Accounting Principles Quiz
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Questions and Answers

What is the primary distinction between prepayments and accruals in accounting?

  • Prepayments record expenses before cash payment, while accruals record revenues after cash receipt.
  • Prepayments defer expenses or revenues, while accruals recognize expenses or revenues before cash transactions. (correct)
  • Prepayments involve recording cash before expenses, while accruals require cash settlements after revenues.
  • Prepayments occur after revenue is earned, while accruals define expenses that are paid later.

Which of the following is NOT a category of adjusting entry?

  • Estimated liabilities (correct)
  • Prepaid expenses
  • Accrued expenses
  • Unearned revenues

What do accrued revenues represent?

  • Revenue received before it is earned.
  • Revenue earned after cash has been paid.
  • Revenue that has been earned but not yet received in cash. (correct)
  • Revenue that has not yet been recognized, regardless of cash receipt.

How do prepaid expenses generally affect financial reporting?

<p>They postpone the recognition of an expense to future periods. (D)</p> Signup and view all the answers

Which category of adjusting entry involves the gradual reduction of asset value over time?

<p>Depreciation of non-current assets (C)</p> Signup and view all the answers

What defines an unadjusted trial balance?

<p>It omits various transactions. (B)</p> Signup and view all the answers

What is the primary reason for making adjusting entries?

<p>To assign revenues and expenses to the correct period. (C)</p> Signup and view all the answers

Which asset account is specifically mentioned as needing adjustment due to usage?

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

Which of the following is NOT a characteristic of adjusting entries?

<p>They must include cash transactions. (A)</p> Signup and view all the answers

Which type of balance measurement is impacted by making adjustments?

<p>Profit or loss in the income statement. (B)</p> Signup and view all the answers

What action should be taken when an account has accrued or prepaid amounts?

<p>Journalise the stated amount to the specific account. (D)</p> Signup and view all the answers

What does the end-of-period process of adjusting accounts ensure?

<p>Financial statements reflect accurate asset and liability balances. (C)</p> Signup and view all the answers

What is likely true about the supplies account as discussed in the context?

<p>A portion of the supplies must be accounted for as an expense. (C)</p> Signup and view all the answers

What is the total amount of assets listed in the unadjusted trial balance?

<p>$79,000 (A)</p> Signup and view all the answers

Which type of account does 'Accounts payable' represent?

<p>Liability (C)</p> Signup and view all the answers

How much is Sheena Bright's capital at the beginning?

<p>$33,200 (B)</p> Signup and view all the answers

What is the balance for 'Service revenue' in the unadjusted trial balance?

<p>$7,000 (C)</p> Signup and view all the answers

Which of the following represents a non-current asset?

<p>Furniture (C)</p> Signup and view all the answers

What is the combined total of 'Salary expense' and 'Electricity and gas expense'?

<p>$1,800 (A)</p> Signup and view all the answers

Which of the following accounts is not affected by the depreciation of assets?

<p>Prepaid rent (C)</p> Signup and view all the answers

What is the amount of unearned service revenue in the unadjusted trial balance?

<p>$600 (D)</p> Signup and view all the answers

What is the closing balance for accounts receivable?

<p>2,600 (C)</p> Signup and view all the answers

What is the total amount for owners' equity as represented by Sheena Bright's capital and drawings?

<p>34,200 (A)</p> Signup and view all the answers

How much was deducted from the supplies account due to an adjusted entry?

<p>100 (C)</p> Signup and view all the answers

What is the closing balance for accumulated depreciation on the furniture?

<p>300 (A)</p> Signup and view all the answers

What was the beginning balance for loans payable?

<p>20,000 (A)</p> Signup and view all the answers

Which account had a closing balance of 400 after adjusting entries?

<p>Unearned service revenue (B)</p> Signup and view all the answers

What is the opening balance for cash?

<p>4,800 (A)</p> Signup and view all the answers

How much was added to accounts payable in the ledgers?

