ACCT 001 Lecture Notes - Lecture 5: Accounting Equation, Net Profit, Income Statement

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pearjellyfish736

23 Dec 2020

School

College of The Sequoias

Department

Accounting (ACCT)

Course

ACCT 001

Professor

skaff

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Document Summary

The balance sheet reports what the organisation"s position (assets, liabilities and shareholder"s equity) is at a point in time. Therefore, it is used to evaluate the quality of management"s decisions on obtaining, deploying and financing assets. The balance sheet does not directly state how management has performed in using assets to earn profits. Such information is combined in the income statement, but all of it correlates with the basic double-entry information contained in the balance sheet: e. g. Good performance is reflected in increased assets and shareholder"s equity (retained profits) Income statement is useful, as it uses accrual accounting to measure financial performance over a period of time, indicating the bottom line new profit for the period. Net profit for the period = revenues expenses for the period. Increases in the company"s wealth arising from the provision of services or sale of goods to customers i. e. interest, dividends.

Related Questions

QUESTION 1

Accounting is an information and measurement system thatidentifies, records, and communicates relevant, reliable, andcomparable information about an organization's businessactivities.

True

False

QUESTION 2

We use the accounting equation to identify what a company ownsand owes. The accounting equation is:

Assets = Liabilities + Equity

Assets = Liabilities â Equity

Assets = Liabilities + Revenues

Equity = Liabilities + Revenues

QUESTION 3

______ are beliefs that distinguish right from wrong. Thesebeliefs are accepted standards of gauging good and dishonestbehavior.

Accounting Standards

Ethics

Generally Accepted Accounting Principles

FASB

QUESTION 4

The _____ is a collection of all accounts within a companyâsaccounting system.

We use the accounting equation to identify what a company ownsand owes. _____ are resources a company owns or controls, _____ areclaims creditors have against a companyâs assets, and _____ is theownerâs claim on a companyâs assets.

QUESTION 6

In double entry accounting a credit to an asset account willrepresent an increase in the asset account balance; and a debitwill represent a decrease in the asset account balance.

True

False

QUESTION 7

The purchase of supplies on credit will ____ assets and ____liabilities.

During the accounting cycle, we analyze transactions toprepare statements.

True

False

QUESTION 9

The supplies account for a company has a $1,000 debit balanceat the beginning of the year. Supplies of $2,000 were purchasedduring the year and debited to the Supplies account. A December 31physical count shows $500 of supplies remaining at the end of theyear. Assume no other adjusting entries are made during the year.Using the 3-step process for creating adjusting entries, calculatethe adjustment amount for supplies (no journal entry isrequired).

During the accounting cycle, to complete step 7 youwould:

Prepare post-closing trial balance--Test clerical accuracy ofthe closing procedures.

Prepare adjusted trial balance--Summarize adjusted ledgeraccounts and amounts.

Prepare statements--Use adjusted trial balance to preparefinancial statements.

Close--Journalize and post entries to close temporaryaccounts.

QUESTION 11

The three financial statements that should be prepared duringthe accounting cycle are the:

Balance sheet, adjusted trial balance, income statement

Balance sheet, unadjusted trial balance, Statement of OwnerâsEquity

Income statement, adjusted trial balance, Statement of OwnerâsEquity

Balance sheet, Income statement, Statement of OwnerâsEquity

QUESTION 12

An optional working paper, which is not a required report oran accounting record, but is used to prepare a company's unadjustedtrial balance, adjusting entries, adjusted trial balance, andfinancial statements is a(n):

Adjusted trial balance

Worksheet

Post-closing trial balance

Unadjusted trial balance

General ledger

QUESTION 13

The two goals for completing the closing process are:

To identify accounts for closing and record the closingentries

To journalize and post transactions

To post transactions and prepare post-closing trialbalance

To reset revenues, expenses, and withdrawal account balancesto zero at the end of each period, and help summarize an accountingperiodâs revenues and expenses.

