AFM101 Lecture Notes - Lecture 7: Deferred Income, Accrual, Deferral

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greydeer285

15 Oct 2015

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM101

Professor

Shari Mann

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AFM101 Full Course Notes

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Document Summary

Deferred revenue: cash is received before the company performs (earns revenues) Accrued revenue: cash is received after the company performs (earns revenue) Accrued expense: cash is paid after the company incurs an expense. Deferred expense: cash is paid before the company incurs an expense. Pp&e represents deferred expenses that will be consumed over years. Under cost principle , pp&e is recorded at historical cost on balance sheet. Pp&e decreases, as it is consumed over time to generate revenue. Pp&e depreciates over time as it is used. An allocation of asset"s historical cost over its useful life. Depreciation amount is not subtracted directly from the asset account. Depreciation is accumulated in a new account called accumulated depreciation account. Book value of asset = historical cost - accumulated depreciation. Contra account- an account that is an offset to or reduction of, the primary account. Contra means opposite -> has the opposite balance account. Pp&e is an asset account -> debit balance account.

Related Questions

The expense account, Salaries Expense, has an unadjusted balanceof $151,000 on Thursday, December 31,2017.

The company operates five days a week with a daily payroll of$4,000. Employees are paid every Saturday for the workweek justcompleted (Monday through Friday). Determine the correct endingbalance in Salaries Payable and Salaries Expense after the correctadjusting entry is made at year end:

	A.	Salaries Payable SalariesExpense $4,000 $155,000
	B.	SalariesPayable SalariesExpense $4,000 $147,000
	C.	SalariesPayable SalariesExpense $16,000 $16,000
	D.	SalariesPayable SalariesExpense $16,000 $135,000
	E.	SalariesPayable SalariesExpense $16,000 $167,000

1 points

QUESTION 7

Answer the following statements as true or false, then selectthe correct multiple -choice answer:

1. If dividends are declared during the year thecompany would close the dividend account by debiting retainedearnings and crediting the dividend account.

2. A company that forgets to recognizedepreciation for the year understates its income and assets.

3. Prepaid insurance expense will havea zero balance on the after closing trial balance.

4. Retained earnings on an adjustedtrial balance is the beginning retained earnings for theperiod.

	A.	True, False, False, False
	B.	False, True, True, False
	C.	True, False, False, True
	D.	False, True, True, True
	E.	True, True, False, False

1 points

QUESTION 8

Mark each of these items as an accrued asset, accrued liability,deferred expense or deferred revenue, then select the correctmultiple-choice answer.

________ Interest of $500 on a notereceivable was earned at year âend, although collection of theinterest is not due until the following year.

________ At year-end, cash of $1,000 wascollected for a job to be performed in the following year.

________ Office supplies were purchasedduring the year for $700, and $100 of them remained on hand atyear-end.

________ At year-end, wages payable of $2,900had not been recorded or paid.

	A.	Accrued Asset, Accrued Liability, Deferred Revenue, DeferredExpense
	B.	Accrued Asset, Deferred Revenue, Deferred Expense, AccruedLiability
	C.	Deferred Revenue, Deferred Expense, Accrued Asset, AccruedLiability
	D.	Deferred Expense, Accrued Asset, Accrued Liability, DeferredRevenue
	E.	Deferred Revenue, Accrued Liability, Accrued Asset, DeferredExpense

violetraccoon987

Which of the following accounting concepts prescribes that a company record its expenses incurred to generate the revenue reported?

- revenue recognition principle

- business entity assumption

- expense recognition principle

-cost principle

Internal control procedures for cash receipts DO NOT require that

- custody over cash is kept separate from its recordkeeping

- All collections for sales are received immediately upon making the sales

- Clerks having access to cash register should not have access to the register tape or file

-cash sales should be recorded on the cash register at the time of each sale

The Principles of internal control include:

- separate recordkeeping from the custody of assets

- maintain minimal records

- Bond all employees

-require automated sales system

bronzesnail770

QUESTION 1 Which of the following is considered in computing depreciation expense using the straight-line method? A. Net income of the company B. Balance in accumulated depreciation C. Asset's fair value D. Cost of inventory produced by equipment E. Asset's historical cost

QUESTION 2 Which of the following methods of depreciation allocates an equal expense to each period in which the asset is used to generate revenue? A. The sum-of-years' digits method B. The units-of-production method C. The double-declining balance method D. The straight-line method E. The activity depreciation method

QUESTION 3 What type of an account is accumulated depreciation? A. Expense B. Equity C. Loss D. Liability E. Contra asset

4 Which of the following accounting principles dictates that an asset's cost should be expensed over its useful life? A. Matching B. Revenue recognition C. Going concern D. Conservatism E. Consistency 1

QUESTION 5 Opine Company uses the double-declining-balance method of depreciation. It purchases a building with a cost of $560,000, a salvage value of $32,000 and a useful life of 16 years. What is the depreciation expense for the second year? A. $61,250 B. $60,000 C. $57,750 D. $70,000 E. $66,000

QUESTION 6 Clark Company acquired a desk for $500. The estimated salvage value is $50 and the estimated life is 5 years. What journal entry should Clark make to record depreciation expense? A. Depreciation Expense 100 Desk 100 B. Depreciation Expense 90 Desk 90 C. Accumulated Depreciation 90 Depreciation Expense 90 D. Depreciation Expense 90 Accumulated Depreciation 90 E. Depreciation Expense 100 Accumulated Depreciation 100

QUESTION 7 Jacobs Company estimates that its new equipment will last 6 years and have a residual value of $3,000. The original cost of the equipment was $39,000. What would be the balance in the accumulated depreciation account at the end of year 4? A. $0 B. $26,000 C. $24,000 D. $39,000 E. $6,000

QUESTION 18 Which of the following accounts will be shown on the balance sheet with accumulated depreciation account? A. Building B. Prepaid rent C. Cash D. Land E. Goodwill

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AFM101 Lecture Notes - Lecture 7: Deferred Income, Accrual, Deferral

AFM101 Full Course Notes

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