Accounting Cycle for Service Entities
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Questions and Answers

What is the primary purpose of the accounting cycle in a service entity?

  • To prepare annual budgets for future transactions
  • To forecast cash flows for investment decisions
  • To ensure accurate recording and reporting of financial information (correct)
  • To evaluate employee performance through financial measures

    • What is the role of adjusting entries in the accounting cycle?

  • They are transactions that increase cash balances for the entity.
  • They are used to close temporary accounts at the end of the period.
  • They record revenues and expenses that have not yet been captured in the ledger. (correct)
  • They are for identifying and correcting errors in the financial statements.

    • Which component is critical for the preparation of an unadjusted trial balance?

  • The ledger accounts' balances before any adjustments (correct)
  • The documentation of cash disbursements
  • The expected cash inflows from future service contracts
  • The collection of all revenue invoices from clients

    • In the financial statement preparation process, what comes after the adjusted trial balance?

    <p>Preparation of financial statements</p> Signup and view all the answers

    What is the primary focus of the recognition and derecognition principle in accounting?

    <p>To determine when to record revenues and expenses</p> Signup and view all the answers

    What is the effect of journalizing transactions in the accounting cycle?

    <p>It systematically captures the impact of transactions on financial statements.</p> Signup and view all the answers

    What is meant by the term 'reversing entries' in the accounting cycle?

    <p>Entries that are made to reverse the effect of adjusting entries</p> Signup and view all the answers

    Which element is typically included in financial statements for a service entity?

    <p>Service revenue earned during the period</p> Signup and view all the answers

    Which account has the highest balance after posting?

    <p>Rent Revenue</p> Signup and view all the answers

    What is the balance of Accounts Payable after posting?

    <p>P2,000,000</p> Signup and view all the answers

    Which of the following accounts represents an expense?

    <p>Utilities Expense</p> Signup and view all the answers

    How must a change in asset be compensated in accounting?

    <p>By a change in liability</p> Signup and view all the answers

    What is the total balance of cash and accounts receivable combined?

    <p>P6,200,000</p> Signup and view all the answers

    If a sole proprietor borrows P30,000 in the name of the entity, which of the following is true?

    <p>Total assets of the entity increase by P30,000</p> Signup and view all the answers

    What is the total amount of Agase, Capital and Agase, Drawing combined?

    <p>P2,100,000</p> Signup and view all the answers

    If assets decreased by P10,000 and equity increased by P2,000, how did liabilities change?

    <p>Decreased by P8,000</p> Signup and view all the answers

    Which transaction will NOT increase the total assets of a business?

    <p>Selling inventory</p> Signup and view all the answers

    What is the balance of Equipment after posting?

    <p>P1,000,000</p> Signup and view all the answers

    Which of the following accounts is not a liability?

    <p>Utilities Expense</p> Signup and view all the answers

    What happens to equity if assets increase by P30,000 while liabilities decrease by P8,000?

    <p>Increases by P22,000</p> Signup and view all the answers

    Which of the following statements about the double-entry system is incorrect?

    <p>It only applies to asset accounts</p> Signup and view all the answers

    Which industry transforms goods into new products?

    <p>Manufacturing Industry</p> Signup and view all the answers

    Which of the following actions will decrease total liabilities of a firm?

    <p>Paying off a loan</p> Signup and view all the answers

    What is the effect on accounts payable when purchasing equipment for $300,000 on credit?

    <p>Accounts payable is credited</p> Signup and view all the answers

    When land is purchased for $700,000 and half is paid in cash, how is cash recorded in the journal entry?

    <p>Cash is credited</p> Signup and view all the answers

    If an account receivable decreases by $250,000 due to cash receipt, what is the correct journal entry for this transaction?

    <p>Debit cash, credit accounts receivable</p> Signup and view all the answers

    What is the primary purpose of a trial balance?

    <p>To reduce the risk of error to zero</p> Signup and view all the answers

    What accounts are affected when recording a rent revenue of $500,000 for January despite no cash payment?

    <p>Debit to accounts receivable and credit to rent revenue</p> Signup and view all the answers

    What entry is made when a liability amounting to $300,000 is paid off?

    <p>Credit cash and debit accounts payable</p> Signup and view all the answers

    What conclusion can be drawn if the trial balance is balanced?

    <p>Errors are possible but not confirmed</p> Signup and view all the answers

    In the context of normal account balances, which account increases with a debit entry?

