Cash Basis Accounting and Financial Statements

What is the system of preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid called?

Financial statements are typically prepared in the following order: What is the correct sequence?

What do adjusting entries affect?

What is a classified balance sheet?

Which of the following accounts would not be impacted by adjusting journal entries?

What is the entry to close the dividend account at the end of the year for Awn Services which paid a dividend of $8,700?

Which of the following accounts would be closed at the end of the accounting period?

What is the adjusting entry to record the earned but unpaid salaries of employees at the end of an accounting period?

Which of the following statements regarding financial statement preparation is false?

What is the end-of-period adjusting entry to record the portion of unearned legal fees that have been earned?

Cash Basis Accounting

Recognizes revenues when cash is received and expenses when cash is paid.
Used primarily by small businesses and for tax purposes.

Financial Statement Preparation Order

Typically organized as follows: income statement, statement of retained earnings, and balance sheet.
This sequence reflects the flow of financial information.

Adjusting Entries

Necessary for accurate financial reporting, affecting both income statement and balance sheet accounts.
Ensure that all revenues and expenses are recognized in the correct accounting period.

Classified Balance Sheet

Organizes assets and liabilities into important subgroups for clarity.
Common categories include current and non-current assets, as well as current and long-term liabilities.

Impact of Adjusting Journal Entries

Certain accounts, such as cash, are generally not affected by adjusting entries.
Adjusting entries typically involve revenue, expenses, receivables, or payables.

Closing Dividend Account Entry

To close the dividend account, debit retained earnings and credit dividends by the amount paid.
Example transaction: Debit retained earnings $8,700, Credit dividends $8,700.

Accounts Closed at Period-End

Temporary accounts, such as service revenue, are closed at the end of the accounting period.
This process resets the balances for the next accounting period.

Adjusting Entry for Unpaid Salaries

At the end of an accounting period, record earned but unpaid salaries with an adjusting entry.
Example transaction: Debit salaries expense and Credit salaries payable.

False Statement in Financial Statement Preparation

Financial statements are not prepared with the balance sheet first; the income statement is prepared first.
Adjusted trial balances facilitate the preparation of financial statements.

Adjusting Entry for Unearned Legal Fees

Record earned legal fees from advance payments by adjusting unearned legal fees.
Example transaction: Debit unearned legal fees and Credit legal fees earned to reflect the income earned in the period.

This quiz covers essential concepts of cash basis accounting, financial statement preparation, adjusting entries, and classified balance sheets. It provides a comprehensive overview for those studying accounting principles and practices. Understand the importance of adjusting journal entries in financial reporting accurately.