Questions and Answers
What does the Ending Inventory of week one become for week two?
Where should one look to determine the Beginning Inventory for a new week?
How is the Beginning Inventory for week two represented in terms of monetary value?
What is the relationship between the Ending Inventory of one week and the Beginning Inventory of the next week?
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What total is represented as the Total Assets in week one’s Ending Balance Sheet?
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What is the total value of assets as stated in the accounting game?
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What is the amount recognized as Bad Debt expense?
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What impact does Johnny's move have on the financial records?
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Which of the following is not listed as a liability in the accounting game?
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Which type of loss is specifically referred to in the content?
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What was Johnny's initial transaction that later resulted in a Bad Debt?
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What should a business do when a Bad Debt is recognized?
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What is the total amount of liabilities listed?
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What does the Accrual Method of accounting prioritize?
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When do businesses account for purchases under the Accrual Method?
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What aspect of a prepaid expense is accounted for in the current year under the Accrual Method?
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Which of the following statements is true regarding accounts receivable in the Accrual Method?
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What must occur for revenue to be recognized under the Accrual Method?
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Which of the following best describes the timing of cash transactions in the Accrual Method?
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Under the Accrual Method, how is a transaction recorded that involves receiving a product on credit?
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What is the key principle of the Accrual Method regarding expenses?
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What is the main difference between the Accrual Method and the Cash Method?
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Which of the following is NOT a component of total assets according to the content provided?
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When are events accounted for in the Cash Method?
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What can lead to the perception of 'creative accounting'?
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Which of the following methods emphasizes recording transactions as they occur?
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What does the phrase 'Cash is Cash is Cash' signify in accounting?
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In the context of total assets, what are prepaid expenses classified as?
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What type of transactions is NOT recorded in the Cash Method?
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What is the total sales amount reported under the Cash Method?
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Why is Beginning Inventory not included in the Cash Method?
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How much were the cash purchases reported under the Cash Method?
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What would the Cost of Goods Sold (COGS) be under the Cash Method?
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What is the Gross Profit calculated in the Cash Method?
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How much was paid in cash for interest under the Cash Method?
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Which expense is not included in the Cash Method because it does not involve cash?
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How much was expensed for insurance under the Cash Method?
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Study Notes
Balance Sheet Overview
- Total assets amount to $86.00, balancing with total liabilities and owner's equity.
- Categories include accounts payable (4.00),notespayable(4.00), notes payable (4.00),notespayable(50.00), and several smaller liabilities.
- Ending inventory from week one becomes beginning inventory for week two ($2.00).
Bad Debt Recognition
- Johnny, who bought glasses on account, moved away, leading to a lost revenue of $4.00 categorized as Bad Debt expense.
- This loss must be recognized and recorded according to the Accrual Method.
Accrual Method Explained
- Accrual Method recognizes revenue and expenses when they are earned or incurred, regardless of cash transactions.
- Sales are recorded at the point of sale, not when cash is received.
- Purchases are recorded when incurred, even if payment is delayed (e.g., charging costs).
- Prepaid expenses are recorded when incurred, but recognized as expenses only as used (e.g., 1.00insuranceusedfroma1.00 insurance used from a 1.00insuranceusedfroma3.00 policy).
Cash Method Comparison
- Cash Method records transactions only when cash is exchanged, differing significantly from the Accrual Method.
- Total sales under the Cash Method are $22.00; only cash received is accounted.
Cash Income Statement Highlights
- Cash Income Statement includes details such as beginning inventory, purchases, and labor costs.
- Cost of Goods Sold (COGS) is $21.00, accounting only for cash purchases while ignoring charged items.
- Gross Profit under the Cash Method is minimal at $1.00, illustrating limited profitability.
Expense Accounting
- Bad Debt does not appear in the Cash Method since it's not a cash transaction.
- Actual cash expenses like interest (2.00)andinsurance(2.00) and insurance (2.00)andinsurance(3.00) are fully recognized.
- The Cash Method can lead to a heavier recognition of prepaid expenses when cash is paid.
Key Takeaways
- Different accounting methods (Accrual vs. Cash) yield different financial portrayals.
- Understanding when to recognize revenue and expenses is central to accurate financial reporting.
- Keeping track of inventory and expenses is crucial to maintaining a clear financial picture over time.
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Description
This quiz covers the fundamentals of balance sheets, bad debt recognition, and the differences between the accrual and cash methods of accounting. Test your knowledge on how assets, liabilities, and revenues are recorded as per accounting standards.
