Ch 1 Review
Name an element (hint: a liability would be considered one)
Assets, Equity, Revenues, etc.
Receive $100 of cash for performing services
Dr. Cash $100
Cr. Service Revenue $100
T/F Financial Statements are the final step of the accounting cycle?
False
Net Income
What step would involve Sales Revenue
Step 1: Net Sales
Name an example of an external user
Investors, Creditors, Auditors, etc.
Inventory purchased on account, $250
Dr. Inventory $250
Cr. Accounts Payable $250
What is the first step of the accounting cycle
Obtain source documents
Give example of a contra-revenue account
Sales Returns & Allowances or Sales returns
What step would involve income tax expense
Step 5: Net Income
Who is the main rule-maker of GAAP?
FASB
Recognized one year of rent expense from a 3-year prepaid rent agreement totaling $1,500
Dr. Rent Expense $500
Cr. Prepaid Rent $500
What do you post from the journal
General Ledger
What is Cost of Goods Sold subtracted from to create Gross Profit? _________ - COGS = Gross Profit
Net Sales
What step involves Cost of Goods Sold?
Step 2: Gross Profit
Which characteristic of relevance refers to the importance of information in influencing decisions?
Materiality
Sell goods for $1,000 cash; the goods originally cost $750
Dr. Cash $1,000
Cr. Sales Revenue $1,000
Dr. Cost of Goods Sold $750
Cr. Inventory $750
Which step of the accounting cycle has the purpose of checking if total debits and total credits equal (multiple steps apply)
Trial Balance (Unadjusted, Adjusted, and Post-closing
Why is the income statement described as a period-of-time financial statement?
The Income Statement is considered a period-based financial statement because it reports a company’s revenues, expenses, and net income over a specific span of time rather than at a single date
What step involves Utilities Expense
Step 3: Operating Income
Explain cost-effectiveness
Constraint which the company makes decisions where benefits are greater than costs
Receive $500 of cash for services not yet performed
Dr. Cash $500
Cr. Deferred Revenue $500
What are journal entries made at the end of an accounting period to update account balances so that all internal event transactions are recorded in the correct period
What are adjusting entries
refers to the ability of reported earnings (income) to predict a company’s future earnings.
Income smoothing
What step involves Gain on Sale of Investments
Step 4: Income Before Taxes