Flashcards in Chapter Three L.S. Deck (36)
Identify the accounts below that would be classified as current liabilities on a classified balance sheet:
-Notes payable (due in three years)
-Notes payable (due in three months)
-Notes payable (due in three months)
Current assets are...
Cash and other resources that are expected to be sold, collected or use within one year
Debts of a business that are not due to be settled within one year.
Current asset's contain...
-Are usually settled by paying out current assets such as cash
-Are reported in the order of those to be settled first
-Are obligations due to be paid within one year
The journal entry to close all of a company's expenses accounts would include a ____ to each of the expense accounts and a corresponding ____ to the Income _____ account.
List the order in which financial statements are prepared:
1- Income statement
2-Statement of retained earnings
4-Statement of cash flows
List the steps in the closing process:
1-Identify accounts to be closed
2- Journalize and post closing entries
3- Prepare a post closing trial balance
Permanent account examples:
Describe the general ledger after adjusting and closing entries have been posted:
-The income summary account will show three closing entries
-The dividends account will have a $0 balance after closing
-The abbreviations "adj." and "clos." have been entered in the explanation column on the ledger
-All expenses accounts will show a $0 balance after closing
Describe a post-closing trail balance
A listing of all permanent accounts and their balances after closing
Purposes for a post-closing trail balance
-To verify that all temporary accounts have zero balances
-To verify that total debits equal credit for permanent accounts
A post-closing trail balance is a list of ____ accounts and their balances from the ___ ____ all ____ entries have been journalized and posted.
Post-closing trail balance account examples:
-income summary accounts
Statements about the accounting cycle:
-Refers to steps followed by a company to prepare its financial statements
-Contains steps for adjusting and closing accounts
-Is repeated each reporting period
-Contains 10 steps
A 12-month insurance policy was purchased on Dec. 1st for $3,600 and the Prepaid insurance account was increased for the payment.
Demonstrate the required adjusting journal entry on Dec. 31st.
Insurance expense would be debited for $300
$800 of supplies were purchased at the beginning of the month and the Supplies account was increased. As of the end of the period, $200 of supplies still remain. What would happen to the adjusting entry.
Supplies expense would be debited for $600
$500 of supplies were purchased at the beginning of the period. By the end of the period, only $100 remains. The adjustment to show the $400 of supplies used would have the following effect(s).
-Increase expenses, so net income would reduce.
-Reduce assets, so total assets would be lower.
A plant asset can be defined by:
-Has a life within the business greater than one year
-Is a tangible long-term asset
-Its original cost (minus any salvage value) is expensed over its useful life
-Is reported on the balance sheet
Examples of plant assets:
is the process of allocating the costs of long-term, plant assets over their expected useful life.
$21,000 of equipment is purchased on Dec. 1st. It is estimated that it will have a life of 5 years. Calculate depreciation expense as of Dec. 31st of the first year using the straight-line method.
A depreciation adjustment would include a debit to the ___ account and a ___ to the ____ account.
1- Depreciation expense
3- Accumulated Depreciation
-Has an opposite normal balance than its paired account
-Is linked with another account
-would be subtracted from another account
-Accumulated Depreciation is an example of a contra account
The purpose of the Accumulated Depreciation account is to...
Allow both the original cost of plant assets and the total depreciation taken so far to be shown simultaneously
What is the book value of an asset?
The original cost of an asset minus its accumulated depreciation
-are a liability
-are reported on a balance sheet
-also called deferred revenues
-refer to cash received in advance of performing a service
Describe the effect of the adjusting entry to show the earned amount of a previously recorded unearned revenue on the income statement and on the balance sheet.
-A revenue account is increased
-Net income is increased
-Total liabilities are reduced
-A liability (unearned revenue) will be reduced
-Are reported on an income statement
-Refer to costs that are incurred in a period, but are both unpaid and unrecorded
-Adjustments involve increasing both an expense and a liability account
-Examples include: wages expense and interest expense