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41 terms

chapter 1,2 and 3

CP
STUDY
PLAY
MONTHLY AND QUARTERLY TIME PERIODS ARE CALLED
INTERIM PERIODS
THE TIME PERIOD ASSUMPTION STATES THAT
THE ECONOMIC LIFE OF A BUSINESS CAN BE DIVIDED INTO ARTIFICIAL TIME PERIOD
ADJUSTMENTS WOULD NOT BE NECESSARY IF FINANCIAL STATEMENTS WERE PREPARED TO REFLECT NET INCOME FROM
LIFETIME OPERATIONS
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
THE EXPENSE RECOGNITION PRINCIPLE MATCHES
EXPENSES WITH REVENUES
RON'S HOT ROD SHOP FOLLOWS THE REVENUE RECOGNITION PRINCIPLE. RON SERVICES A CAR ON JULY 31. THE CUSTOMER PICKS UP THE VEHICLE ON AUGUST 1 AND MAILS THE PAYMENT TO RON ON AUGUST 5. RON RECEIVES THE CHECK IN THE MAIL ON AUGUST 6. WHEN SHOULD RON SHOW THAT THE REVENUE WAS EARNED?
JULY 31
THE EXPENSE RECOGNITION PRINCIPLE STATES THAT EXPENSES SHOULD BE MATCHED WITH REVENUES. ANOTHER WAY OF STATING THE PRINCIPLE IS TO SAY THAT
EFFORTS SHOULD BE MATCHED WITH ACCOMPLISHMENTS
A FLOWER SHOP MAKES A LARGE SALE $1,000 ON NOVEMBER 30. THE CUSTOMER IS SENT A STATEMENT ON DECEMBER 5 AND A CHECK IS RECEIVED ON DECEMBER 10. THE FLOWER SHOP FOLLOWS GAAP AND APPLIES THE REVENUE RECOGNITION PRINCIPLE. WHEN IS THE $1,000 CONSIDERED TO BE EARNED?
NOVEMBER 30
UNDER ACCRUAL-BASIS ACCOUNTING
EVENTS THAT CHANGE A COMPANY'S FINANCIAL STATEMENTS ARE RECOGNIZED IN THE PERIOD THEY OCCUR RATHER THAN IN THE PERIOD IN WHICH CASH IS PAID OR RECEIVED
ADJUSTING ENTRIES ARE REQUIRED
EVERY TIME FINANCIAL STATEMENTS ARE PREPARED
THE FOLLOWING IS SELECTED INFORMATION FROM ALPHA-BETA-GAMMA CORPORATION FOR THE FISCAL YEAR ENDING OCTOBER 31, 2011
$134,000
LAMB COMPANY HAD THE FOLLOWING TRANSACTIONS DURING 2011
- SALES $9,000 ON ACCOUNT
- COLLECTED $4,000 FOR SERVICES TO BE PERFORMED IN 2012
- PAID $1,250 CASH IN SALARIES
- PURCHASED AIRLINE TICKET FOR $500 IN DECEMBER FOR A TRIP TO TAKE PLACE IN 2012

WHAT IS LAMB'S 2011 NET INCOME USING ACCRUAL ACCOUNTING
$7,750
LAMB COMPANY HAD THE FOLLOWING TRANSACTIONS DURING 2011
- SALES $9,000 ON ACCOUNT
- COLLECTED $4,000 FOR SERVICES TO BE PERFORMED IN 2012
- PAID $1,250 CASH IN SALARIES
- PURCHASED AIRLINE TICKET FOR $500 IN DECEMBER FOR A TRIP TO TAKE PLACE IN 2012

