Fixed Asset Vocab
The contra asset account credited when recording the depreciation of a fixed asset
What is Accumulated Depreciation?
The liability created by receiving revenue in advance.
What is Unearned Revenue?
An example of deferred revenue is Unearned Rent.
What is True?
A company receives $360 for a 12-month trade magazine subscription on August 1. The adjusting entry on December 31 is
Dec. 31 Unearned Subscription Revenue DR 150 Subscription Revenue CR 150 Unearned Subsc (Revenue per Month = $360/12 = $30 Subscrip Revenue from Aug 1 to Dec 31 = $30 × 5 = $150)
The Father of Accounting
Who is Luca Pacioli?
The systematic periodic transfer of the cost of a fixed asset to an expense account during its expected useful life.
What is Depreciation?
The journal entries that bring the accounts up to date at the end of the accounting period.
What are Adjusting Entries?
The revenue recognition principle requires that the reporting of revenue be included in the period when cash for the service is received.
What is False?
A company pays $36,000 for 12 months' rent on October 1, recording the prepayment as an asset. What is the adjusting entry on December 31st?
What is December 31 is a DEBIT to Rent Expense of $9,000 CREDIT to Prepaid Rent of $9,000. Rent (Expense per Month = $36,000/12 = $3,000 Rent Expense from October 1 to December 31 = $3,000 × 3 = $9,000)
An analysis that compares each item in a current statement with a total amount within the same statement.
What is vertical analysis?
The difference between the cost of a fixed asset and its accumulated depreciation.
What is Book Value of Assets (or Net Book Value)?
This occurs when cash related to a future revenue or expense has been initially recorded as a liability or an asset.
What is a Deferral?
Adjusting entries affect only expense and asset accounts.
What is False?
At year-end, the balance in the prepaid insurance account, prior to any adjustments, is $6,000. The amount of unexpired insurance applicable to future periods is $2,000. The adjusting entry at the end of the fiscal period.
What is DEBIT Insurance Expense $4,000 CREDIT Prepaid Insurance $4000
Insurance Expense = Balance in Prepaid Insurance Account (prior to any adjustments) – Amount of Unexpired Insurance (applicable to future periods) = $6,000 – $2,000 = $4,000
An error in which the order of the digits is changed, such as writing $542 as $452 or $524.
What is Transposition error?
Long-term or relatively permanent tangible assets such as equipment, machinery, and buildings that are used in the normal business operations and that depreciate over time.
What is Fixed Assets (or Plant Assets) ?
This occurs when revenue has been earned or an expense has been incurred but has not been recorded.
What is an accrual?
A company pays an employee $3,000 for a five-day workweek, Monday–Friday. The adjusting entry on December 31, which is a Tuesday, is
What is Dec. 31 DEBIT Wages Expense 1,200 CREDIT Wages Payable 1,200 Wages Expense
per Day = $3,000/5 = $600 Wages Expense for 2 days = $600 × 2= $1,200
Financial analysis that compares an item in a current statement with the same item in prior statements.
What is Horizontal analysis?
Your Truck was purchased for $20,000 last year. Its salvage value is $5,000 and its useful life is 5 years. What is the balance in the accumulated depreciation account after adjusting entries have been journalized and posted for this year.
What is $6,000?
Under this basis of accounting, revenues and expenses are recorded in the income statement in the period in which they are earned or incurred.
What is the accrual basis of accounting?
A company receives $6,500 for two season tickets sold on September 1. If $2,500 is earned by December 31, the adjusting entry made at that time is a debit to Cash of $2,500, and a credit to Ticket Revenue of $2,500.
What is False? Dec. 31 DEBIT Unearned Ticket Revenue 2,500 CREDIT Ticket Revenue 2,500
DogMart Company purchased office equipment for 20,000 last year. The asset account that this was recorded in is called office equipment. Depreciation for the period ending December 31 is $1,400 for office equipment. The adjusting entry will be
What is DR Depreciation Expense—Office Equipment 1,400
CR Accumulated Depreciation—Office Equip 1,400
If you forgot to record the adjusting entry for prepaid insurance how would this impact your income statement and balance sheet?
What is Expenses would be understated and NI would be overstated Assets would be overstated and OE would be overstated