Exam 2

Question 1

Service revenue increases with a credit, and unearned revenue

Answer 1

Decreases with a debit

Question 2

When adjusting a trial balance, you______if they’re both debits or credits, and____if one is a debit and one is a credit.

Answer 2

Add; subtract

Question 3

What transfers to the adjusted trial balance?

Answer 3

All unadjusted trial balances, plus or minus the adjustments

Question 4

What transfers to the income statement?

Answer 4

Total adjusted service revenue and adjusted expenses

Question 5

What information transfers to the balance sheet?

Answer 5

All adjusted assets, liabilities, owners equity (capital), and owner withdrawals

Question 6

What is the difference between debits and credits on the income statement and balance sheet?

Answer 6

Net income

Question 7

What is step 4 in the accounting cycle?

Answer 7

Preparation of financial statements i.e., income statement, statement of owners equity, and the balance sheet

Question 8

What is step five in the accounting cycle?

Answer 8

Journalization and posting the aje’s

Question 9

What is step six in the accounting cycle?

Answer 9

Journalize and post CJE’ S

Question 10

Step seven in the accounting cycle is

Answer 10

Preparation of a post closing trial balance

Question 11

What are the common expense accounts?

Answer 11

Insurance, salaries, supplies, interest, rent, and depreciation of equipment/property

Question 12

What are common liability accounts?

Answer 12

Accounts payable, salaries payable, unearned revenue, notes payable.

Question 13

What type of accounts are depreciation accounts?

Answer 13

Contra accounts

Question 14

What is a contra account?

Answer 14

A sub account with the opposite effect.

Depreciation

Question 15

What information is recorded onto the statement of owners equity?

Answer 15

The beginning owners equity amount, adding the net income for the year; then subtracting owners with drawls for the year, finally giving the ending owners equity

Question 16

What information is recorded on to the income statement?

Answer 16

Service revenue and expenses giving the total net income

Question 17

What information is recorded on the classified balance sheet?

Answer 17

Current assets, property plant and equipment, less accumulated depreciation giving the total assets. Liabilities, current and long term, owners equity, Then adding total liabilities and owners equity.

Question 18

When inputting owners equity onto the classified balance sheet, you use

Answer 18

The total owners equity from the statement of owners equity, not from the balance sheet

Question 19

What 4 things are posted on the CJE?

Answer 19

Service revenue, expenses, capital, and withdrawals

Question 20

When debiting service revenue on a CJE, what do you credit?

Answer 20

Income summary

Question 21

How do you post expenses to the CJE?

Answer 21

By debiting income summary, and crediting all expenses

Question 22

How do you post the income summary to the CJE?

Answer 22

By debiting income summary and crediting capital with net income

Question 23

How do you post with drawls to the CJE?

Answer 23

By debiting capital and crediting with drawls

Question 24

How do you figure the current ratio?

Answer 24

By dividing current assets by current liabilities

Question 25

How do you determine profitability?

Answer 25

By dividing net income by service revenue

Question 26

How is net income determined?

Answer 26

By subtracting total expenses from total service revenue

Question 27

How do you enter capital on the post closing trial balance?

Answer 27

By subtracting with drawls from capital and then adding net income

Question 28

In reference to the cash basis method of accounting, when do you record revenues and expenses?

Answer 28

Upon receipt or payment

Question 29

Name two characteristics of the cash basis method of accounting

Answer 29

It’s simple and used for income tax reporting

Question 30

Why is the cash basis method of accounting not allowed by GAAP?

Answer 30

Because it doesn’t satisfy the matching principle of accounting

Question 31

Assume a plumbing company sells $500 in service on account on November 27, 2017 and pay his wages of $200 to employees on December 5, 2017. Customer doesn’t pay for the services until January 11, 2018. What is this an example of?

Answer 31

Not satisfying the matching principle of accounting

Question 32

When are revenues and expenses recorded using the accrual basis method of accounting?

