Exam 3: Accrual Accounting Concepts

Under the cash basis of accounting, expenses are recorded when paid.

X&Y Co. received $4,000 in payments from clients for services billed in a previous month. What effect does this transaction have on the accounts under the accrual basis of accounting?

Describe the end-of-the-period adjustment process. Why is it necessary?

When an entry is made to adjust the supplies account and recognize supplies expense for the period, which section of the statement of cash flows is affected?

Which transaction would be recorded in a cash basis system of accounting?

Refer to Coke's balance sheet. Does it appear that Coke uses the cash or accrual basis of accounting?

Cash and other assets that are expected to be converted to cash or sold or used up within one year or less through the normal operations of the business are called:

As time passes, fixed assets, other than land, lose their capacity to provide useful services. To account for this decrease in usefulness, the cost of fixed assets is systematically allocated to expense through a process called:

The financial statements are affected by which type(s) of adjustments?

The matching concept requires expenses to be recorded in the same period that the related revenue is recorded.

It is easy to objectively determine the physical decline in the ability of fixed assets to provide service.

Identify the type of adjustment necessary (the type of item involved) and record the transaction for the event. Make sure to include the ending balances after adjustment. On June 1, Tasty Sausage Corp. borrowed $25,000 from the bank by signing a promissory note from the bank, with 8% interest. The note is due in three months. Interest for June has been incurred but not yet recorded. The interest to accrue for June is $175. The June 30 adjustment is:

The net income reported on the income statement for the current year was $310,000. Depreciation recorded on fixed assets and amortization of patents for the year were $40,000 and $9,000, respectively. Balances of current asset and current liability accounts at the end and at the beginning of the year are as follows: Beginning End \ 60,000 \ 50,000 Cash 108,000 112,000 Accounts receivable 93,000 105,000 Inventories 6,500 4,500 Prepaid expenses 89,000 75,000 Accounts payable (merchandise creditors) What is the amount of cash flows from operating activities reported on the statement of cash flows prepared by the indirect method?

Depreciation on factory equipment would be reported in the statement of cash flows prepared by the indirect method in:

Accrued expenses are expenses that have been incurred and paid.

Flyer Co. billed a client for flying lessons given in January. The payment was received in February. Under the accrual basis of accounting, when should Flyer Co. record the revenue?

Using accrual accounting, expenses are recorded and reported only:

When an adjusting entry is made to record insurance expense and reduce the prepaid insurance account, which section of the statement of cash flows is affected?

Which of the following is not reported as revenue on the income statement?

Donald Duck Co. Donald Duck Co. has a five-day workweek (Monday through Friday). Employees earn $500 per day. Refer to Donald Duck Co. If the month ends on Tuesday, and wages will not be paid until Friday, how much wage expense should be accrued on Tuesday?