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Accrual-basis accounting

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The companies record in the periods in which the events occur, transactions that change a companys financial statements, even if cash was not exchanged.

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Accrued expenses

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Expenses incurred but not yet paid in cash or recorded

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Accrued revenues

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Revenues for services performed but not yet received in cash

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Adjusting entires

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Entries made at the end of an accounting period to ensure that the revenue recognition and expense recongnition principles are followed

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Book value

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The difference between the cost of a depreciable asset and its related accumulated depreciation

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Cash-basis accounting

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Accounting basis in which a company records revenue only when it receives cash and an expense only when it pays cash

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Closing entries

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Entries at the end of an accounting period to transfer the balances of temporary accounts to a permanent stockholders equity account, Retained Earnings.

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Contra asset account

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An account that is offset against an asset account on the balance sheet

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Depreciation

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The process of allocating the cost of an asset to expense over its useful life

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Earnings management

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the planned timing of revenues, expenses, gains, and losses to smooth out bumps in net income

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Income Summary

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A temporary account used in closing revenue and expense accounts

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Revenue recognition principle

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The principle that companies recognize revenue in the accounting period in which the performance obligation is satisfied

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How do you close revenue accounts?

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List out all the revenues first and then credit the income summary

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How do you close expense accounts?

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Debit the income summary first and the list all expenses

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How do you close out net income to retained earnings?

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List income summary first then retained earnings. The number you put in is Revenues minus expenses (net income)

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How do you close out dividends to retained earnings?

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List Retained earnings first then dividends.

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How do you find ending retained earnings balance?

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Beginning balance plus all credit balances minus debit balances.

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The equipment depreciates at $280 per month

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Depreciation Expense- Debit 840 (280 x 3) quarterly Accumulated Depreciation Equipment - Credit 840

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Half of the unearned rent revenue was earned during the quarter.

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Unearned Rent revenue- Debit 5710 ( 11420/2) Rent Revenue- Credit 5710

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Interest of $310 is accrued on the notes payable.

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Interest Expense- Debit 310 Interest Payable - Credit 310

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Supplies on hand total $890

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Supplies Expense - Debit (3060-890) 2170 Supplies- Credit 2170

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Insurance expires at the rate of $490 per month.

answer

Insurance Expense - Debit ( 490 x 4) 1470 Prepaid Insurance - Credit 1470

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How much cash do you pay for rent if: Rent expense is 9500 wages expenses is 8600 Prepaid rent is 900 (2014) and 300 ( 2013) Salaries and Wages Payable 500 (2014) and 400 (2013)

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Rent expense 9500 Less prepaid rent 300 (2013) Plus prepaid rent 900 (2014) Cash paid = 10100

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How much do you pay for wages if: Wages expenses is 8600 Salaries and wages payable 500 (2014) and 400 (2013)

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Wages Expesnes 8600 Add Salaries 400 (2013) Less Salaries 500 (2014) Cash Paid = 8500

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The Thoma Company began the year with a $3,000 balance in the Supplies account. During the year, $8,500 of additional supplies were purchased. A physical count of supplies on hand at the end of the year revealed that $8,300 worth of supplies had been used during the year. No adjusting entry has been made until year end.

answer

Supplies Expense 8300 Supplies 8300

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The Leno Company has a calendar year-end accounting period. On July 1, the company purchased office equipment for $30,000. It is estimated that the office equipment will depreciate $200 each month. No adjusting entry has been made until year end.

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Depreciation Expense 1200 Accumulated Equipment 1200

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Yeats Realty is in the business of renting several apartment buildings and prepares monthly financial statements. It has been determined that 2 tenants in $900 per month apartments and one tenant in the $1,000 per month apartment had not paid their December rent as of December 31st

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Accounts Recievable 2800 Rent Revenue 2800

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Expenses are recognized when:

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they contribute to a production of revenue

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The revenue recognition principle dictates that revenue should be recognized in the accounting records:

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when the performance obligation is satisfied

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In a service-type business, revenue is recognized

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when the service is performed.

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The expense recognition principle matches:

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Expenses with revenues

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Otto's Tune-Up Shop follows the revenue recognition principle. Otto services a car on August 31. The customer picks up the vehicle on September 1 and mails the payment to Otto on September 5. Otto receives the check in the mail on September 6. When should Otto show that the revenue was recognized?

answer

August 31

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The expense recognition principle states that expenses should be matched with revenues. Another way of stating the principle is to say that

answer

efforts should be matched with accomplishments

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Using accrual accounting, expenses are recorded and reported only:

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when they are incurred whether or not cash is paid

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La More Company had the following transactions during 2013: • Sales of $4,500 on account • Collected $2,000 for services to be performed in 2014 • Paid $1,875 cash in salaries for 2013 • Purchased airline tickets for $250 in December for a trip to take place in 2014 What is La More's 2013 net income using accrual accounting?

answer

$4,500 - $1,875 = $2,625

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La More Company had the following transactions during 2013. • Sales of $4,500 on account • Collected $2,000 for services to be performed in 2014 • Paid $1,325 cash in salaries • Purchased airline tickets for $250 in December for a trip to take place in 2014 What is La More's 2013 net income using cash basis accounting?

answer

$2,000 - $1,325 - $250 = $425

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Discount term of 2/10, n/30 mean that a 10% cash discount is available if payment is made within 30 days.

answer

false

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Jax Company uses a perpetual inventory system and on November 30 purchased merchandise for which it must pay the shipping charges. Which of the following is one part of the required journal entry when Jax pays the shipping charges of $200?

answer

A debit to Inventory for $200

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Cosmos Corporation, which uses a perpetual inventory system, purchased $2,000 of merchandise on July 5 on account. Credit terms were 2/10, n/30. It returned $400 of the merchandise on July 9. Which of the following is one effect when Cosmos pays its bill on July 21?

answer

Credit to Cash for $1,600

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On what amount is a sales discount based?

answer

Invoice price less returns and allowances

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is true when recording the sale of goods for cash in a perpetual inventory system?

answer

Two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and to reduce inventory.

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What type of accounts are Sales Returns and Allowances and Sales Discounts?

answer

Contra revenue accounts

question

Arbor Corporation had reported the following amounts at December 31, 2014: Sales revenue $184,000; ending inventory $11,600; beginning inventory $17,200; purchases $60,400; purchases discounts $3,000; purchase returns and allowances $1,100; freight-in $600; freight-out $900. Calculate the cost of goods available for sale.

answer

$17,200 + $60,400 - $3,000 - $1,100 + $600 = $74,100.

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