Ch 8, 9 Flashcards
(36 cards)
What are the two purposes of closing entries?
- to update capital
- to bring the account balances to zero for the fiscal year
classify the following as either permamant or temporary.
Fees earned
Mortgage
J. Trudeau, Capital
Hydro expense
Drawings
income summary
T, P, P, T, T, T, P
Real/Permanent accounts def’ and examples
balances that continue to the next fiscal year.
Ex. A, L, C
Nominal/temporary accounts def’ and examples
balances that do not conitnue to next fiscal year.
ex. R, E, I, D
To close all revenue accounts you..
Dr revenue
Cr Income summary
To close all expense accounts…
Dr Income summary
Cr Expense
To close income summary (if there was net income and net loss)
Net income :
Dr Income summary
Cr Capital
Net loss :
Dr capital
Cr Income summary
To close drawings you…
Dr capital
Cr Drawings
Depreciation def’
the decrease in value of a capital asset overtime
To follow the ___ principle, one must allocate a part of the cost of a capital asset to an expense account for each accounting period that uses the asset.
matching principle
what capital asset doesn’t depreciate? And why?
land, because it has unlimited useful life
Two ways to allocate this cost of a capital asset to an expense account are….
straight-line method
declining balance method
straight-line method formula
(Original cost of asset- estimated salvage value )/ estimated useful life
salvage value
how much you expect to receive if you sell the item
useful life
how long the asset is expected to “live” or use in the business
Depreciation appears on the ______ ______ under the ___ heading and has ___ balance
income statement under the expense heading and has a debit balance
Accumulated depreciation appears on the ___ ___ under ____ ___ heading and has a __ balance. It’s also an contra account
Accumulated depreciation appears on the BALANCE SHEET under CAPITAL ASSETS heading and has a CREDIT balance
Declining balance method formula
undepreciated cost of asset x fixed rate
Undepreciated cost is also known as….
netbook value where the cost of the asset hasn’t been allocated to expense.
Which method allocates more of asset cost to an expense account in the earlier years of life?
declining balance method
Purpose of adjustment process
- accounts are brought up to date
- late transactions are taken into account
- calculations are made correctly
Canada made the transition from ____ to ___ for its standards.
GAAP (generally accepted accounting principles)
to IFRS (international financial reporting standards)
Accrual accounting means…
attempting to record revenues and expenses when they happens regardless cash has been received
The time period concept ensures ___ ____ is met. if the reporting periods were not decided into equal portions of time, then comparison of financial statements would not be possible.
comparability objective is met