<p>900 (D)</p> Signup and view all the answers

What is created when a business collects cash from customers in advance of performing work?

<p>Unearned revenue (C)</p> Signup and view all the answers

What does unearned revenue represent for a business?

<p>Cash paid but not yet earned (D)</p> Signup and view all the answers

Which entry is made when cash is collected for unearned revenue?

<p>Cash (A+) increases and Unearned Service Revenue (L+) increases (A)</p> Signup and view all the answers

What does a business owe when it has unearned revenue?

<p>Products or services to the customer (C)</p> Signup and view all the answers

What happens to unearned service revenue once the service is completed?

<p>It is recognized as revenue (B)</p> Signup and view all the answers

Why are unearned revenues also referred to as deferred revenues?

<p>They are delayed revenues until the service is provided (A)</p> Signup and view all the answers

What might be an indicator of unethical practices related to journal entries?

<p>Inaccurate invoices and contracts (D)</p> Signup and view all the answers

When recording unearned revenue, what effect does the transaction have on the accounting equation?

<p>Assets increase and liabilities increase (D)</p> Signup and view all the answers

What type of account is Accumulated depreciation—furniture?

<p>Contra asset account (D)</p> Signup and view all the answers

How does Accumulated depreciation—furniture affect the balance sheet?

<p>It is subtracted from the furniture account (A)</p> Signup and view all the answers

What does the net amount of furniture represent?

<p>Total cost of furniture minus accumulated depreciation (A)</p> Signup and view all the answers

If the accumulated depreciation—furniture expense is $300, what would be the new balance in Accumulated depreciation—furniture?

<p>$300 (C)</p> Signup and view all the answers

Which accounts appear on the balance sheet related to furniture?

<p>Furniture and Accumulated depreciation—furniture (D)</p> Signup and view all the answers

If the original cost of the furniture was $18,000, what would be the carrying value after accounting for $300 in accumulated depreciation?

<p>$17,700 (B)</p> Signup and view all the answers

What does the abbreviation 'Bal' stand for in the account balances?

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

In what section of the balance sheet would accumulated depreciation—furniture be reported?

<p>Non-current assets (B)</p> Signup and view all the answers

Flashcards

Opening balance of Cash

The initial amount of cash on hand at the start of a specific period, typically recorded as a debit in the ledger.

Accounts Receivable

Amounts owed to a company by its customers for goods or services already delivered but not yet paid for.

Supplies

Goods, such as office supplies or materials, used in the day-to-day running of a business.

Prepaid Rent

Rent paid in advance for a period exceeding one accounting period.

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Accounts Payable

Amounts owed by a company to its suppliers for goods or services received but not yet paid for.

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Salary Payable

Amounts owed to employees for their wages or salaries.

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Sheena Bright, Capital

The owner's stake or investment in the business.

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Sheena Bright, Drawings

The owner's personal withdrawals from the business.

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Unadjusted Trial Balance

A trial balance that has not been adjusted for accrual accounting purposes at the end of an accounting period.

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Adjusting Entries

Journal entries made at the end of an accounting period to update accounts and correctly reflect revenues and expenses.

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Accrual Accounting

An accounting method that records revenues when earned and expenses when incurred, regardless of when cash is exchanged.

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Adjustments

The end-of-period process of making adjusting entries to properly measure profit/loss and balance sheet accounts.

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Supplies Account

An asset account that tracks the amount of supplies on hand.

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Adjusting Entries - Cash

Adjusting entries never involve the Cash account.

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Adjusting Entries - Revenue/Expense

Adjusting entries either increase revenue or increase expense.

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Accrued/Prepaid Amounts

Adjusting entries based on accrued or prepaid amounts should reflect the stated amount in the adjusting entry itself.

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Prepaid Adjustments

Cash payment occurs before an expense or cash receipt before revenue.

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Accrual Adjustments

Recognize expense before payment, or revenue before receipt.