    <p>Inventory</p> Signup and view all the answers

    Which of the following might indicate a transposition error when examining an imbalance trial balance?

    <p>If the discrepancy is divisible by 9</p> Signup and view all the answers

    What is the initial step that follows the preparation of an Unadjusted trial balance?

    <p>Making necessary adjustments</p> Signup and view all the answers

    What type of account is affected by recording an increase in equipment, given the normal balance concept?

    <p>Asset account</p> Signup and view all the answers

    What is the function of reclassifying entries?

    <p>To correct an error in account classification</p> Signup and view all the answers

    If a transaction involves a credit to accounts payable, which of the following is true?

    <p>A liability is being increased</p> Signup and view all the answers

    Which of the following accounts would be classified as liabilities in the trial balance?

    <p>Accounts Payable</p> Signup and view all the answers

    How would you categorize 'Accumulated Depreciation' in the trial balance?

    <p>A contra asset</p> Signup and view all the answers

    What does a discrepancy in a trial balance conclusively indicate?

    <p>Presence of an error</p> Signup and view all the answers

    What happens to the subsequent entries after the first adjusting entry regardless of the method used?

    <p>They will be the same for any method used.</p> Signup and view all the answers

    Why does the Income method closely resemble the Liability method after adjustments?

    <p>The Income method becomes like the Liability method after recognizing a liability.</p> Signup and view all the answers

    What is the recognized income amount during the year 2022 based on the provided computation?

    <p>$900,000</p> Signup and view all the answers

    Which of the following best describes the nature of income when considering its balance from previous years?

    <p>It is always a nominal account.</p> Signup and view all the answers

    What initial recorded income amount is indicated for the year 2022?

    <p>$900,000</p> Signup and view all the answers

    What is the monthly income recognized based on the computations provided?

    <p>$100,000</p> Signup and view all the answers

    What is the key factor for the Standard of Accounting in regards to prepayments?

    <p>Flexibility in recording methods.</p> Signup and view all the answers

    What occurs to the balance of income from 2021 in the computations for 2022?

    <p>It does not affect the computation for 2022.</p> Signup and view all the answers

    When is the first adjusting entry relevant in the income recording process?

    <p>After recognizing the initial income.</p> Signup and view all the answers

    How does adjusting entries affect the initial recorded amount of income?

    <p>They reset the account balance.</p> Signup and view all the answers

    Study Notes

    Table of Contents

    • Topic 1: Accounting Equation and Double-entry System
      • Recognition and Derecognition principles (page 1)
      • Elements of Financial Statements (page 2)
      • Exercises: Accounting Equation and Double-entry System (page 9)
    • Topic 2: Accounting Cycle of Service Entity
      • Analyzing Transactions (page 12)
      • Exercises: Analyzing Transaction (page 14)
      • Journalizing transactions (page 15)
      • Posting or Accumulating (page 18)
      • Exercises: Journalizing and Posting (page 20)
      • Preparation of Unadjusted trial balance (page 23)
      • LOCATING ERRORS IN THE TRIAL BALANCE (page 24)
      • Exercises: Unadjusted Trial Balance (page 26)
      • Preparation of Adjustments (page 29)
      • ADJUSTING ENTRIES FOR ACCRUALS (page 30)
      • ADJUSTING ENTRIES FOR DEFERRALS (page 33)
      • Exercises: Adjustments (page 44)
      • Preparation of Financial Statements / Adjusted Trial Balance (page 48)
      • The WORKSHEET (page 48)
      • Exercises: Worksheet (page 53)
      • Components of Financial Statements (page 55)
      • Exercises: Statement of Cashflow (page 62)
      • Closing Entries (page 64)
      • Exercises: Closing Entries (page 67)
      • Post-closing trial balance (page 68)
      • Reversing Entries (page 68)
      • Key to Correction: Accounting Equation and Double-entry System (page 69)
      • Key to correction: Analyzing Transaction (page 71)
      • Key to Correction: Journalizing and Posting (page 72)
      • Key to correction: Unadjusted Trial Balance (page 76)
      • Key to correction: Adjustments (page 78)
      • Key to Correction: Worksheet (page 89)
      • Key to correction: Statement of cashflows (page 91)

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    Description

    This quiz focuses on the essential components and stages of the accounting cycle specifically for service entities. It includes questions on adjusting entries, trial balances, financial statements, and key accounting principles. Test your understanding of how these elements interact within the accounting process.

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