Question

Question 1

Explain the sequence of financial transactions that occur continuously during an accounting time period. What is this sequence of activities called?

Answer 1

Analyzing transactions, journalizing them, posting to the ledger, preparing trial balances, making adjustments, and creating financial statements. It’s called the accounting cycle.

Question 2

Do you have to wait until the operating cycle is complete before you can measure income using the accrual basis of accounting?

Answer 2

No, you don’t have to wait. Income is measured continuously using the accrual basis of accounting.

Question 3

What is the relationship between the matching concept and accrual accounting? Are revenues matched to expenses, or are expenses matched to revenues? Does it matter one way or the other?

Answer 3

Accrual accounting matches expenses to revenues for a particular time period. The accrual method is the basis of which accounts are adjusted to reach this objective.

Question 4

What is the impact of the going concern concept on accrual accounting?

Answer 4

Under the going concern concept, it’s assumed that operating cycles that are incomplete at the end of financial periods will be completed during the unlimited life of entity.

Question 5

Identify three different categories of expenses.

Answer 5

They are operating expenses, non-operating expenses, and income taxes.

Question 6

What are adjusting entries and why are they required?

Answer 6

Adjusting entries are changes made at the end of an operating cycle

Question 7

Why are asset accounts like Prepaid Insurance adjusted? How are they adjusted?

Answer 7

prepaid insurance, stay as assets on the balance sheet and an amount goes into the income statement as expenses. Adjusting entries are involved to transfer the right amounts.

Question 8

What is a contra account and why is it used?

Answer 8

An asset account that is kept at either a negative or zero balance. It is used to offset the balance of another account.

Question 9

How are liability accounts like Unearned Repair Revenue adjusted?

Answer 9

They are adjusted to recognize revenue as services are performed.

Question 10

Explain the term accruals. Give examples of items that accrue.

Answer 10

They are items that are earned or incurred but not yet recorded. Rent Expense, and Wages expense.

Question 11

Why is an adjusted trial balance prepared?

Answer 11

It’s prepared to ensure the debits and credits still balance after adjusting entries.

Question 12

How is the adjusted trial balance used to prepare financial statements?

Answer 12

It provides a summarized view of all account balances after adjusting entries have been made.

Question 13

List the eight steps in the accounting cycle.

Answer 13

They are: analyze transactions, journalize, post to ledger, prepare unadjusted trial balance, adjust, prepare adjusted trial balance, prepare financial statements, and close the accounts.

Question 14

Which steps in the accounting cycle occur continuously throughout the accounting period?

Answer 14

Analyzing transactions that are recorded in general journal , journalizing, posting to the ledger,

Question 15

Which steps in the accounting cycle occur only at the end of the accounting period? Explain how they differ from the other steps.

Answer 15

Adjusting, preparing an adjusted trial balance, preparing financial statements, and closing accounts.

Question 16

Give examples of revenue, expense, asset, and liability adjustments

Answer 16

Revenue - account receivable, Expense - account payable, Asset - depreciation, Liability - accrued expenses.

Question 17

In general, income statement accounts accumulate amounts for a time period not exceeding one year. Why is this done?

Answer 17

They cover a period of one year to show a company’s performance.

Question 18

Identify which types of general ledger accounts are temporary and which are permanent.

Answer 18

Temporary accounts are revenue, expense, and dividend accounts. Permanent accounts are asset, liability, and equity accounts.

Question 19

What is the income summary account and what is its purpose?

Answer 19

An account used only at year-end to accumulate all revenue and expense balances, and to reduce their general ledger accounts to zero end of fiscal year

Question 20

What is a post-closing trial balance and why is it prepared?

Answer 20

A post-closing trial balance is a listing of balance sheet accounts and their balances after all temporary accounts have been closed. It’s prepared to ensure the books are balanced after closing entries.