ACTG 2010 Lecture Notes - Lecture 3: Deferral, Deferred Income, Accounts Payable

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12 Nov 2016

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Four types of adjusting entries: deferred/prepaid expense, deferred revenue, accrued expense/liability, accrued revenue/asset. Assets that benefit more than one accounting period. An adjusting entry is required to reflect the expense. Example: prepaid rent: is an asset acquired in another period, but not expensed in that period, dr. prepaid rent (asset +) No revenue recognized on receipt of cash. Revenue recognized on supply of goods or services. Unearned revenue the liability recorded when cash is received before is revenue recognized. Economic event is consuming the goods or services. Transferred to accounts payable or paid when invoice received. Revenue recognized before cash received or invoice issued: interest revenue, project revenues. Revenue earned but no exchange with another entity to trigger a recording. Allocation of the cost of long lived assets to expense over their useful lives. Permanent accounts - these accounts are not closed. List all accounts in the general ledger with their balances.

Related Questions

1. Which of the following identifies the proper order of theaccounting cycle?

A. Analyze, Journalize, Unadjusted Trial Balance

B. Analyze, Post, Unadjusted Trial Balance

C. Journalize, Post, Adjusted Trial Balance

D. Unadjusted Trial Balance, Adjusted Trial Balance, Close

E. Adjusted Trial Balance, Adjustments, Financial Statements

2. Interim financial statements refer to financial reports:

A. That cover less than one year, usually spanning one, three orsix-month periods

B. That are prepared before any adjustments have beenrecorded

C. That show the assets above the liabilities and theliabilities above the equity

D. Where revenues are reported on the income statement when cashis received and expenses are reported when cash is paid

E. Where the adjustment process is used to assign revenues tothe periods in which they are earned and to match expenses withrevenues

3. The accounting principle that requires revenue to be reportedwhen earned is the:

A. Matching principle

B. Revenue recognition principle

C. Time period principle

D. Accrual reporting principle

E. Going-concern principle

4. Adjusting entries:

A. Affect only income statement accounts

B. Affect only balance sheet accounts

C. Affect both income statement and balance sheet accounts

D. Affect only cash flow statement accounts

E. Affect only equity accounts

5. The system of preparing financial statements based onrecognizing revenues when the cash is received and reportingexpenses when the cash is paid is called:

A. Accrual basis accounting

B. Operating cycle accounting

C. Cash basis accounting

D. Revenue recognition accounting

E. Current basis accounting

6. If throughout an accounting period the fees for legalservices paid in advance by clients are recorded in an accountcalled Unearned Legal Fees, the end-of-period adjusting entry torecord the portion of those fees that has been earned is:

A. Debit Cash and credit Legal Fees Earned

B. Debit Cash and credit Unearned Legal Fees

C. Debit Unearned Legal Fees and credit Legal Fees Earned

D. Debit Legal Fees Earned and credit Unearned Legal Fees

E. Debit Unearned Legal Fees and credit Accounts Receivable

7. A company had no office supplies available at the beginningof the year. During the year, the company purchased $250 worth ofoffice supplies. On December 31, $75 worth of office suppliesremained. How much should the company report as office suppliesexpense for the year? A. $75 B. $125 C. $175 D. $250 E. $325 8. OnJanuary 1 a company purchased a five-year insurance policy for$1,800 with coverage starting immediately. If the purchase wasrecorded in the Prepaid Insurance account and the company recordsadjustments only at year-end, the adjusting entry at the end of thefirst year is:

A. Debit Prepaid Insurance, $1,800; credit Cash, $1,800

B. Debit Prepaid Insurance, $1,440; credit Insurance Expense,$1,440

C. Debit Prepaid Insurance, $360; credit Insurance Expense,$360

D. Debit Insurance Expense, $360; credit Prepaid Insurance,$360

E. Debit Insurance Expense, $360; credit Prepaid Insurance,$1,440

9. Unearned revenue is reported on the financial statementsas:

A. A revenue on the balance sheet

B. A liability on the balance sheet

C. An unearned revenue on the income statement

D. An asset on the balance sheet

E. An operating activity on the statement of cash flows

10. Which of the following assets is not depreciated?

A. Store fixtures

B. Computers

C. Land

D. Buildings

E. Vehicles

11. On April 30, 2011, a three-year insurance policy waspurchased for $18,000 with coverage to begin immediately. What isthe amount of insurance expense that would appear on the company'sincome statement for the year ended December 31, 2011? A. $500 B.$4,000 C. $6,000 D. $14,000 E. $18,000 12. Expenses incurred butunpaid that are recorded during the adjusting process with a debitto an expense and a credit to a liability are:

A. Intangible expenses

B. Prepaid expenses

C. Unearned expenses

D. Net expenses

E. Accrued expenses

13 The difference between the cost of an asset and theaccumulated depreciation for that asset is called

A. Depreciation Expense

B. Unearned Depreciation

C. Prepaid Depreciation

D. Depreciation Value

E. Book Value

14. A company purchased a new truck at a cost of $42,000 on July1, 2011. The truck is estimated to have a useful life of 6 yearsand a salvage value of $3,000. How much depreciation expense willbe recorded for the truck for the year ended December 31, 2011?

A. $3,250

B. $3,500

C. $4,000

D. $6,500

E. $7,000

15. A company's Office Supplies account shows a beginningbalance of $600 and an ending balance of $400. If office suppliesexpense for the year is $3,100, what amount of office supplies waspurchased during the period?

