Podcast
Questions and Answers
What happens to a company's acid-test ratio when it purchases 7-month US T-bills for cash?
What happens to a company's acid-test ratio when it purchases 7-month US T-bills for cash?
- It becomes negative.
- It remains unchanged.
- It decreases.
- It increases. (correct)
Which of the following documents is equivalent to a balance sheet?
Which of the following documents is equivalent to a balance sheet?
- Income statement
- Adjusted trial balance
- Cash flow statement
- None of the above (correct)
Most accounts in the income statement are classified as which type of accounts at the end of an accounting cycle?
Most accounts in the income statement are classified as which type of accounts at the end of an accounting cycle?
- Permanent accounts
- Equity accounts
- Current accounts
- Temporary accounts (correct)
Which characteristic is part of the conceptual framework's qualitative aspect of faithful representation?
Which characteristic is part of the conceptual framework's qualitative aspect of faithful representation?
Which of the following is included under the concept of relevance in the conceptual framework?
Which of the following is included under the concept of relevance in the conceptual framework?
Identify an asset that is not expected to be turned into cash within one year.
Identify an asset that is not expected to be turned into cash within one year.
Which of the following would typically not require an adjusting entry?
Which of the following would typically not require an adjusting entry?
What type of account is rent collected in advance categorized as?
What type of account is rent collected in advance categorized as?
What is the total amount recorded as insurance expense for the options provided?
What is the total amount recorded as insurance expense for the options provided?
Which of the following changes in the accounting profession did NOT occur in the last 20 years?
Which of the following changes in the accounting profession did NOT occur in the last 20 years?
What type of transaction do gains stem from?
What type of transaction do gains stem from?
How much will New Shoes report in its ending balance sheet as current liabilities?
How much will New Shoes report in its ending balance sheet as current liabilities?
Which of the following represents a typical liability classification for warranty claims?
Which of the following represents a typical liability classification for warranty claims?
What is the liability amount New Shoes will report as its long-term liabilities after considering the note payable?
What is the liability amount New Shoes will report as its long-term liabilities after considering the note payable?
What is the total value of prepaid insurance recorded in the options provided?
What is the total value of prepaid insurance recorded in the options provided?
Which of the following is NOT a type of expense recorded by New Shoes in the year-end financial overview?
Which of the following is NOT a type of expense recorded by New Shoes in the year-end financial overview?
Which of the following is NOT an example of an internal transaction?
Which of the following is NOT an example of an internal transaction?
In a perpetual inventory system, what will the COGS and inventory amounts be after a sale of inventory costing $500 for $880?
In a perpetual inventory system, what will the COGS and inventory amounts be after a sale of inventory costing $500 for $880?
Which of the following would NOT be considered a permanent account?
Which of the following would NOT be considered a permanent account?
What action should Green Energy Inc. take in response to potential changes in Federal subsidies?
What action should Green Energy Inc. take in response to potential changes in Federal subsidies?
What is the primary purpose of the Management Discussion and Analysis (MD&A) section in the annual report?
What is the primary purpose of the Management Discussion and Analysis (MD&A) section in the annual report?
If a company purchases inventory with cash, which financial ratio is most likely to change?
If a company purchases inventory with cash, which financial ratio is most likely to change?
What is the most important objective of financial reporting?
What is the most important objective of financial reporting?
Which of the following options correctly reflects the impact of paying the CEO salary on financial accounts?
Which of the following options correctly reflects the impact of paying the CEO salary on financial accounts?
What is the role of disclosure notes in a company's financial statements?
What is the role of disclosure notes in a company's financial statements?
What does comprehensive income represent?
What does comprehensive income represent?
How should a company record a purchase order that it has received but not yet fulfilled?
How should a company record a purchase order that it has received but not yet fulfilled?
What is the prepaid insurance balance for Trek NV at the end of their first year?
What is the prepaid insurance balance for Trek NV at the end of their first year?
What account should be debited when Dakota Inc. purchases furniture on account for $4,000?
What account should be debited when Dakota Inc. purchases furniture on account for $4,000?
What happens to the debt to equity ratio when a company issues common stock?
What happens to the debt to equity ratio when a company issues common stock?
What is the wage expense for Pizza City during the year?
What is the wage expense for Pizza City during the year?
Why are adjusting entries necessary in accounting?
Why are adjusting entries necessary in accounting?
What amount is Mark expecting to lose in litigation?
What amount is Mark expecting to lose in litigation?
Which adjusting entry reflects the recognition of revenue that was previously deferred?
Which adjusting entry reflects the recognition of revenue that was previously deferred?
Which account represents an expense related to legal proceedings?
Which account represents an expense related to legal proceedings?
In the context of adjusting entries, what is the significance of the entry debiting Supplies and crediting Supplies expense?
In the context of adjusting entries, what is the significance of the entry debiting Supplies and crediting Supplies expense?
What type of account is 'Wages payable' categorized as?
What type of account is 'Wages payable' categorized as?
Study Notes
Internal Transactions and Accounting
- Internal transactions do not include paying a CEO's salary; these are external transactions.
- Writing off uncollectible accounts, recording prepaid insurance expiration, and adjusting supplies accounts are considered internal transactions.
- Permanent accounts do not include cost of goods sold, as they are temporary accounts closed at year-end.
Inventory and Cost of Goods Sold
- Under a perpetual inventory system, COGS is increased by the cost of inventory sold ($500) and inventory is decreased by the same amount.
- ABC Inc. sold inventory for $880, but the cost of goods sold is not impacted by sales price.
Financial Reporting Considerations
- Green Energy Inc. should have an independent valuation firm assess firm value if reliant on federal subsidies amidst political uncertainty.
- The Management Discussion and Analysis (MD&A) section mitigates information asymmetry, allowing management to communicate insights beyond standard accounting.
Ratios and Financial Metrics
- A company purchasing inventory with cash results in a decrease in quick ratio, as quick assets are reduced.
- Current ratio remains unaffected by this transaction since both current assets and current liabilities remain unchanged.
Relevance of Financial Reporting
- The primary goal of financial reporting is to provide useful decision-making information.
- Confirmatory value, completeness, and neutrality are components of relevance in the conceptual framework alongside predictive value.
Asset Classification and Adjustments
- An asset expected to be held longer than a year is a copyright, while inventory and supplies are typically short-term assets.
- Adjusting entries include prepaid expenses and unearned revenue, impacting income statement and balance sheet accounts.
Disclosure and Comprehensive Income
- Disclosure notes are integral to financial statements, providing essential, relevant information required by accounting standards.
- Comprehensive income encompasses net change in equity from all non-owner transactions, expanding beyond just net income.
Transaction Recording
- Deferred revenue is credited when a purchase order is received without immediate fulfillment, reflecting liability.
- Prepaid insurance at year-end involves calculating expense based on policy duration and recognizing the appropriate amount as a prepaid asset.
Organizational Changes in Accounting
- Significant changes in the accounting profession include movements toward principle-based GAAP, audit reforms from Sarbanes-Oxley, and the codification of US GAAP.
- Notably, the SEC has retained its authority over GAAP rather than handing it off to the private sector.
Wage Expense Determination
- Wage expense for the year reflects changes in payable accounts and cash wages paid, calculated from starting and ending balances of wages payable.
Importance of Adjusting Entries
- Adjusting entries are crucial for up-to-date account balances prior to financial statements preparation, encompassing prepaid expenses, deferred revenues, and liabilities.
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Description
Test your knowledge of internal transactions and inventory accounting principles with this quiz. Questions cover topics such as adjusting entries and cost of goods sold in a perpetual inventory system. Challenge yourself to see how well you understand these key accounting concepts.
