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Acctg 201 Exam 2
Terms in this set (61)
Which of the following is not a part of the recording process?
a) analyzing business transactions
b) posting transactions to ledger
c) preparing financial statements
d) journalizing transactions
C) preparing financial statements
What does a normal balance indicate?
The side an account is increasing on.
What does a double entry accounting system indicate?
-there are at least 2 journal entries being made
-each journal entry involves at least one debit and one credit
-debits must always equal credits
What is the classification and normal balance of the accounts payable account?
What is the classification and normal balance of the prepaid expenses account?
A receipt of a portion of accounts receivable will...?
Not affect total stockholders' equity
Which accounts typically have normal debit balances?
Expenses, assets, dividends
Which accounts typically have normal credit balances?
Liabilities, common stock, retained earnings
What does accrual accounting mean?
Revenues and expenses are recorded when they occur regardless of cash.
When is revenue recognized in accrual accounting?
When the service is performed or the product is delivered.
When does expense recognition occur in accrual accounting?
When expenses incurred are matched with revenues generated.
When should revenue be recorded in accrual accounting?
When the performance obligation has been met.
Adjusting entries are...?
Classified as deferrals and accruals
Depreciation allocates an asset's cost...
Over its useful lifetime.
Accumulated depreciation is a(n)...?
Contra asset account with a normal credit balance.
Book value on equipment purchased for $500 with accumulated depreciation of $50 is...?
What adjusting entry would be made for one month of depreciation on equipment with annual depreciation of 600?
debit Depreciation Expense $50, and
credit Accumulated Depreciation $50
Which account will have a zero balance after closing entries have been journalized and posted?
Which accounts will most often have a credit balance?
Common stock, retained earnings, revenues
Your company received $1000 from customer for services to be performed next month, so...?
Assets increase by $1000.
ABC Co. fails to make an adjusting entry for use of insurance during the period. What will be understated or overstated?
Assets will be overstated.
A trial balance has normal balances of cash $1000, supplies $400, expenses $100, and revenues $1000. What is common stock?
What does it mean if you have a credit balance in Income Summary AFTER closing the revenue and expenses accounts?
You have net income.
The purchase of equipment on account...?
Increases assets and liabilities.
When should unearned service revenue be recorded?
When cash is received and services have not yet been performed.
On Jan. 31, you provide services to client. You bill her Feb. 15 and receive cash on Feb. 28. When do you recognize revenue?
Expense recognition principle (matching principle) matches...?
Revenues with expenses incurred during the period.
A liability revenue relationship exists with...?
Unearned revenue adjusting entry.
On 4/1, you signed a 4-month note payable in the amount of $20,000. Annual interest is 6%. How much interest should you accrue on 4/30?
What is the purpose of the post-closing trial balance?
To prove the equality of debits and credits of permanent accounts.
Will the accounting equation ever NOT balance?
Nope! It'll always balance.
Company X received cash from a customer for services performed. What impact did that have on the accounting equation?
Assets go up and stockholders' equity goes up.
The "normal" side of an account means the side that...?
Steps in the Recording Process
Analyze each transaction, enter transaction in a journal, transfer journal information to ledger accounts.
What does a general ledger contain?
The general ledger contains all the assets, liabilities, stockholders' equity, revenue, and expense accounts.
The procedure of transferring journal entry amounts to ledger accounts is called...?
What's the purpose of transaction analysis?
First to identify the type of account involved and then to determine whether a debit or credit to the account is required.
A company uses cash to purchase a machine for $5,000, so...?
Assets, liabilities, and stockholders' equity all stay the same.
What happened to the accounting equation when a company pays cash of $500 for rent?
Assets decrease by $500 and stockholders' equity decreases by $500.
A company provides services worth $5,000 on account. What is the correct journal entry?
debit Accounts Receivable $5,000 and
credit Revenue $5,000.
What is the classification and normal balance of the Retained Earnings account?
Stockholders' Equity, credit
When collection is made on Accounts Receivable...?
Total assets remain the same.
What do adjusting entries ensure?
That the revenue recognition and expense recognition principles are followed.
What's the adjusting journal entry for an accrued expense?
debit Expense, credit Liability
Adjusting journal entry to recognize unearned revenue
Debit liability, credit revenue
What happens if a company forgets to adjust for unearned revenue?
Revenue is understated.
The adjusting journal entry for accrued interest is...?
Debit expense, credit liability
A company forgets to accrue for interest.
Expenses are understated.
Adjusting entry to accrue revenue
Debit accounts receivable, credit revenue
Not adjusting for accrued revenue would...?
What is the primary basis for the preparation of the financial statements?
The adjusted trial balance
prepaid expenses and unearned revenues
accrued revenues and accrued expenses
revenues for services performed but not yet received in cash or recorded
If revenues are recognized only when a customer pays, what method of accounting is being used?
What is the difference between an asset's cost and its accumulated depreciation?
Cash received before services are performed are recorded as...?
Adjustments for unearned revenues...?
decrease liabilities and increase revenues
payment of dividends
Decreases cash; decreases retained earnings
Accounts with normal credit balances include
liabilities and stockholders' equity
Accounts with normal debit balances include
expenses and assets
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MyAccountingLab with Pearson eText -- Instant Access -- for Financial Accounting
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