business before an adjusting entry is made to record an accrued revenue reflect an
understated asset and an understated revenue
Teresa White has performed $900 of CPA services for a country club but has not billed the club as of the end of the accounting period. What adjusting entry must Teresa make?
Debit Accounts Receivable and credit Service Revenue
A gift shop, located in a hotel, signs a three-month note payable to help finance increases in inventory for the Christmas shopping season. The note is signed on November 1 in the amount of $60,000 with annual interest of 12%. What is the adjusting entry to be made on December 31 for the interest expense accrued to that date, if no entries have been made previously for the interest?
Interest Expense 1,200
Interest Payable 1,200
Rhapsody Red Restaurant shows a balance in Salaries Payable of $20,000 at the end of the month. The next payroll amounting to $30,000 is to be paid in the following month. What will be the journal entry to record the payment of salaries?
Salaries Expense 10,000
Salaries Payable 20,000
Cash 30,000
An adjusted trial balance
proves the equality of the total debit balances and total credit balances of ledger accounts after all adjustments have been made
If prepaid expenses are initially recorded in expense accounts and have not all been used at the end of the accounting period, then failure to make an adjusting entry will cause
assets to be understated.
If unearned revenues are initially recorded in revenue accounts and have not all been earned at the end of the accounting period, then failure to make an adjusting entry will cause
revenues to be overstated
The ______________ assumption states that the economic life of a business can be divided into artificial time periods.
time period
An accounting period that is one year in length is referred to as a ______________ year.
In a service company, revenue is earned when the service is _______________.
Expenses paid and recorded in an asset account before they are used or consumed are called _______________. Revenue received and recorded as a liability before it is earned is referred to as _________________.
prepaid expenses, unearned revenue
Failure to adjust a prepaid expense account for the amount expired will cause _______________ to be understated and ________________ to be overstated.
expenses, assets
A twelve-month accounting period
fiscal year
Expenses paid before they are incurred
prepaid expenses
Cost less accumulated depreciation
Book Value
Divides the economic life of a business into artificial time periods
Time period Assumption
Efforts are related to accomplishments
matching principle
A contra asset account
Accumulated Depreciation
Recognition of revenue when it is recorded when earned
revenue recognition principle
Revenues earned but not yet received
accrued revenues
Expenses incurred but not yet paid
accrued expenses
A cost allocation process