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The Accounting Cycle: End of the Period
Chapter 3 – Study Guide
LO 3-1 Understand when revenue and expenses are recorded
Accrual - Basis Accounting Cash-Basis Accounting Definition:
Deferred Revenue (Explained)
Deferred Expenses (Explained)
LO 3-2 Distinguish between accrual-basis and cash-basis accounting
Example 1: More Practice Identifying Differences between Cash and Accrual Basis
Read the transactions and fill in the Cash basis/Accrual basis table. Enter expenses in parentheses or with a negative sign. Enter a “0” if there is nothing to record on a specific date.
Sweet Catering completed the following selected transactions during May 2019:
- May 1: Prepaid rent for three months, $2,
- May 5: Received and paid electricity bill, $
- May 9: Received cash for meals served to customers, $2,
- May 14: Paid cash for kitchen equipment, $2,
- May 23: Served a banquet on account, $2,
- May 31: Made the adjusting entry for rent (May 1).
- May 31: Accrued salary expense, $1,
- May 31: Recorded depreciation for May on kitchen equipment, $
Cash Basis Accrual Basis
Does Generally Accepted Accounting Principles apply to Cash-Basis Accounting or Accrual- Basis Accounting? Explain if so, or not?
Time Period Concept Matching Principle Revenue Recognition Principle Def:
Example:
Example 2 : Match using the Understanding of GAAP Rules Definition Choices Correct Answer
1. Guides accounting for expenses, ensures that all expenses are recorded when they are incurred during the period, and matches those against the revenues of the period.
Cash-Basis Accounting (A)
2. Accounting method that records revenues when earned and expenses when incurred.
Matching Principle (B)
3. Requires companies to record revenue when it has been earned and determines the amount of revenue to record.
Time Period Concept (C)
4. Accounting method that records revenue only when cash is received and expenses only when cash is paid.
Accrual Basis Accounting (D)
5. Assumes that a business’s activities can be sliced into small time segments and that financial statements can be prepared for specific periods, such as month, quarter, or year.
Fiscal Year (E )
6. An accounting year of any consecutive months that may or may not coincide with the calendar year.
Revenue Recognition Principle (F)
LO 3-4 Post adjusting entries and prepare an adjusted trial balance
Accrued Expense Accrued Revenue Def:
Ex:
Example 5:
Using the post-closing trial balance, calculate the total assets, liabilities, and equity, and enter those amounts in the basic accounting equation.
SMART TOUCH LEARNING Post-Closing Trial Balance December 31, 2016
Account Title Credit Debit Cash $30, Accounts Receivable $5, Office Supplies $ Prepaid Insurance $10, Prepaid Rent $10, Furniture $35, Accumulated Depreciation- Furniture
Accounts Payable $16, Salaries Payable $2, Utilities Payable $1, Interest Payable $1, Unearned Revenue $30, Common Stock $7, Retained Earnings $20, Total $92,300 $92,
Assets = Liabilities + Equity
______ = ________ + _____
LO 3-5 Prepare financial statements using the adjusted trial balance
Explain the details of an Income Statement:
Income Statement:
Explain Statement of Equity (Retained Earnings):
Statement of Equity
LO 3-1 Understand when revenues and expenses are recorded
- A customer purchased a drill press on November 14 on account from Sears. The drill press was delivered two weeks later. The customer paid for the drill press on December 5. When should Sears record the revenue for this transaction according to the revenue recognition principle? A. November B. December C. Evenly in each of the two months D. One-third in November and two-thirds in December
LO 3-2 Distinguish between accrual-basis and cash-basis accounting
- The following events pertain to Jasper Corporation:
May 1 Jasper purchased office supplies of $3,000 on account. May 5 The office supplies were shipped to Jasper. May 8 Jasper used these office supplies for a one-time event. May 9 Jasper paid $3,000 cash for the office supplies purchased on May 1.
Using cash-basis accounting, on which date should Jasper record supplies expense? A. May 1 B. May 5 C. May 8 D. May 9
LO 3-2 Distinguish between accrual-basis and cash-basis accounting
- The following events pertain to Bills Company:
Dec. 28, 2021 Bill was contacted by a customer for possible accounting and tax services. Dec. 30, 2021 Bill signed a formal agreement with customer to provide acct. and tax Services in 2022 Jan. 4, 2022 The customer paid $1,000 in advance for the services to be provide Bill Co. Jan. 11, 2022 Bills provided accounting and tax services to the customer.
Using accrual-basis accounting, on which date should Bills Company record revenue for the accounting and tax services? A. December 30, 2021 B. December 31, 2021 C. January 4, 2022 D. January 11, 2022
LO 3-2 Distinguish between accrual-basis and cash-basis accounting
- The primary difference between accrual-basis and cash-basis accounting is: A. The timing of when revenues and expenses are recorded. B. Cash-basis accounting is allowed for financial reporting purposes but not accrual -basis accounting. C. Accrual-basis accounting violate both the concepts of revenue recognition and expense recognition. D. Adjusting entries are only a necessary part of cash-basis accounting
LO 3-3 Demonstrate the purposes and recording of adjusting entries
- Which of the following regarding adjusting entries is correct? A. Adjusting entries are recorded for all external transactions. B. Adjusting entries are recorded to make sure all cash inflows and outflows are recorded in the current period. C. Adjusting entries are needed because we use accrual-basis accounting. D. After adjusting entries, all temporary accounts should have a balance of zero.
LO 3-3 Demonstrate the purposes and recording of adjusting entries
- Making insurance payments in advance is an example of: A. A prepaid expense transaction B. A deferred revenue transaction C. An accrued expense transaction D. An accrued revenue transaction
LO 3-3 Demonstrate the purpose and recording of adjusting entries
- An accrued revenue represents: A. Customers paying cash in advance of the good or service to be provided B. Revenue being recorded prior to cash collection from the customer C. Revenue being recorded at the same time the cash is collected from the customer D. Cash being collected from the customer prior to the revenue being recorded.
LO 3-3 Demonstrate the purpose and recording of adjusting entries.
- A company purchased $270,000 in supplies during the year. The supplies account increased by $10,000 during the year to an ending balance of $66,000. For what amount was the adjusting entry to supplies expense? A. $300, B. $280, C. $260, D. $240,
LO 3-5 Prepare financial statements using the adjusted trial balance
LO 3-5 Prepare financial statements using the adjusted trial balance
- The following financial information is from Bronco Company. All debt is due within one
LO 3-5 Prepare financial statements using the adjusted trial balance
LO 3-5 Prepare financial statements using the adjusted trial balance
