Exam 2: Accounting for Accruals and Deferrals

Indicate whether each of the following statements about the closing process and the accounting cycle is true or false. _____ a) The closing process transfers certain account balances to retained earnings at the end of the accounting cycle. _____ b) Only accounts that appear on the income statement are closed at the end of each accounting cycle. _____ c) Another name for permanent accounts is "nominal accounts." _____ d) The permanent accounts contain information that is cumulative in nature. _____ e) The retained earnings balance at the end of any given year is equal to that year's net income.

The purpose of the accrual basis of accounting is to:

Houston Company began business operations and experienced the following transactions during 2013: 1) Issued common stock for $20,000 cash. 2) Provided services to customers for $50,000 on account. 3) Purchased $1,000 of supplies on account. 4) Paid $12,000 cash to rent office space for a 12-month period beginning July 1. 5) Collected $46,000 cash from customers. 6) Paid cash for $36,000 of operating expenses. 7) Adjusted the accounting records to reflect that there was $300 of supplies remaining on hand at year-end. 8) Recorded an end-of-year adjustment to recognize rent expense. Required: a) Record the above transactions on a horizontal statements model, reflecting their effect on the different financial statements. b) Prepare Houston Company's income statement, balance sheet and statement of cash flows for the year ended December 31, 2013.

Which of the following statements is true in regard to accrual accounting?

In uncertain circumstances, the conservatism principle guides accountants to

When is revenue recognized under accrual accounting?

When are expenses recognized under accrual accounting in relation to the payment of cash?

Earning revenue on account would be classified as a/an:

The collection of an account receivable is a claims exchange transaction.

The results of the matching process are best reported on which financial statement?

Regarding the effects of end-of-period adjustments, state whether each of the following statements is true or false. _____ a) Recording the usage of supplies involves a decrease in assets and a decrease in equity. _____ b) The accrual of salaries is considered a claims exchange transaction. _____ c) Recording services performed on a prepaid contract involves a decrease in liabilities and an increase in assets. _____ d) End of period adjustments never affect cash flows. _____ e) Failure to record accrued salaries at the end of the year will cause reported income to be higher than it should have been.

Gonzales Company collected $18,000 on September 1, 2013 from a customer for services to be provided over a one-year period beginning on that date. How much revenue would Gonzales Company report related to this contract on its income statement for the year ended December 31, 2013? How much would it report as cash flows from operating activities for 2013?

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. Increase = Decrease = No Effect = At the end of the accounting period, Stewart Co. recognized accrued salaries. Assets Liabilities Equity Revenues Expenses Net Income Cash

Thiessen Company started its business by issuing $7,000 of common stock on January 1, 2013. The company performed $18,000 of service for customers on account in 2013. It collected $12,500 of this amount in 2013, recorded expenses on account of $14,500, paid $11,000 of the payables owed, and paid a $300 dividend to the stockholders. Required: a) What is the amount of total assets at the end of 2013? b) What is the amount of cash on hand at the end of 2013? c) What is the net income for 2013? d) Prepare a balance sheet for 2013.

Which of the following is an asset exchange transaction?

Sometimes the recognition of revenue is accompanied by an increase in liabilities.

Which of the following accounts is not closed at the end of an accounting cycle?

The effects of transactions occurring during 2013 and their related end-of-year adjustments have been recorded below using the accounting equation. Required: With your knowledge of transaction analysis using an accounting equation, a) Prepare an income statement for 2013, and b) Prepare a statement of cash flows for 2013.

The following accounts and balances were drawn from the records of Hoover Company on December 31, 2013: Total assets on the December 31, 2013 balance sheet would amount to:

Which of the following accounts would not appear on a balance sheet?