Module 2 - Exam 2 Study Deck

Question 1

Records revenues when earned and expenses when incurred

Answer 1

Accrual-Basis Accounting

Question 2

What is it called whenever you record revenues when earned?

Answer 2

The Revenue Recognition Principal

Question 3

What is it called whenever you record expenses when incurred

Answer 3

Expense Recognition Principal

Question 4

What does it mean whenever revenue is “earned”?

Answer 4

Whenever the obligation to the customer was filled or the service was performed. For example: Calvin books a cruise with Carnival in November 2022. The Cruise Happens in January 2023. When would Carnival record this? in January 2023.

Question 5

What is the other name for the Expense Recognition Principal?

Answer 5

The Matching Principal

Question 6

Why is it also called the matching principal?

Answer 6

Often expenses are recognized with the revenues they help to generate.

Question 7

What is the difference between Cash Basis and accrual Basis?

Answer 7

Cash-Basis Records whenever payment is fulfilled. Accrual basis reports whenever the obligation is fulfilled. Accrual basis captures the activities of the company while the cash basis capture the exchange of currency within the company.

Question 8

What is the purpose of recording Adjusting Entries?

Answer 8

To record expenses in the period they are incurred in the generation of revenues, to record revenues in the period earned, and to record events that have occurred, but have not been recorded. Lastly, to correctly state assets and liabilities in the balance sheet.

Question 9

Why would have adjusting entries?

Answer 9

Whenever cash and accrual (recording when the service or obligation to the customer was met) differs.

Question 9

When do you record adjusting entries?

Answer 9

At the end of the reporting cycle or preparing a financial statement

Question 10

What are the two types of adjusting entries?

Answer 10

Prepayments and Accruals

Question 11

we paid cash (or had an obligation to pay gash) for the purchase of an asset before we sue the asset up (incurred the expense)

Answer 11

Prepaid expenses

Question 12

We receive cash and recorded a liability before we earned the revenue

Answer 12

Unearned revenue

Question 13

Getting paid before preforming the service or paying someone before the service was met

Answer 13

Prepayment

Question 14

Paying Cash after we incurred the expense and recorded a liability

Answer 14

Accrued Expenses

Question 15

We received cash after we earned the revenue and recorded the asset

Answer 15

Accrued Revenues

Question 16

A contra asset account that keeps track of the total depreciation occurred to a property, plant, or equipment (a long-term asset)

Answer 16

Accumulated Depreciation

Question 17

What is a contra-asset account?

Answer 17

They are asset accounts that will always have a credit balance. In this case, it is used to record total depreciation.

Question 18

Whenever you are closing revenues/gains what do you do?

Answer 18

Debit each revenue account and credit retained earnings

Question 19

Whenever you are closing expenses/losses what do you do?

Answer 19

Debit retained earnings and credit each expense account

Question 20

Whenever you close dividends, what do you do?

Answer 20

Debit retained Earnings and Credit Dividends

Question 21

What’s is the difference between gains and losses vs revenues and expenses?

Answer 21

Gains and Losses occur from peripheral activities outside of normal business operations.

Question 22

Which accounts are closed in the closeout process?

Answer 22

Temporary Accounts

Question 23

Where can all of your temporary accounts be found at?

Answer 23

Everything on the income statement is a temporary account and should be closed.

Question 24

Are permanent accounts closed?

Answer 24

No.

Question 25

What are examples of permanent accounts?

Answer 25

Assets, Liabilities, and SE accounts.

Question 26

When do you make closing entries?

Answer 26

At the end of the reporting cycle

Question 27

Why would you have adjusting entries?

Answer 27

If cash and accrual differs (in most cases it does, unless the obligation to the customer was filled and cash was exchanged within the same accounting period.)

Question 28

What would your first entry be for prepaid expenses?

Answer 28

Your assets would increase because you are paying for something in advance (debiting an asset account) and depending on how you pay for it you would either A. Credit an asset account (Cash is dished out) or B. Credit a liability account (payment will be paid later, accounts payable)

Question 29

What would your adjusting entry be for prepaid expenses at the end of an accounting period?

Answer 29

You would debit an expense account to show that you have used up some of these prepaid assets (Expenses would go up) and then you would credit the asset account because you have used up some of the prepaid asset. This is to accurately show the attrition of these assets each financial recording period.

Question 30

What would your first entry be on Unearned Revenue?

Answer 30

You would debit cash or accounts receivable (based on how the customer would pay you) and you would credit unearned revenue (because they paid you for work you haven't performed and it is a liablility.)

Question 31

What would your adjusting entry be at the end of the month for unearned Revenue?

Answer 31

Your liability would go down based on how much work you have done (debit) and you would credit the revenue account based on how much you performed.

Question 32

Do you have an initial entry on accrued expenses?

Answer 32

No

Question 33

Why don't you have an initial entry on accrued expenses?

Answer 33

Because you have accrued expenses throughout the the month. So you need to record that at the end of the accounting period. Unless, you paid for those expenses within the same accounting period, then you would only have one entry. The only reason you would have adjusting entries is when the expenses and the payment for those expenses fall in a different recording period.

Question 34

So what would be your first entry (adjusting entry) for accrued expeneses?

Answer 34

You would debit an expense account to show that you have used up some expenses. The company has billed you for these expenses, but you have yet to pay them. You would also credit a liability accoutn because there is liability associated with using up something before you pay it.

Question 35

What would your second entry be for accrued expenses?

Answer 35

This would be whenever the exchange of cash actually takes place. So you would debit the liability (decrease the liability) and credit the cash (decrease the cash). You are paying money to decrease the liability.