QUESTION 14

Fill in the Blank: The _____ describes a companyâs financialposition â by the types and amounts of assets, liabilities, andequity -- at a point in time.

QUESTION 15

Return on Assets is useful in evaluating management, analyzingand forecasting profits, and planning activities.

True

False

QUESTION 16

The Income Statement:

Identifies cash inflows (receipts) and cash outflows(payments) over a period-of-time.

Summarize adjusted ledger accounts and amounts

Describes a companyâs revenues and expenses along with theresulting net income or net loss -- over a period-of-time due toearnings activities

Resets revenues, expenses, and withdrawal account balances tozero at the end of each period.

QUESTION 17

An internal control system consists of the policies andprocedures used to:

Protect assets and Ensure reliable accounting

Urge adherence to company policies and Promote efficientoperations

All of the above

None of the above.

QUESTION 18

The cost-benefit principle is the second limitation of_______.

Bank reconciliations

Petty cash controls

Voucher system of controls

Internal controls

QUESTION 19

The Unadjusted Trial Balance columns of a company's work sheetshows the Store Supplies account with a balance of $750. TheAdjustments columns shows a credit of $425 for supplies used duringthe period. The amount shown as Store Supplies in the Balance Sheetcolumns of the work sheet is:

A company shows a $600 balance in Prepaid Rent in theUnadjusted Trial Balance columns of the work sheet. The Adjustmentscolumns show expired rent of $200. This adjusting entry resultsin:

$200 decrease to net income

$200 increase to net income

$200 different between the debit and credit columns of theUnadjusted Trial Balance

An error in the Balance Sheet

QUESTION 21

This semester we have discussed four major financialstatements. List the 4 financial statements and describe them. Makesure to include how they flow together.

QUESTION 22

Explain the purpose of adjusting entries at the end of aperiod.

peararmadillo281

The fact that generally accepted accounting principles allowcompanies flexibility in choosing between certain allocationmethods can make it difficult for a financial analyst to compareperiodic performance from firm to firm. Suppose you were afinancial analyst trying to compare the performance of twocompanies. Company A uses the double-declining-balance depreciationmethod. Company B uses the straight-line method. You have thefollowing information taken from the 12/31/13 year-end financialstatements for Company B: Income Statement Depreciation expense $6,500 Balance Sheet Assets: Plant and equipment, at cost $ 65,000Less: Accumulated depreciation (26,000 ) Net $ 39,000 You alsodetermine that all of the assets constituting the plant andequipment of Company B were acquired at the same time, and that allof the $65,000 represents depreciable assets. Also, all of thedepreciable assets have the same useful life and residual valuesare zero. Required: 1. In order to compare performance with CompanyA, estimate what B's depreciation expense would have been for 2013if the double-declining-balance depreciation method had been usedby Company B since acquisition of the depreciable assets.

2-If Company B decided to switch depreciation methods in 2013from the straight line to the double-declining-balance method,prepare the 2013 adjusting journal entry to record depreciation forthe year, assuming no journal entry for depreciation in 2013 hasbeen recorded

rosemacaw899

1/ The multiple-step format of the income statement reports aseries of intermediate subtotals such as gross profit, operatingincome, and income before taxes. TRUE OR FALSE

2/ An option for a customer to purchase additional goods at adiscount from list price is only a performance obligation if thediscount is a material right that the customer would not receiveotherwise. TRUE OR FALSE

3/ From a financial accounting perspective, the main purposes ofa system of internal control are to improve the accuracy andreliability of accounting information and to safeguard assets. TRUEOR FALSE

4/ In a good system of internal control, the person whoinitiates a transaction should be allowed to effectively controlthe processing of the transaction through its final inclusion inthe accounting records. TRUE OR FALSE

5/ The income statement approach to calculating bad debt expenseshould not be used if it results in a carrying value of accountsreceivable that is materially different from what would be obtainedunder a balance sheet approach. TRUE OR FALSE

ACCT 001 Lecture Notes - Lecture 5: Accounting Equation, Net Profit, Income Statement

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