Accounting 1 Chapter 6 Study Guide
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Questions and Answers

What is a fiscal period?

  • A one-time financial report
  • A length of time for which a business summarizes its financial information (correct)
  • A period of 6 months
  • A single day of financial transactions

What is a fiscal year?

A fiscal period consisting of 12 consecutive months

What is a work sheet?

A columnar accounting form used to summarize the general ledger information needed to prepare financial statements

What is a trial balance?

<p>A proof of equality of debits and credits in a general ledger</p> Signup and view all the answers

What is a prepaid expense?

<p>Cash paid for an expense in one fiscal period that is not used until a later period</p> Signup and view all the answers

What is accrual basis of accounting?

<p>Reporting income when it is earned and expenses when they are incurred</p> Signup and view all the answers

What is cash basis of accounting?

<p>Reporting income when cash is received and expenses when cash is paid</p> Signup and view all the answers

What are adjustments in accounting?

<p>Changes recorded on a work sheet to update general ledger accounts at the end of a fiscal period</p> Signup and view all the answers

What is a balance sheet?

<p>A financial statement that reports assets, liabilities, and owner's equity on a specific date</p> Signup and view all the answers

What is an income statement?

<p>A financial statement showing the revenue and expenses for a fiscal period</p> Signup and view all the answers

What is net income?

<p>The difference between total revenue and total expenses when total revenue is greater</p> Signup and view all the answers

What is net loss?

<p>The difference between total revenue and total expenses when total expenses are greater</p> Signup and view all the answers

What are adjusting entries?

<p>Journal entries recorded to update general ledger accounts at the end of a fiscal period</p> Signup and view all the answers

The accounting concept of consistent reporting is applied when a delivery business reports revenue for the number of deliveries made one year and the amount of revenue received for deliveries made the next year.

<p>False (B)</p> Signup and view all the answers

A fiscal period must be 12 months in length.

<p>False (B)</p> Signup and view all the answers

Journals, ledgers, and work sheets are considered permanent records.

<p>False (B)</p> Signup and view all the answers

The heading on a work sheet contains the name of the business, the name of the report, and the date of the report.

<p>True (A)</p> Signup and view all the answers

Only accounts with a balance are listed on a trial balance.

<p>False (B)</p> Signup and view all the answers

The four questions asked when analyzing an adjustment are: Why? Where? When? and How?

<p>False (B)</p> Signup and view all the answers

The two accounts affected by the adjustment for supplies are Supplies and Supplies Expense.

<p>True (A)</p> Signup and view all the answers

The two accounts affected by the adjustment for insurance are Prepaid Insurance Expense and Insurance.

<p>False (B)</p> Signup and view all the answers

The balance in Prepaid Insurance after adjusting entries are recorded represents the amount of insurance premium still remaining.

<p>True (A)</p> Signup and view all the answers

Totaling and ruling the adjustments columns of a work sheet are necessary to prove the equality of debits and credits.

<p>True (A)</p> Signup and view all the answers

The income statement and balance sheet are prepared from the Trial Balance columns on the work sheet.

<p>True (A)</p> Signup and view all the answers

Net income on a worksheet is calculated by subtracting the Income Statement Debit column total from the Income Statement Credit column total.

<p>True (A)</p> Signup and view all the answers

If errors are found on a work sheet, they must be erased and corrected before any further work is completed.

<p>True (A)</p> Signup and view all the answers

When two column totals are not in balance on the work sheet, the difference between the two totals is calculated and checked.

<p>True (A)</p> Signup and view all the answers

If the difference between the totals of Debit and Credit columns on a work sheet can be evenly divided by 9, then the error is most likely a transposed number.

<p>True (A)</p> Signup and view all the answers

If there are errors in the work sheet's Trial Balance columns, it might be because a general ledger account balance was recorded in the wrong Trial Balance column.

<p>True (A)</p> Signup and view all the answers

Most errors occur in doing arithmetic.

<p>True (A)</p> Signup and view all the answers

The best way to prevent errors is to use a calculator.

<p>False (B)</p> Signup and view all the answers

Adjusting entries must be posted to the general ledger accounts.

<p>True (A)</p> Signup and view all the answers

The balance in Supplies Expense after adjusting entries are recorded represents the amount of supplies used during the fiscal period.

<p>True (A)</p> Signup and view all the answers

Match the following accounting terms with their definitions:

<p>Fiscal period = The length of time for which financial information is summarized. Fiscal year = A fiscal period consisting of 12 consecutive months. Trial balance = A proof of equality of debits and credits. Net income = The difference between total revenue and total expenses when total revenue is greater.</p> Signup and view all the answers

Flashcards

Fiscal Period

The length of time for which financial performance is summarized.

Fiscal Year

A fiscal period that spans 12 consecutive months.

Work Sheet

A document used to organize and summarize general ledger information for financial statements.

Trial Balance

A statement confirming the equality of debit and credit balances in the general ledger.

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Prepaid Expense

Cash paid for an expense that will be used in a future fiscal period.

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Accrual Basis of Accounting

An accounting method that recognizes revenue when earned and expenses when incurred.

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Cash Basis of Accounting

An accounting method that recognizes revenue when cash is received and expenses when cash is paid.