Question 36

What would your adjusting entry be on accrued revenue?

Answer 36

Debit accounts receivable because the obligation has been made to pay you based on work you did in the past. You would credit the revenue account because the work was earned in this period.

Question 37

What would your second entry be on accrued revenue?

Answer 37

You would debit the cash account because the customer has paid for the services you have performed nad you would credit the accounts recievable because you have received the cash and not expecting that cash anymore.

Question 38

Revenues and expenses are matched within the same time period. These are temporary accounts. These will be closed at the end of the accounting period

Answer 38

extra info

Question 39

a list of all accounts and their balances after we have updated account balances for adjusting entries

Answer 39

Adjusted trial balance

Question 40

Why is it best to wait until the post-closing trial balance until you prepare your balance sheet?

Answer 40

Because all accounts on the balance sheet will reflect its true numbers after all temporary accounts are closed.

Question 41

The expense recognition principle states that:

Answer 41

Expense should be recognized in the period incurred.

Question 42

Adjusting entries:

Answer 42

Always involve at least one revenue/expense and one balance sheet account.

Question 43

An adjusted trial balance:

Answer 43

Is a list of all accounts and their balances after adjusting entries.

Question 44

Making insurance payments in advance is an example of:

Answer 44

A prepaid expense.

Question 45

LSUS Consulting provides 3 months consulting service for 6,000 to Scheinert Inc. starting Jan 1, 2023. The payment is due on March 31st. Please assume service are performed evenly throughout months. On Jan 31, 2023 LSUS prepare a financial statement, what would LSUS consulting record as the adjusting entry for this consulting work on Jan 31, 2023?

Answer 45

Debit accounts receivable for 2,000; Credit consulting services for 2,000

Question 46

On April 1, a $4,800 premium on a one-year insurance policy on equipment was paid and charged to Prepaid Insurance. At the end of the year, the adjusting entry would be:

Answer 46

debit insurance Expense, $3,600; credit prepaid Insurance $3,600.

Question 47

At the beginning of December, LSUS Corporation had $1,000 in supplies on hand. During the month, supplies purchased amounted to $2,000, but by the end of the month the supplies balance was only $200. What is the appropriate month-end adjusting entry?

Answer 47

Debit Supplies Expense $2,800, credit Supplies $2,800.

Question 48

On September 1, 2022, LSUS Magazine sold 100 one-year subscriptions for $120 each. The total amount received was credited to Unearned Revenue. What would be the required adjusting entry at December 31, 2022?

Answer 48

Debit unearned revenue by $4,000, credit service revenue by $4,000

Question 49

At beginning of year 1, LSUS purchased a $10,000 manufacturing equipment that is estimated to be used for five years. (no residue value after five years) If the equipment is going to be depreciated evenly over five years, what would be the correct adjusting entry at end of year1 for this equipment?

Answer 49

Debit depreciation expense for $2,000; credit accumulated depreciation for $2,000

Question 50

Mod Inc.'s beginning of October supplies was $400. Mod purchased $800 worth of supplies during October. At the end of October Mod's balance of supplies was $500. What will be Mod's end of October adjusting entry for supplies?

Answer 50

Debit supplies expenses for $700; Credit supplies for $700

Question 51

The primary difference between accrual-basis and cash-basis accounting is:

Answer 51

The timing of when revenues and expenses are recorded.

Question 52

The income statement reports earned income on _____, and the cashflow statement is based on ______.

Answer 52

An accrual-basis, cash-basis accounting

Question 53

The employees of smallshop work Monday through Friday. Every Friday the company issues payroll checks totaling $5,000. The current pay period ends on Friday, January 3. Smallshop is now preparing financial statements for the year ended December 31, (which is a Tuesday). What is the adjusting entry to record accrued salaries at the end of the year?

Answer 53

debit salaries expense by 2,000, credit salaries payable by 2,000

Question 54

LSUS consulting incurred $500 utility expense during their first month of operation. They will pay 20 days later when the bill is due. What would be the adjusting entry at the end of the month when LSUS prepare the financial statement?

Answer 54

Debit utility expense for $500; Credit utility payable for $500

Question 55

The closing entry for revenues includes:

Answer 55

A debit to Revenues and a credit to Retained Earnings.

Question 56

The closing entry for expenses includes:

Answer 56

A debit to Retained Earnings and a credit to all expense accounts.

Question 57

Permanent accounts would not include:

Answer 57

Interest Expense.

Question 58

The closing process includes which of the following?

Answer 58

Closing the balances of revenue, expense and dividend accounts to zero.

Question 59

The trial balance best for prepare income statement is:

Answer 59

adjusted trial balance

Question 60

When preparing balance sheet you have the choices of using the following trial balances: the unadjusted, adjusted, and post-closing balance. Which one of the three would make the preparation process the easiest (least steps) as well as ensure the accuracy of the financial statement?

Answer 60

post-closing trial balance

Question 61

The purpose of closing entries is to transfer:

Answer 61

Balances in temporary accounts to a permanent account.

Question 62

When a company makes an end-of-period adjusting entry which includes a debit to Utilities Expense, the usual credit entry is made to:

Answer 62

Accounts (utilities) Payable.

Question 63

Which of the following accounts is NOT involved in closing entries?

Answer 63

Prepaid Insurance.

Question 64

Which one of the following accounts would go to zero after closing entries?

Answer 64

Dividends

Question 65

A list of all accounts and their balances after posting closing entries is referred to as:

Answer 65

A post-closing trial balance.