A. $2,700

B. $2,900

C. $3,300

D. $3,500

E. $3,700

chocolatereindeer731

Recording Transactions (Including Adjusting and Closing Entries), Preparing Financial Statements, and Performing Ratio Analysis

Josh and Kelly McKay began operations of their furniture repair shop (Furniture Refinishers, Inc.) on January 1, 2016. The annual reporting period ends December 31. The trial balance on January 1, 2017, was as follows:

Account Titles	Debit	Credit
Cash	â5,000
Accounts receivable	â4,000
Supplies	â2,000
Small tools	â6,000
Equipment
Accumulated depreciation (on equipment)
Other assets (not detailed to simplify)	â9,000
Accounts payable		â7,000
Notes payable
Wages payable
Interest payable
Income taxes payable
Unearned revenue
Common stock (60,000 shares, $0.10 par value)		â6,000
Additional paid-in capital		â9,000
Retained earnings		â4,000
Service revenue
Depreciation expense
Wages expense
Interest expense
Income tax expense
Remaining expenses (not detailed to simplify)
âTotals	26,000	26,000

Transactions during 2017 follow:

A.Borrowed $20,000 cash on July 1, 2017, signing a one-year, 10 percent note payable.

B.Purchased equipment for $18,000 cash on July 1, 2017.

C.Sold 10,000 additional shares of capital stock for cash at $0.50 market value per share at the beginning of the year.

D.Earned $70,000 in revenues for 2017, including $14,000 on credit and the rest in cash.

E.Incurred remaining expenses of $35,000 for 2017, including $7,000 on credit and the rest paid with cash.

F.Purchased additional small tools, $3,000 cash.

G.Collected accounts receivable, $8,000.

H.Paid accounts payable, $11,000.

I..Purchased $10,000 of supplies on account.

J.Received a $3,000 deposit on work to start January 15, 2018.

K.Declared and paid a cash dividend, $10,000.

Data for adjusting entries:

L.Supplies of $4,000 and small tools of $8,000 were counted on December 31, 2017 (debit Remaining Expenses).

M.Depreciation for 2017, $2,000.

N.Interest accrued on notes payable (to be computed).

O.Wages earned since the December 24 payroll but not yet paid, $3,000.

P.Income tax expense was $4,000, payable in 2018.

Required:

1.Set up T-accounts for the accounts on the trial balance and enter beginning balances.

2.Prepare journal entries for transactions (a) through (k) and post them to the T-accounts.

3.Journalize and post the adjusting entries (l) through (p).

4.Prepare an income statement (including earnings per share rounded to two decimal places), statement of stockholdersâ equity, and balance sheet.

5.Identify the type of transaction for (a) through (k) for the statement of cash flows (O for operating, I for investing, F for financing), and the direction and amount of the effect.

6.Journalize and post the closing entry.

7.Compute the following ratios (rounded to two decimal places) for 2017 and explain what the results suggest about the company:

a,Current ratio

b,Total asset turnover

c,Net profit margin

greyscorpion846

Please build the answer based on following text from studyingbook:

Expense Accounts. Expenses are costs incurredby an organization in the process of earning revenue during a givenperiod of time. Typical expense accounts related to payroll wouldinclude such items as wages, salaries, employer payroll expenses,and group insurance benefit expenses. Payroll expenses have adirect impact on the profitability of an organization.

In an expense account, debit entries increase the expensebalance and credit entries decrease the expense balance. Amounts inthe expense accounts are cleared to zero (or restarted at zero) atthe fiscal year-end. This is the same way the employeesâ totals inthe payroll register are cleared to zero at the taxationyear-end.

Expense accounts include expenses incurred by an organization inthe process of earning revenue during a given time period. Thesalary expense account details the debits (for example, employeesalaries and wages) and credits (for example, accrual reversals,recalls and cancelled pays) posted on the journal entries for theperiod. Entries are posted to the General Ledger at theorganization or department total level, rather than with theindividual employee details.

Since expense accounts continue to build over time and are notcleared until the end of the fiscal period, the most commonreconciliation methods used for theseaccounts are:
- reasonableness
- year-over-year comparison

A reasonableness test requires anindividual to examine the General Ledger account in detail and toensure that all the postings are in balance and seem valid.

By examining the payroll register or other reports providingdetails of the total amount posted to an account, it should beanalyzed whether the amount shown in the account is correct.Recalled pays, cancelled cheques and manual cheques should berecorded as they occur so that accounts reflect the most currentdata.

Cost accounting plays a significant role in expense accountreconciliation as well. An organization that uses cost accountingwill charge expenses to a department, a project or a contract,according to their internal requirements. If an employee istransferred from one department or branch to another, and thepaperwork is not processed when the change is effective, theemployeeâs salary, and any associated employer expenses, will beexpensed incorrectly. A journal entry will be required to move theexpenses to the correct accounts.

As expense accounts normally have a debit balance, to reduce theexpense you credit the account and to increase the expense youdebit the account.

A year-over-year comparison wouldcompare each expense account for a certain time frame to determineif there have been material changes.

Question :

List three expense accounts related to payroll.Describe when you would expect the account to be cleared to zero.Explain the methods you could use to reconcile theseaccounts.

ochrecrab155

ACTG 2010 Lecture Notes - Lecture 3: Deferral, Deferred Income, Accounts Payable

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