Accounting Test: Chapters 3 & 4

(Asset Cost - Salvage Cost) / Useful Life

Items paid for in advance of receiving their benefit. They count as assets, and as assets are used, their costs become expenses.

Credit (decrease) assets, and debit (increase) expenses.

Costs incurred in a period that are unpaid and unrecorded. Debit (increase) expenses, and credit (increase) liabilities.

Unrecorded and not yet received products or services.

Debit (increase) assets, and credit (increase) revenue.

Assets, expenses, and withdrawals.

Liabilities, equity (other than withdrawals), revenue.

1) Resets revenue, expense, and withdrawal account balances to zero at the end of the period.2) Helps to summarize a period's revenues & expenses in the Income Summary account.3) Does not affect asset and liability accounts.

Expenses, revenues, income summary, withdrawals. Closing accounts only applies to these accounts. Closed each period because they should all have a zero balance at the end of the period.

Assets, liabilities, owner's capital.

Close credit balances in revenue accounts to.

..

Close debit balances in expense accounts to..

.

Owner's capital.

Those expected to come due (both collected and owned) within the longer of one year, or the company's normal operating cycle.

Tangible, long-lived assets used to produce or sell products and services. Examples: equipment, buildings, land.

Long-term resources used to produce/sell products and services, and that lack physical form.

Example: a patent, goodwill, trademarks, franchises, and copyrights).

Obligations due within the longer of one year, or the company's operating cycle.

Example: notes payable, accounts payable, unearned revenue, current portions of long-term liabilities.

Not due the longer of 1 year, or the company's operating cycle.

Example: notes payable, mortgage payable, bonds payable.

Owner's claim on assets. For a proprietorship, its called owner's capital.

For a corporation its called capital stock and retained earnings.

Current Assets/Current Liabilities

1. Analyze transactions, 2. Journalize, 3.

Post, 4. Prepare unadjusted trial balance, 5. Adjust, 6. Prepare adjusted trial balance, 7. Prepare statements, 8. Close, 9.

Prepare post-closing trial balance, 10. Reverse (optional).

1. Identify accounts for closing2. Record and post closing entries3.

Prepare a post-closing trial balance

Reseting revenues, expenses, and withdrawal account balances to zero at the end of every period to prepare these accounts for proper measurement in the next period. Also, to make owner's capital reflect prior period's revenues, expenses, and withdrawals. Transfer temporary account balances to the permanent capital account.

Accumulate data related to one accounting period. All income statement accounts, withdrawal accounts, and income summary.

Report on activities related to one or more future accounting periods.

They are all balance sheet accounts that aren't closed.

Prior to closing, this account will have a credit balance equal to net income or a debit balance equal to net loss. Therefore, this entry will credit capital for the amount of net income.

1.

Close credit balances in revenue accounts by debiting the accounts and crediting income summary. 2. Close debit balances in expense accounts by crediting the accounts and debiting income summary.3. Close income summary to owner's capital account, this credits capital for amount of net income.

4. Close withdrawals account by crediting the account & debiting owner's capital account.

Organizes assets and liabilities into important sub-groups & provides more info. for decision makers.

Shows liquidity of a company.

Time span from when cash is used to acquire goods & services until cash is received from the sale of those goods and services.

Cash or other resources that are expected to be sold, collected, or used within one year or the operating cycle, whichever is longer. Example: cash, short-term investments, accounts receivable, merchandise inventory, and prepaid expenses.

Assets held for more than one year, that are not used in business operations.

Example: stocks, bonds, promissory notes, and land held for future expansion.

Assesses a company's ability to pay its debts in the near future. Not represented as a percent!

Assumes that an organization's activities can be divided into a specific time period, such as a month, 3 month quarter, or year.

Any 12 consecutive months used to base annual financial reports on.

Uses the adjusting process to recognize revenues when earned & match expenses when incurred with revenues. This means the economic effects of revenues and expenses are recorded when earned or incurred, not when cash is received or paid. This basis consistent with GAAP. Improves comparability with statements.

Revenues are recognized when cash is received & expenses are recognized when cash is paid. Not consistent with GAAP.

Requires revenue to be recorded when earned, not before or after.

Also known as expense recognition principle.

Aims to record expenses in the same period as the revenues earned as a result of these expenses.

Used to evaluate operating results by measuring the ratio of a company's net income. Reflects the portion of profit in each dollar of revenue. Shown as a percent!

Net Income / Net Sales Revenues

Supplies, prepaid insurance or rent, and depreciation.

Allocating plant assets' cost over their expected useful lives. Debit (increase) expenses, credit (decrease) Accumulated Depreciation.

A contra-asset account. It is linked to the asset as a subtraction, and is thus used to record the declining asset balance.

Liabilities received by cash earned before providing the product or service. Reported as a current liability. As the product or service is provided, the liabilities become earned revenues.

Credit (increase) revenues and debit (decrease) unearned revenues.

Salaries, interest, rent, taxes. The liability is a "payable".

Partially completed jobs, interest income that has been earned but not collected, and revenues from services performed that are neither collected nor billed.

A list of accounts and balances prepared after adjusting entries are recorded and posted to the ledger.

1. Income Statement2. Statement of owner's equity, requires use of net income/loss from previous statement.

3. Balance sheet, requires the use of ending equity from previous statement.

Go on the income statement. Is not an asset or a liability, its and account that gets closed.

It provides financial statement users with additional information about the relative age of the assets. Without this specific information, the reader would not be able to tell whether the assets are new or in need of replacement.

On a typical classified balance sheet, it includes current and noncurrent—where noncurrent usually includes long-term investments, plant assets, and intangible assets.

Typically classified as current and noncurrent. Note that the terms short-term and long-term are sometimes used for current and noncurrent.