accounting chapter 6 study guide

fiscal period

the length of time for which a business summarizes its financial information and reports its financial performance.

fiscal year

a fiscal period consisting of 12 consecutive months.

work sheet

a columnar accounting form used to summarize the general ledger information needed to prepare financial statements.

trial balance

a proof of the equality of debits and credits in a general ledger.

prepaid expense

cash paid for an expense in one fiscal period that is not used until a later period.

accrual basis of accounting

reporting income when earned and expenses when incurred.

cash basis of accounting

reporting income when the cash is received and expenses when the cash is paid.

adjustments

changes recorded on a work sheet to update general ledger accounts at the end of a fiscal period.

balance sheet

a financial statement that reports assets, liabilities, and owner's equity on a specific date.

income statement

a financial statement showing the revenue and expenses for a fiscal period.

net income

the difference between total revenue and total expenses when total revenue is greater.

net loss

the difference between total revenue and total expenses when total expenses are greater.

adjusting entries

journal entries recorded to update general ledger accounts at the end of a fiscal period.

adjusted trial balances

a trial balance prepared after adjusting entries are posted.

an accountant who has passed the uniform certified public accounting exam and met the licensing requirement for a state

certified public accountant (CPA)

the accounting concept Consistent Reporting is being applied when a delivery business reports revenue for the number of deliveries made on year and the amount of revenue received for the deliveries made the next year.

false

a fiscal period must be 12 months in length

false

journals, ledgers, and work sheets are considered permanent records.

false

the heading on a work sheet contains the name of the business, the name of the report, and the date of the report.

true

only accounts with a balance are listed on a trial balance.

false

the four questions asked when analyzing an adjustment are: why? where? when? how?

false

the two accounts affected by the adjustment for supplies and Supplies and Supplies Expense.

true

the two accounts affected by the adjustment for insurance are Prepaid Insurance Expense and Insurance.

false

the balance in Prepaid Insurance after adjusting entries are recorded represents the amount of insurance premium still remaining.

true

total and ruling the Adjustments columns of a work sheet are necessary to prove the equality of debits and credits.

true

the income statement and balance sheet are prepared from the trial balance columns on the work sheet.

false

net income on a work sheet is calculated by subtracting the Income Statement Debit column total from the Income Statement Credit column total.

true

if errors are found on a worksheet, they must be erased and corrected before any further work is completed.

true

when two column total are not in balance on the work sheet, the difference between the two totals is calculated and checked.

true

if the difference between the totals of Debit and Credit columns on a work sheet can be evenly divided by 9, then the error is most likely a transposed number.

true

if there are errors in the work sheet's Trial Balance columns, it might be because a general ledger account balance was recorded in the wrong Trial Balance column.

true

most errors occur in doing arithmetic.

true

the best way to prevent errors is to use a calculator.

false

adjusting entries must be posted to the general ledger accounts.

true

the balance in Supplies Expense after adjusting entries are recorded represents the amount of supplies used during the fiscal period.

true

adjustment columns (credit)

- supplies
- prepaid insurance

adjustment column (debit)

- insurance expense
- supplies expense

income statement columns (credit)

- sales

income statement columns (debit)

- advertising expense
- cash short and over
- insurance expense
- miscellaneous expense
- rent expense
- supplies expense
- utilities expense

balance sheet columns (credit)

- accounts payable
- owner's equity, capital

balance sheet columns (debit)

- cash
- petty cash
- accounts receivable
- supplies
- prepaid insurance
- owner's equity, drawing

what are the four questions asked when adjusting an asset account?

- what is the balance of the account to be adjusted?
- what should the balance be for this account?
- what must be done to correct the account balance?
- what adjustment is made?