Unit 11-13

Question 1

what are adjustments?

Answer 1

counting changes that are recorded to ensure that all account balances are correct

Question 2

why are the books adjusted?

Answer 2

The books are adjusted to make sure the financial statements are accurate

Question 3

what are prepaid expenses?

Answer 3

payments that are made in advance that are used up in operating the business

ex. prepaid rent

Question 4

what is depreciation?

Answer 4

The amount in which an asset loses value during its lifetime

depreciation is an expense and appears on the income statement

Question 5

what is a contra account?

example

Answer 5

A contra count reduces the value of another account

example accumulated depreciation

Question 6

Book value versus market value

Answer 6

Book value is the cost of an asset minus the accumulated depreciation

market value is what the item would sell for

Question 7

what is the straight-line method of depreciation?

Answer 7

The same amount of depreciation is divided over each for fiscal period

cost divided by lifetime

Question 8

what is the declining balance method of depreciation?

Answer 8

a fixed percentage is given to each asset and that is subtracted each fiscal period

Question 9

The principle of materiality

Answer 9

information that could affect the decisions of the users of financial statement be included when the financial statements are prepared

Question 10

principle of conservatism

Answer 10

when there are acceptable alternative accounting treatments for an item accountants much choose the one that will result in lower net income and net assets

Question 11

what titles are included in the 8 column worksheet?

Answer 11

trial balance, adjustments, income statement, balance sheet

Question 12

what titles are included in the 10 column worksheet?

Answer 12

trial balance, adjustments, adjusted trial balance, income statement, balance sheet

Question 13

what is closing the books?

Answer 13

the process by which revenue and expense accounts are reduced to zero at the end of the fiscal period

Question 14

what are temporary accounts?

Answer 14

accounts reduced to 0 at the end of each accounting period, they do not carry their balance forward

Question 15

what are permanent accounts?

Answer 15

asset, liability, and owners capital accounts, their balances are carried forward

Question 16

what are the steps to closing the books?

Answer 16

close revenue accounts
close expense accounts
close income summary account
close the drawings account

Question 17

what are the 2 purposes behind closing the books?

Answer 17

1. Revenue and expense accounts are ready for the next accounting period
2. The capital account is updated

Question 18

what is the post-closing trial balance?

Answer 18

a trial balance prepared after the closing entries have been posted. It contains only asset, liability and owners capital accounts

Question 19

what is the accounting cycle for a service business?

Answer 19

source documents,
journal
ledger
worksheet
financial statements
closing entries journalized
closing entries posted
post closing trial balance

Question 20

what are the steps in producing the 8 column worksheet?

Answer 20

1. write the heading
2. complete the trial balance
3. collect the necessary data for adjustments
4. complete the adjustments
5. transfer items to the income and balance sheets
6. total the income and balance sheet items and determine the net income
7. transfer the net income/loss to the balance sheet
8. balance and rule the worksheet

Question 21

what are the steps in producing the 8 column worksheet?

Answer 21

1. write the heading
2. complete the trial balance
3. collect the necessary data for adjustments
4. complete the adjustments
5. transfer items to the income and balance sheets
6. total the income and balance sheet items and determine the net income
7. transfer the net income/loss to the balance sheet
8. balance and rule the worksheet