Lecture 07 - Recitation 2

Question 1

Unadjusted Trial Balance

• Definition
• Purpose

Answer 1

Definition:

• A list of all accounts and their balances before any adjusting entries are made.
• It is used to ensure that the total debits equal the total credits in the accounting records, providing a snapshot of the financial position at a specific point in time.

Purpose:
To verify the accuracy of the initial recording of transactions, serving as the foundation

• for making adjusting entries
• before preparing the financial statements.

Question 2

Net Income

Answer 2

• Net Income = Total Revenue − Total Expenses
• Profit / Loss

Question 3

Allocating Unearned Revenue to Revenue
In May, customers prepaid $300 for a three-month membership (June, July and Aug) to an online health program. One month of this prepaid membership was earned in June.

Answer 3

Question 4

Allocating Assets to Expenses — Prepaid Insurance
One month of Jana Juice’s insurance expired during June. The original payment was $800 covering June through September. ($800 / 4 months = $200)

Answer 4

Question 5

Allocating Assets to Expenses — Depreciation
Jana Juice’s equipment originally cost $10,200 and was expected to benefit the company for 5 years.

• Depreciation expense = $10,200 / 5 years × 1/12 = $170

Answer 5

Question 6

Accounting Adjustments

Answer 6

Accounting adjustments, also known as adjusting entries, are entries made in the general ledger at the end of an accounting period to ensure that financial statements accurately reflect the economic transactions of the business.

Question 7

Statement of Cash Flows

Answer 7

• Three main sections: Operating, Investing, and Financing activities.
• Net change in cash should reconcile with the change in the cash balance on the balance sheet.
• Prepared for a specific period, often annually or quarterly.

Format

Question 8

Preparing a Statement of Cashflows

Answer 8