ACCT207 Chapter 4 Flashcards

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Questions and Answers

What is the periodicity assumption?

Companies should recognize revenue in the accounting period in which services are performed.

The economic life of a business can be divided into artificial time periods. (correct)

Companies should match expenses with revenues.

The fiscal year should correspond with the calendar year.

Which principle dictates that efforts (expenses) be recorded with accomplishments (revenues)?

Expense recognition principle. (correct)

Revenue recognition principle.

Historical cost principle.

Periodicity principle.

Which one of these statements about the accrual basis of accounting is false?

Companies record revenue only when they receive cash and record expense only when they pay out cash. (correct)

Companies record events that change their financial statements in the period in which events occur, even if cash was not exchanged.

This basis is in accordance with generally accepted accounting principles.

Companies recognize revenue in the period in which the performance obligation is satisfied.

Adjusting entries are made to ensure that:

All of the above. Signup and view all the answers

Each of the following is a major type (or category) of adjusting entry except:

Unearned expenses. Signup and view all the answers

The trial balance shows Supplies $1,350 and Supplies Expense $0. If $600 of supplies are on hand at the end of the period, the adjusting entry is:

Debit Supplies Expense 750, Credit Supplies 750 Signup and view all the answers

Adjustments for unearned revenues:

Decrease liabilities and increase revenues. Signup and view all the answers

Adjustments for prepaid expenses:

Decrease assets and increase expenses. Signup and view all the answers

Queenan Company computes depreciation on delivery equipment at $1,000 for the month of June. The adjusting entry to record this depreciation is as follows:

DEBIT Depreciation Expense 1,000, CREDIT Accumulated Depreciation— Equipment 1,000 Signup and view all the answers

Adjustments for accrued revenues:

Increase assets and increase revenues. Signup and view all the answers

Colleen Mooney earned a salary of $400 for the last week of September. She will be paid on October 1. The adjusting entry for Colleen's employer at September 30 is:

DEBIT Salaries and Wages Expense 400, CREDIT Salaries and Wages Payable 400 Signup and view all the answers

Which statement is incorrect concerning the adjusted trial balance?

The adjusted trial balance does not list temporary accounts. Signup and view all the answers

Which account will have a zero balance after a company has journalized and posted closing entries?

Service Revenue. Signup and view all the answers

Which types of accounts will appear in the post-closing trial balance?

Permanent accounts. Signup and view all the answers

All of the following are required steps in the accounting cycle except:

Prepare financial statements from the unadjusted trial balance. Signup and view all the answers

Study Notes

Periodicity Assumption

Defines that the economic life of a business can be divided into artificial time periods.
Related concepts: revenue recognition principle (when services are performed) and expense recognition principle (matching expenses with revenues).

Expense Recognition Principle

States that expenses must be matched with the revenues they help to generate in the same period.
Important for accurate reflection of financial performance.

Accrual Basis of Accounting

Revenue is recognized when earned, regardless of cash exchange.
True statements include recognizing revenue once performance obligations are met.

Adjusting Entries

Made to ensure accurate recognition of expenses and revenues in the correct accounting period.
Correct adjustments confirm that financial statement accounts reflect true balances.

Major Types of Adjusting Entries

Prepaid expenses, accrued revenues, and accrued expenses are key categories.
Unearned expenses are not considered a major adjusting entry type.

Supplies Adjustment

If supplies on hand are less than recorded, the adjustment involves debiting Supplies Expense and crediting Supplies.

Unearned Revenues

Adjustment decreases liabilities and increases revenues, reflecting services or goods received before payment is made.

Prepaid Expenses

Adjustments decrease assets while increasing expenses to align with usage over time.

Depreciation Adjustment

Depreciation for assets must be recorded through specific journal entries, affecting both expense and accumulated depreciation accounts.

Accrued Revenues

Adjustments for accrued revenues increase both asset accounts and revenue accounts, acknowledging earnings that have not yet been received in cash.

Salaries and Wages Adjustment

An adjusting entry is necessary for salaries earned but not yet paid, affecting expense and payable accounts.

Adjusted Trial Balance

Confirms the equality of total debits and credits after all adjustments; provides groundwork for preparing financial statements.
Lists both temporary and permanent accounts.

Closing Entries

Service Revenue will reflect zero balance post-closing entries, while assets and permanent accounts like Supplies and Prepaid Insurance retain their balances.

Post-Closing Trial Balance

Comprises only permanent accounts, which are not closed at the end of the accounting period.

Steps in the Accounting Cycle

Key actions include journalizing closing entries, preparing adjusted and post-closing trial balances, and generating financial statements from the adjusted trial balance. Unadjusted trial balance is not used for financial statement preparation.

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Description

Test your knowledge on the periodicity assumption and other key concepts from ACCT207 Chapter 4. These flashcards will help you reinforce your understanding of accounting principles related to time periods and financial reporting. Perfect for exam preparation!