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Adjusting Entries

Entries made at the end of an accounting period to update accounts.

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Prepaid Expenses

Expenses paid in advance, recognized later.

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Accrued Expenses

Expenses recognized before payment.

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Unadjusted Trial Balance

A summary of all the account balances before any adjustments are made.

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Account Balances

The amounts in each account, showing either a debit or a credit.

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Debit

An accounting entry that increases asset and expense or decreases liability and equity accounts.

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Credit

An accounting entry that increases liability, owner's equity, and revenue accounts or decreases asset and expense accounts.

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30 June 2021

Date of the unadjusted trial balance.

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Property, Plant and Equipment

Long-term tangible assets used in operations.

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Cash

Money the company has on hand or in bank accounts.

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Accounts Receivable

Money owed to the company by its customers for goods or services.

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Unearned Revenue

A liability created when cash is received before services are performed.

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Deferred Revenue

Another name for unearned revenue, highlighting the delay in earning the revenue.

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Journal Entry

A record of a financial transaction.

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Supporting Documents

Evidence to justify journal entries, such as invoices and contracts.

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Unethical Accounting Schemes

Deceptive methods to manipulate financial statements.

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Liability Account

An account that shows what a company owes to others.

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Cash Receipt

Money received by a business.

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E-learning Services

Digital educational courses or programs.

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Accumulated Depreciation

A contra-asset account that represents the total depreciation expense accumulated over the life of an asset.

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Contra-asset account

An account that reduces the value of a related asset account on the balance sheet.

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Depreciation Expense

The systematic allocation of the cost of a tangible asset over its useful life.

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Carrying Value (Book Value)

The net book value of an asset, calculated by subtracting accumulated depreciation from the original cost.

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Furniture Account

An asset account that records the cost of furniture.

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Balance Sheet Reporting

Financial statement that presents a snapshot of a company's assets, liabilities, and equity at a specific point in time.

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Depreciation Expense Account

Expense account that records the depreciation expense for an asset on an income statement.

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Asset Account

An account that records a company's possessions or resources.

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Study Notes

Accrual vs. Cash-basis Accounting

  • Accrual accounting records the impact of each transaction as it occurs.
  • Cash-basis accounting only records cash receipts and cash payments.
  • Most businesses use the accrual method.

Adjusting Entries

  • Adjusting entries are used to ensure financial statements accurately reflect the period's activities.
  • Adjusting entries never involve the Cash account.
  • Adjusting entries either increase revenue (credit) or increase expenses (debit).
  • Prepayments, or deferrals, involve cash payments or receipts before recognizing revenue or expense.
    • Example: Prepaid rent
  • Accrued expenses occur when an expense is incurred before cash payment is made
    • Example: Salaries
  • Accrued revenues occur when revenue is earned before cash is received
    • Example: Performing services but not yet receiving payment
  • Unearned revenues reflect cash received before a service or product is delivered or earned.

Adjusting Entry Types

  • Prepaid expenses
  • Depreciation of Non-current Assets
  • Accrued Expenses
  • Accrued Revenues
  • Unearned Revenues

Depreciation

  • Depreciation is the allocation of the cost of a non-current asset over its useful life.
  • Accumulated depreciation is a contra-asset account (opposite balance to asset).
  • Depreciation expense increases the expense account and decreases accumulated depreciation

Trial Balance

  • A trial balance lists all accounts with their debit and credit balances to ensure debits and credits are equal.
  • An unadjusted trial balance is created before adjusting entries are performed.
  • An adjusted trial balance is created after adjusting entries are performed.

Financial Statements

  • Balance sheet
  • Income statement
  • Owners' equity statement

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Related Documents

Chapter 3 Textbook - Accrual vs. Cash Accounting PDF

Description

Test your knowledge on key accounting principles, including accrual vs. cash-basis accounting and the importance of adjusting entries. This quiz covers different types of adjusting entries and their impact on financial statements.

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