Exam 2: Accounting for Accruals and Deferrals

Asset use transactions always involve the payment of cash.

Classify each of the following transactions for the purpose of the statement of cash flows as operating activities (OA), investing activities (IA), financing activities (FA), or not reported on the statement of cash flows (NA). 1) _____ Made adjusting entry to accrue salary expense at the end of the year 2) _____ Borrowed funds from the bank 3) _____ Paid rent for the month 4) _____ Paid cash to settle accounts payable 5) _____ Issued common stock for $30,000 cash 6) _____ Collected accounts receivable 7) _____ Paid cash to acquire land

After closing, only balance sheet accounts have non-zero balances.

What does the balance in accounts receivable represent?

Policies and procedures designed to reduce the opportunities for fraud are often called:

At the end of the accounting period, Stewart Co. recognized accrued salaries.

Explain the meaning of the term, "matching concept."

In the closing process, the amounts in temporary accounts are moved to retained earnings, a permanent account.

Companies that use accrual accounting recognize revenues and expenses at the time that cash is paid or received.

Jack Grimes started a consulting business, Grimes Consulting, on January 1, 2013 by issuing $7,000 of common stock. In addition, the following events occurred in 2013. Provided services on account, $25,500. Paid cash for $11,500 in operating expenses. Collected $9,000 of the revenue that was previously recorded on account. Paid a cash dividend of $4,000 to the stockholders. Required: a) Show the effects of the above transactions on the accounting equation. b) Prepare an income statement and statement of cash flows for 2013.

An adjusting entry that decreases unearned revenue and increases service revenue is a claims exchange transaction.