Hodge Podge
Why do businesses prepare interim financial statements?
Because Managers and investors cannot wait until year end to analyze the companies progress.
When should revenue be recognized?
When it is earned: Goods/Services are delivered and Contractual agreements are met
What is the concept that assists accountants in determining when to recognize expenses in the accounts?
Matching Objective
What are the 3 temporary accounts that appear in our adjusted trial balance that must be closed at the end of the accounting period?
Revenues
Expenses
Withdrawals
What are the 2 main types of adjusting entries and when is the transaction recorded in relation to the cash flows?
Prepaids (deferrals) - cash is paid or received before transaction is recorded
Accruals - Cash is paid or received after the transaction is recorded
What accounts appear on the post closing trial balance?
Assets
Liabilities
Capital
Jacques sold a generator to Pierre on August 15th. Jacques invoiced Pierre that day and Pierre paid the bill on September 3rd. When would the revenue be recorded under the cash basis of accounting and the accrual basis of accounting?
Cash - September 3
Accrual - August 15
Sally Lee owns a computer used for the company's business. What related account will appear on the income statement for the year ended December 31?
Amortization Expense - Computer
Why do we close the temporary accounts at the end of the accounting period?
Allows for accurate recording of transactions in the correct accounting period and prepares the accounts for recording the transactions of the next period
The receipt of cash from a customer in advance of performing a service would be credited to what account?
Unearned Revenue
How does a Classified Balance sheet differ from a "regular" Balance Sheet?
It classifies Assets and Liabilities as Current or Long-term
Joe sells Nutritional Supplements for $100/bottle. His friend Janet comes in and wants to buy 10 bottles. She haggles with Joe and gets him to discount the bottles by $10/piece. How much revenue should Joe record?
Revenue must be recorded at the actual cash value of the goods or services provided. Therefore, the revenue would be recorded as $900 because this is what Joe actually received for the product.
We can use 1 of 2 criteria to match our expenses against when determining when to recognize them. What are the 2?
Matched against revenues earned (ie. the cost of a good sold or commissions paid) OR
Matched with appropriate time period when not easily matched with revenues (ie. rent expense)
What account do each of the temporary accounts close out to?
Revenue and Expenses to Income Summary to Capital
Withdrawals to Capital
At the beginning of the month, Supplies were $700. During the month the company purchased $600 of supplies. At month end, $400 of supplies were still on hand. What was the cost of supplies used during the month?
700+600-400 = 900
How does a debit balance in the income summary effect the Owner's Equity?
A debit balance in the income summary account represents a net loss so it would decrease Owner's Equity
Blue Pool Services received a $2500 deposit on August 31st to install a pool next summer. How much revenue should be recorded when this cash is received?
No revenue should be recorded as the job has not been completed. What should it be recorded as?
If you record an expense in 2024 that should have been recorded in 2023, how will it effect the 2023 and 2024 net income on the respective income statements?
2023 expenses will be understated which will overstate net income in 2023.
2024 expenses will be overstated which would understate net income in 2024
If the amount of net income for the current period exceeds the amount of the owner's withdrawals, what will be the net impact on the Capital account?
The Capital account will increase
On September 1, a company pays $36,000 cash in advance for 6 months rent. Assuming all adjustments had been made, what is the balance in the prepaid rent account on Dec 31?
36000-24000 = 12,000 remaining in prepaid rent account
One of 2 types of accounts is always affected when completing an adjusting journal entry. What are the 2 types of accounts?
1.Adjusting entries either
increase a revenue account (credit revenue) or
increase an expense account (debit expense)
Pablo's Printing Services charges $1 per each brochure it prints. A customer has ordered 1000 brochures with a due date of March 30th. Pablo's ran out of paper while printing and only had 800 brochures ready on this date. The remaining were picked up April 1. The customer paid the bill in full on April 15th. On what date(s) and for what amount should the total revenue be recorded?
March 30 - $800
April 1 - $200
Kobe company received an order for products on December 20th. On December 27th the orders shipped and the customer received them Jan 3rd. Its sales representative received a 5% commission cheque on January 15th for this sale. When should the the commission expense be recognized?
The commission expense will be matched to the related revenues. Given that the revenues will be recognized in December, the expense must also be recognized in December.
The beginning balance of Capital was $132,300. Revenues for the year were $57,500. Expenses totaled 65,500. The owner withdrew $500 per month for the year. What is the balance in the Capital account after the accounts are closed at year-end?
132,300 + (57,500 - 65,500) - (500x12) = 118,300
on Aug 1, your company bought computers for $39,000 that will be useful for 6 years. No adjustments have been made. What would the adjusting journal entry be on December 31st to account for the amortization?
(39,000/6) = 6500 per year / 12 months = 541.67 per month x 5 months = 2708 (2710 if rounded to 542/month)
Amortization expense 2708
Accumulated Amortization 2708