Accounting Order #3

The accounting basis that records revenues when cash is received regardless of whether or not revenue has been earned and records expenses when cash is paid regardless of whether or not the cost has been incurred to produce revenues is referred to as

The cash basis of accounting

Under accrual basis accounting

Revenue should be recorded in the period goods and services are provided

Which basis of accounting does GAAP generally require?

The accrual basis of accounting

Cost of business operations to help generate revenue in the current period are reported

True

Prepaid expenses (or deferred expenses) involve the payment of cash (or an obligation to pay cash) for the purchase of an asset before the cost is used (or incurred) in running the company

True

Deferred revenues occur when cash is received after the revenue is recorded

False

Accrued expenses involve the payment of cash before recording an expense and a liability

False

Which accounting principle states that a company should “Record revenues when they provide goods and services to customers?”

Revenue Recognition

On October 1, 2024, Wolfpack lent $60,000 to another company. A note was accepted with principal and 8% interest to be received on September 30, 2025

• Interest Receivable 1200 (Debit)

• Interest Revenue 1200( Credit

On November 1, 2024, the company paid its landlord $7,500 representing rent for the months of November through January. Prepaid Rent was debited for the entire amount on November 1.

• Rent Expense 5,000 (Debit)

• Prepaid Rent 5,000 (Credit)

On August 1, 2024, Wolfpack collected $12,000 in advance rent from another company that is renting a portion of Wolfpack’s building. The $12,000 represents one year’s rent, and the entire amount was credited to Deferred Revenue on August 1.

• Deferred Revenue 5,000 (Debit)

• Service Revenue 5,000 (Credit)

Depreciation for the year is $18,000

• Depreciation Expense 18,000 (Debit)

• Accumulated Depreciation 18,000 (Credit)

Vacation pay for the year that has been earned by employees but not paid to them or recorded is $8,000. The company records vacation pay as Salaries Expense.

• Salaries Expense 8,000 (Debit)

• Salaries Payable 8,000 (Credit)

Wolfpack began the year with $17,000 in its Supplies account. During the year $62,000 in supplies were purchased and debited to the Supplied account at the time of purchase. At year-end, supplies costing $22,000 remain on hand.

• Supplies Expense 57,000 (Debit)

• Supplies 57,000 (Credit)

Which “ Retained Earnings” account balance appears on the adjusted trial balance?

The retained earnings balance at the beginning of the accounting period.

Which “Retained Earnings” account balance on the post-closing trial balance?

The retained earning balance at the end of the accounting period.

Most adjusting entries affect

An income statement account and a balance sheet account

If a company fails to make an adjusting journal entry to record accrued revenue at the end of the year, net income will:

Be understated (too low)

Accounts should be listed on the adjusted trial balance in what is commonly referred to as:

Balance sheet order

A list of all accounts and their balances after updating account balances for adjusting entries is referred to as an

Adjusted trial balance

1. Record adjusting entries in the journal

2. Prepare an adjusted trial balance

3. Determine which accounts need to be adjusted and appropriate amounts to record

4. Post the adjusting entries to the appropriate in the general ledger

3, 1, 4, 2

Which of the following is true about an income statement?

• It reports activity for a period of time

• It does not include dividends paid

• It reports revenues and expenses

All of the other answers are true

A company should prepare the financial statements it intends to distribute to outside users using its

Adjusted trial balance

A temporary account is one that should begin a new accounting period with:

An account balance equal to zero