Chapter 1+2
What is the Expanded Accounting Equation?
Assets = Liabilities + Equity ((Revenues - Expenses) + (Capital - Withdrawals))
Which account is NEVER used in an adjusting entry?
Cash
What does 2/10, n/45 mean?
2% discount if paid within 10 days, otherwise pay in full after 45 days.
A subsidiary ledger that contains a separate account for each supplier (creditor) to the company is a(n):
Accounts payable ledger
Contingent liabilities must be recorded if:
The future event is probable, and the amount owed can be reasonably estimated.
A company bought $300 of supplies on credit. What is the journal entry?
Debit Supplies 300
Credit Accounts Payable 300
Give 3 Examples of Permanent Accounts:
Anything on the Balance Sheet (Cash, AR, Equipment, Accumulated Depreciation, Owner’s Capital, accounts payable, etc.)
A company has net sales of $900,000 and cost of goods sold of $610,000. Its net income is $110,000. The company's gross margin and operating expenses, respectively, are:
Gross Margin = 290,000 (900,000 - 610,000)
Operating Expenses = 180,000 (290,000 - 110,000)
Give an example of an internal control you do in your life?
Example Answers: Sniff test for milk, looking at expiration dates, ID card swipe, unlocking phone pass code.
A company estimates that warranty expense will be 10% of sales. The company's sales for the current period are $220,000. The current period's entry to record the warranty expense is:
Debit Warranty Expense 22,000
Credit Estimated Warranty Liability 22,000
What is unearned revenue? (description and type of account)
Liabilities recorded when customers pay in advance for products or services.
A company is paid $24,000, 12 months in advance for yard work they will complete at a rate of once a month on Oct 1. What is the journal entry made on Oct 1 and on Dec 31 after 3 months of work has been completed.
Oct 1
Debit Cash 24,000
Credit Unearned Revenue 24,000
Dec 31
Debit Unearned Revenue 6,000
Credit Service Revenue 6,000
Name the 4 Inventory Costing Methods:
Specific Identification, FIFO, LIFO, and Weighted Average
Which journal should you use for the following transaction, and which ledger would this journal entry be posted to: Walmart purchases inventory on credit for $400 with credit terms 2/10, n/30.
Purchases Journal and AP subledger
Using the allowance method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote off the $2,000 uncollectible account of its customer, A. Hopkins. The entry or entries Gideon makes to record the write off of the account on May 3 is:
Debit Allowance for Doubtful Accounts 2,000
Credit Accounts Receivable - A. Hopkins 2,000
For a bonus 100 points - If the Accounts Receivable balance (net of Allowance for Doubtful Accounts) was $20,000 before this write off. What is it now?
What is the difference between cash basis accounting vs accrual basis accounting?
Cash Basis records revenue when cash exchanges hands, while Accrual Basis records revenue when it occurs.
A company pays each of its two office employees each Friday at the rate of $150 per day for a five-day week that begins on Monday. If the monthly accounting period ends on Tuesday and the employees worked on both Monday and Tuesday, the month-end adjusting entry to record the salaries earned but unpaid is:
Debit Salaries Expense 600
Credit Salaries Payable 600
A company purchased $10,000 of merchandise on credit on November 3. Terms of the sale are 5/10, n/60. On November 8th, the company paid the amount due in full. What journal entry will be made on November 8?
Debit Accounts Payable 10,000
Credit Cash 9,500
Credit Merch Inventory 500
If a check is correctly written and paid by the bank for $500 is then incorrectly recorded in the company’s books for $515, how should this error be treated on the bank reconciliation? Ie. add/subtract from the bank/book balance and how much.
Add $15 to the book balance.
On December 31, a company shows the following balances: Accounts Receivable, debit balance of $100,000; Sales, credit balance of $300,000; Allowance for Doubtful Accounts, credit balance of $1,000. What amount should be debited to Bad Debts Expense, assuming 4% of outstanding accounts receivable at the end of the current year are estimated to be uncollectible?
3,000
100,000 * .004 = 4,000
Prior year balance = 1,000
4,000 - 1,000 = 3,000
What accounts does the statement of owner's equity consist of?
Beginning Capital Balance
+ Investments by owner
+/(-) Net Income (Loss)
- Withdrawals by owner
= Ending Capital Balance
A company has $45,000 in revenues, $28,000 in expenses, and $5,000 in withdrawals for the period. What is the journal entry to close out the income summary account?
Debit Income Summary 17,000
Credit Owner's Capital 17,000
***Withdrawal is closed out to Capital not income summary, unnecessary information
Beginning Inventory - 15 units costing $100 each
January 2 - bought 20 units for $120 each
January 5 - bought 25 units for $125 each
January 8 - sold 30 units for $225.
January 15 - bought 20 units for $150.
Using the FIFO (First-In, First-Out) costing method, what is the COGS for the month of January?
15 units at $100 = $1,500
15 units at $120 = $1,800
COGS = $3,300
Bonus 200 points - Would LIFO produce a higher or lower COGS?
For the following three items, name whether the item would affect the bank or the book balance during a bank reconciliation and whether you would add or subtract from the bank/book:
Interest of cash balance
Deposit in transit
Bank Service Charge
Interest of cash balance - Book and Addition
Deposit in transit - Bank and Addition
Bank Service Charge - Book and Subtraction
Bonus 100 points - which item(s) would require a journal entry to be made?
Barbara’ gross pay is $150,000 as of November 18. On December 2nd, her gross pay for the pay period is $5,000. FICA Social Security taxes are 6.2% of the first $137,700 paid to each employee, and FICA medicare taxes are 1.45% of gross pay. Also, for the first $7,000 paid to each employee, the company's FUTA taxes are 0.6% and SUTA taxes are 5.4%. Considering no other benefits, what is Barbara’s net pay for this pay period?
$5,000 * 1.45% = $72.50
$5,000 - $72.5 = $4,927.50