Revenue Recognition Principle
State the revenue recognition principle.
Companies record revenue when they provide goods or services to the customer.
State the matching principle.
Companies should record expenses in the same period as the revenue that the expense helps to generate.
What do we call the U.S. accounting rules?
Generally Accepted Accounting Principles (GAAP)
A company issues $10,000 in common stock to investors. Record the entry.
Cash 10,000
Common Stock 10,000
A company owes its employees $10,000 for work performed during the January. It will pay the employees in February. Record the adjusting entry at the end of January.
Salaries Expense 10,000
Salaries Payable 10,000
ABC Corp. provides services to a customer for $300 cash. Record the journal entry.
Cash 300
Service Revenue 300
A company prepays $12,000 for 12 months of rent on May 1. Record the entry.
Prepaid Rent 12,000
Cash 12,000
Bonus. What entry would the company record on May 31 related to rent?
Who is responsible for the production of the U.S. accounting rules?
The Financial Accounting Standards Board (FASB)
A company borrows $50,000 from the bank. Record the entry.
Cash 50,000
Notes Payable 50,000
A company receives a $200 utility bill at the end of December for services received in December. The company plans to pay the bill in January. Record the adjusting entry for December.
Utilities Expense 200
Utilities Payable 200
A customer pays ABC Corp $500 in advance for services to be provided the next month. Record the journal entry.
Cash 500
Deferred Revenue 500
A company purchases a building for $150,000 on May 15. Record the entry.
Building 150,000
Cash 150,000
What are the two primary functions of financial accounting?
1. Measure Business Transactions
2. Communicate those measurements to EXTERNAL users.
A company purchases $2,000 of supplies on account. Record the entry.
Supplies 2,000
A/P 2,000
At the beginning of the month, a company has a supplies balance of $300. The company purchases $1500 of supplies during the month. At month end, the supplies balance is $700. Record the month end adjusting entry.
Supplies Expense 1,100
Supplies 1,100
ABC Corp. provides $600 of services to a customer on account and bills the customer for the amount owed. Record the journal entry.
A/R 600
Service Revenue 600
A company pays $12,000 on account for advertising on May 15. What journal entry should the company record?
Advertising Expense 12,000
Accounts Payable 12,000
When a company prevents access to its accounting software system by requiring a password or to its assets by locking them up, what type of control is it employing?
Preventive Control - specifically physical control
A company purchases $200,000 of equipment with $100,000 cash and a $100,000 note payable. Record the entry.
Equipment 200,000
Cash 100,000
Notes Payable 100,000
A company purchased equipment on March 1 for $20,000. The equipment has a useful life of 5 years. Record the adjusting entry on March 31.
Depreciation Expense 333.33
Accum Depreciation 333.33
For the month of January, ABC Corp. has the following transactions:
1) Provides services to customers on account for $300.
2) Provides services to customers for $200 cash.
3) A customer pays $800 in advance for services to be provided at a later date.
How much revenue should ABC Corp. record for January?
$500
1) A/R 300
Rev 300
2) Cash 200
Rev 200
3) Cash 800
Def Rev 800
A company pays employees $5,000 on May 15 for work performed the first two weeks of May. The company will pay employees $5,000 on June 1 for work performed the last two weeks of May. How much salaries expense does the company record in May?
$10,000
May 15Salaries Expense 5,000
Cash 5,000
May 31
Salaries Expense 5,000
Salaries Payable 5,000
Which legislative act was passed after several corporate accounting scandals, like the one at Enron?
Sarbanes-Oxley Act of 2022 (SOX)
A company pays $50,000 of employee salaries on June 1 for work performed in May. Record the entry on June 1.
June 1
Salaries Payable 50,000
Cash 50,000
(On May 31 would have recorded...
Salaries Expense 50,000
Salaries Payable 50,000)
A company borrows $200,000 from the bank on September 1. The note is due in one year, and the interest rate on the note is 8%. Record the adjusting entry on September 30.
Interest Expense 1,333
Interest Payable 1,333