Answer 32

Revenues are recorded once earned, and expenses are recorded once incurred.

Question 33

Name two characteristics of accrual basis method of accounting

Answer 33

Required by GAAP, and requires the use of AJE’ S

Question 34

What is net book value?

Answer 34

The cost of property plant and equipment minus accumulated depreciation

Question 35

When are AJ E’s recorded?

Answer 35

At the end of the accounting cycle

Question 36

How many types of AJE’s are there?

Answer 36

4

Question 37

Where are AJE‘s recorded?

Answer 37

Recorded in the general journal, and posted to the general ledger

Question 38

AJE’s are used for what four types of transactions?

Answer 38

Accrued revenue, deferred revenue, accrued expense, and deferred expense

Question 39

What is accrued revenue?

Answer 39

Revenue that is recorded before the cash is received. (Accounts receivable)

Question 40

What is deferred revenue?

Answer 40

Revenue that is recorded after the cash is received. (Unearned revenue)

Question 41

What is accrued expenses

Answer 41

Expense that is recorded before cash is paid or the asset is used up. (Accrued salaries)

Question 42

What is deferred expense?

Answer 42

Expense that is recorded after the cash is paid. (Prepaid insurance)

Question 43

AJ E’s are used to account for change in

Answer 43

Supplies, depreciation, pre-paid insurance and rent, unearned revenue, and accrued salaries payable

Question 44

What are the 4 CJE’s?

Answer 44

Service revenue, expenses, capital, with drawls

Question 45

What is a current asset?

Answer 45

An asset that is cash, or will be converted to cash or used up during the next 12 months

Question 46

What are the two types of assets?

Answer 46

Current assets, and property, plant, and equipment.

Question 47

What is a temporary account?

Answer 47

Account that relates to a particular accounting period and is closed at the end of that period

Question 48

What is a permanent account

Answer 48

An account that is not closed at the end of the period.

Question 49

What is the main difference between permanent account and temporary accounts?

Answer 49

Temporary accounts we make to 0 thru CJE’s, and permanent accounts we do not make to zero through CJE’s

Question 50

Give examples of a permanent account

Answer 50

Asset, liability, owner capital

Question 51

Give examples of temporary accounts

Answer 51

Revenues, expenses, income summary, owner with drawls

Question 52

What are the two types of liabilities?

Answer 52

Current and long-term

Question 53

What is a current liability?

Answer 53

A liability that must be paid with cash or services within one year.

Question 54

What is a long-term liability

Answer 54

Liability that does not need to be paid within one year. (Notes payable)

Question 55

What 3 CJE’s does income summary appear in?

Answer 55

Service revenue, expense, capital

Question 56

A Answers the question of how the business uses its earnings.

Answer 56

Statement of owners equity

Question 57

Owners capital accounts by and net income, and by and net losses.

Answer 57

Increases; owners contributions; decreases; owners with drawls

Question 58

Ending capital =

Answer 58

Beginning capital + owner contribution + net income or net loss - owner withdraw

Question 59

Unadjusted balance - supplies on hand=

Answer 59

Supplies expense

Question 60

What are the seven steps in the accounting cycle?

Answer 60

``` 1 = journalize 2 = posting to the ledger 3 = preparation of a worksheet 4 = preparation of financial statements 5 = journalize and posting of AJE‘s 6 = journalizing posting of CJE‘s 7 = preparation of a post closing trial balance ```

Question 61

Once the worksheet is prepared, what two columns are used to prep the financial statements?

Answer 61

Income statement and balance sheet

Question 62

Once the worksheet is prepared, which column do we use to journalize the AJE‘s?

Answer 62

Adjustments

Question 63

Once the worksheet is prepared which column do we use to journalize the CJE’s?

Answer 63

Adjusted trial balance

Question 64

What information is used to prepare a post closing trial balance?

Answer 64

Assets, liabilities, ending owners equity