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Adjustments

Changes made on a work sheet to update general ledger accounts at the end of a fiscal period.

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Balance Sheet

A financial statement showing a company's assets, liabilities, and owner's equity at a specific point in time.

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Income Statement

A financial statement summarizing a company's revenue and expenses over a fiscal period.

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Net Income

The amount of revenue exceeding expenses, resulting in a profit.

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Net Loss

The amount of expenses exceeding revenue, resulting in a loss.

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Adjusting Entries

Journal entries that modify general ledger accounts at the end of a fiscal period.

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False Statements

Misconceptions about accounting principles, for example, that a fiscal period must last 12 months or that only accounts with balances appear on a trial balance.

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Work Sheet Heading

Includes the business name, report title, and reporting date.

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Supplies and Supplies Expense

Adjustments involve these two accounts to track the value of supplies used during a fiscal period.

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Prepaid Insurance Adjustment

Reflects the amount of insurance premium still remaining after adjustments.

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Totaling Adjustments

Important to verify the equality of debits and credits after making adjustments.

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Error Detection

If the difference in totals is divisible by 9, it might indicate a transposed number.

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Arithmetic Errors

A common source of discrepancies in accounting records.

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Mandatory Posting

Adjusting entries must be posted to general ledger accounts.

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Use of Supplies Expense

Represents the value of supplies consumed during the fiscal period after adjustments.

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Cash and Petty Cash

Listed as a debit on the balance sheet; no adjustments are made on the income statement.

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Accounts Receivable

Not affected by adjustments; listed as a debit on the balance sheet.

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Liabilities and Equity

Accounts like Accounts Payable appear as credits; K.Strand, Capital appears as a credit, while K.Strand, Drawing appears as a debit.

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Advertising, Rent, and Utilities Expenses

Accounted as a debit on the income statement.

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Insurance Expense

Adjustments involve debits reflecting expenses incurred during the fiscal period.

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Cash Short and Over

Reflects discrepancies found during cash management; treated as a debit.

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Supplies Expense

Accumulated expenses shown as a debit on the income statement.

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Study Notes

Key Accounting Terms and Definitions

  • Fiscal Period: Duration for summarizing financial performance.
  • Fiscal Year: A fiscal period lasting 12 consecutive months.
  • Work Sheet: A columnar form that helps summarize general ledger information for financial statements.
  • Trial Balance: A statement confirming the equality of debits and credits in the general ledger.
  • Prepaid Expense: Cash paid for an expense that will be consumed in a future fiscal period.

Accounting Approaches

  • Accrual Basis of Accounting: Recognizes income when earned and expenses when incurred.
  • Cash Basis of Accounting: Recognizes income upon cash receipt and expenses when cash is paid.

Adjustments and Financial Statements

  • Adjustments: Changes made on a work sheet to update general ledger accounts at the fiscal period's end.
  • Balance Sheet: Statement showing assets, liabilities, and owner's equity at a specific time.
  • Income Statement: Report detailing revenue and expenses over a fiscal period.

Income Measurements

  • Net Income: Total revenue exceeding total expenses.
  • Net Loss: Total expenses surpassing total revenue.

Journal Entries and Reporting

  • Adjusting Entries: Journal updates to modify general ledger accounts at the fiscal period's conclusion.
  • False Statements: Common misconceptions such as a fiscal period needing to be 12 months or that only accounts with balances appear on a trial balance.

Worksheet and Account Adjustments

  • Work Sheet Heading: Includes the business name, report title, and reporting date.
  • Supplies and Supplies Expense: Adjustments involve these two accounts to track supplies used.
  • Prepaid Insurance Adjustment: Reflects the premium amount still remaining post-adjustments.

Errors and Their Identification

  • Totaling Adjustments: Necessary to verify the equality of debits and credits.
  • Error Detection: If the difference in totals is divisible by 9, it likely indicates a transposed number.
  • Arithmetic Errors: Most common source of discrepancies in accounting records.

Posting Adjustments

  • Mandatory Posting: Adjusting entries must be posted to general ledger accounts.
  • Use of Supplies Expense: Represents supplies consumed during the fiscal period after adjustments.

Account Classification

  • Cash and Petty Cash: Listed as debit on the balance sheet, no adjustments on income statement.
  • Accounts Receivable: Not affected by adjustments, listed as a debit on balance sheet.
  • Liabilities and Equity: Accounts like Accounts Payable appear as credits; K.Strand, Capital as a credit, while K.Strand, Drawing appears as a debit.

Expenses and Their Accounts

  • Advertising, Rent, and Utilities Expenses: Accounted as debits on income statements.
  • Insurance Expense: Adjustments involve debits reflecting expenses incurred.

Miscellaneous Accounts

  • Cash Short and Over: Reflects discrepancies found during cash management, treated as a debit.
  • Supplies Expense: Accumulated expenses shown as a debit on the income statement.

These notes encapsulate the essential concepts and terminology from Chapter 6 of Accounting 1, aiding in comprehensive study and understanding of crucial accounting principles.

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Test your knowledge with this study guide covering Chapter 6 of Accounting 1. It focuses on key terms such as fiscal periods and worksheets that are essential for understanding financial performance. Enhance your understanding of accounting principles necessary for preparing financial statements.

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