WHAT IS LAMB'S 2010 NET INCOME USING CASH BASIS ACCOUNTING
$2,250
AN ADJUSTING ENTRY
AFFECTS A BALANCE SHEET ACCOUNT AND AN INCOME STATEMENT ACCOUNT
EXPENSES INCURRED BUT NOT YET PAID OR RECORDED ARE CALLED
ACCRUED EXPENSES
A LAW FIRM RECEIVED $2,000 CASH FOR LEGAL SERVICES TO BE RENDERED IN THE FUTURE. THE FULL AMOUNT WAS CREDITED TO THE LIABILITY ACCOUNT UNEARNED LEGAL FEES. IF THE LEGAL SERVICES HAVE BEEN RENDERED AT THE END OF THE ACCOUNTING PERIOD AND NO ADJUSTING ENTRY IS MADE THIS WOULD CAUSE
REVENUES TO BE UNDERSTATED
ADJUSTING ENTRIES CAN BE CLASSIFIED AS
ACCRUALS AND DEFERRALS
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
BEE-IN-THE BONNET COMPANY PURCHASED OFFICE SUPPLIES COSTING $8K AND DEBITED OFFICE SUPPLIES FOR THE FULL AMOUNT. AT THE END OF THE ACCOUNTING PERIOD, A PHYSICAL COUNT OF OFFICE SUPPLIES REVEALED $3,200 STILL ON HAND. THE APPROPRIATE ADJUSTING JOURNAL ENTRY TO BE MADE AT THE END OF THE PERIOD WOULD BE
DEBIT OFFICE SUPPLIES EXPENSES $4,800; CREDIT OFFICE SUPPLIES $4,800
ACCUMULATED DEPRECIATION IS
A CONTRA ASSET ACCOUNT
HERCULES COMPANY PURCHASED A COMPUTER FOR $3,600 ON DECEMBER 1. IT IS ESTIMATED THAT ANNUAL DEPRECIATION ON THE COMPUTER WILL BE $720. IF FINANCIAL STATEMENTS ARE TO BE PREPARED ON DECEMBER 31, THE COMPANY SHOULD MAKE THE FOLLOWING ADJUSTING ENTRY;
DEBIT DEPRECIATION EXPENSE $60, CREDIT ACCUMULATED DEPRECIATION $60
ACTION REAL ESTATE RECEIVED A CHECK FOR $18K ON JULY1 WHUCH REPRESENTS A 6 MONTH ADVANCE PAYMENT OF RENT ON A BUILDING IT RENTS TO A CLIENT. UNEARNED RENT WAS CREDITED FOR THE FULL $18K. FINANCIAL STATEMENTS WILL BE PREPARED ON JULY 31. ACTION REAL ESTATE SHOULD MAKE THE FOLLOWING ADJUSTING ENTRY ON JULY 31
DEBIT UNEARNED RENT $3K, CREDIT RENTAL REVENUE $3K
AT DECEMBER 31, 2011, BEFORE ANY YEAR-END ADJUSTMENTS, CABLE CAR COMPANY'S INSURANCE EXPENSE ACCOUNT HAD A BALANCE OF $1,450 AND ITS PREPAID INSURANCE ACCOUNT HAD A BALANCE OF $3,800. IT WAS DETERMINED THAT $3K OF THE PREPAID INSURANCE HAD EXPIRED. THE ADJUSTED BALANCE FOR INSURANCE EXPENSE FOR THE YEAR WOULD BE
$4,450
ON JANUARY 1, 2011, GRILLS AND GRATES INC. PURCHASED EQUIPMENT FOR $45K. THE COMPANY IS DEPRECIATING THE EQUIPMENT AT THE RATE OF $600 PER MONTH. AT JANUARY 31, 2012, THE BALANCE IN ACCUMULATED DEPRECIATION IS
$7,800
TURNER COMPANY COLLECTED $6,500 IN MAY OF 2011 FOR 5 MONTHS OF SERVICE WHICH WOULD TAKE PLACE FROM OCTOBER OF 2011 THROUGH FEBRUARY 2012. THE REVENUE REPORTED FROM THIS TRANSACTION DURING 2011 WOULD BE
$3,900
BETTY CARSON HAS PERFORMED $500 OF CPA SERVICES FOR A CLIENT BUT HAS NOT BILLED THE CLIENT AS OF THE END OF THE ACCOUNTING PERIOD. WHAT ADJUSTING ENTRY MUST BETTY MAKE?
DEBIT ACCOUNTS RECEIVABLE AND CREDIT SERVICE REVENUE
JOYCE'S GIFTS 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 $50K 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 $1,000 / INTEREST PAYABLE $1,000
A COMPANY SHOWS A BALANCE IN SALARIES PAYABLE OF $40K AT THE END OF THE MONTH. THE NEXT PAYROLL AMOUNTING TO $45K IS TO BE PAID IN THE FOLLOWING MONTH. WHAT WILL BE THE JOURNAL ENTRY TO RECORD THE PAYMENT OF SALARIES
SALARIES EXPENSE $5K - SALARIES PAYABLE $40K / CASH $45K
BECKI JEAN CORPORATION ISSUED A ONE-YEAR, 6%, $200K NOTE ON APRIL 30, 2011. INTEREST EXPENSE FOR THE YEAR ENDED DECEMBER 31, 2011
$8,000
A 12 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
EXPENSE RECOGNITION 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
DEPRECIATION