Master the Accrual Method

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Questions and Answers

Based on the information provided, how many lemons are needed to make the batch of lemonade?

  • 20 lemons
  • 80 lemons
  • 50 lemons (correct)
  • 60 lemons

What is the cost of one lemon?

  • 50 cents
  • 40 cents
  • 20 cents (correct)
  • 60 cents

How much did the older sister charge to make 60 glasses of lemonade?

  • $4
  • $3
  • $1 (correct)
  • $2

According to the text, what is the formula for calculating the Cost of Goods Sold (COGS)?

<p>Beginning Inventory + Purchases + Labor - Ending Inventory (C)</p> Signup and view all the answers

Based on the information provided, what was the total amount of purchases made?

<p>$24.00 (B)</p> Signup and view all the answers

From the given information, what was the net profit after taxes?

<p>$15.00 (D)</p> Signup and view all the answers

Which method of accounting is used to fill out the Income Statement?

<p>Accrual Method (B)</p> Signup and view all the answers

What was the cost of production for one batch of lemonade?

<p>$13.00 (D)</p> Signup and view all the answers

What was the total amount of sales for the week?

<p>$30.00 (D)</p> Signup and view all the answers

What was the bad debt expense for the week?

<p>$4.00 (D)</p> Signup and view all the answers

Which financial statement would you record the Bad Debt expense on?

<p>Income Statement (B)</p> Signup and view all the answers

What is the Bad Debt expense?

<p>$4.00 (C)</p> Signup and view all the answers

What is the impact of the Bad Debt expense on earnings?

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

What is the total profit or earnings for the lemonade sale?

<p>$17.00 (B)</p> Signup and view all the answers

What is the purpose of the $2 payment to the banker?

<p>To cover the interest expense (B)</p> Signup and view all the answers

What does the interest expense represent on the Income Statement?

<p>The cost of borrowing the money (C)</p> Signup and view all the answers

What does the $3 payment for the insurance policy represent?

<p>The cost of the policy (C)</p> Signup and view all the answers

Where does the insurance policy show up in the financial statements?

<p>On the Balance Sheet (A)</p> Signup and view all the answers

Which accounting method recognizes sales when they are earned, regardless of when the cash is received?

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

What happens to the value of a prepaid expense as it is used up?

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

What is the impact of an expense on earnings?

<p>It decreases earnings (C)</p> Signup and view all the answers

What is the purpose of the Accrual Method of accounting?

<p>To measure a company's financial position (C)</p> Signup and view all the answers

Which type of inventory is lemonade considered?

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

What kind of inventory was lemonade while it was being made?

<p>Work-in-process (B)</p> Signup and view all the answers

Are the raw materials considered available for sale?

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

What was the total amount of sales for the lemonade?

<p>$30 (C)</p> Signup and view all the answers

Which type of inventory is lemonade considered?

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

What kind of inventory was lemonade while it was being made?

<p>Work-in-process (B)</p> Signup and view all the answers

Are raw materials considered available for sale?

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

What happens to the cost of production labor when it is added to inventory?

<p>It is tied up in inventory until sold (D)</p> Signup and view all the answers

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