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Questions and Answers
What is a fiscal period?
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?
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What is a prepaid expense?
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What is accrual basis of accounting?
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What is cash basis of accounting?
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What are adjustments in accounting?
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What is a balance sheet?
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What is an income statement?
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What is net income?
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What is net loss?
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What are adjusting entries?
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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.
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A fiscal period must be 12 months in length.
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Journals, ledgers, and work sheets are considered permanent records.
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The heading on a work sheet contains the name of the business, the name of the report, and the date of the report.
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Only accounts with a balance are listed on a trial balance.
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The four questions asked when analyzing an adjustment are: Why? Where? When? and How?
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The two accounts affected by the adjustment for supplies are Supplies and Supplies Expense.
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The two accounts affected by the adjustment for insurance are Prepaid Insurance Expense and Insurance.
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The balance in Prepaid Insurance after adjusting entries are recorded represents the amount of insurance premium still remaining.
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Totaling and ruling the adjustments columns of a work sheet are necessary to prove the equality of debits and credits.
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The income statement and balance sheet are prepared from the Trial Balance columns on the work sheet.
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Net income on a worksheet is calculated by subtracting the Income Statement Debit column total from the Income Statement Credit column total.
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If errors are found on a work sheet, they must be erased and corrected before any further work is completed.
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When two column totals are not in balance on the work sheet, the difference between the two totals is calculated and checked.
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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.
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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.
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Most errors occur in doing arithmetic.
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The best way to prevent errors is to use a calculator.
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Adjusting entries must be posted to the general ledger accounts.
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The balance in Supplies Expense after adjusting entries are recorded represents the amount of supplies used during the fiscal period.
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Match the following accounting terms with their definitions:
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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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Description
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.
