SmartCycle #1 - Adaptive Concepts

Relevance

Accounting information that is useful for decision-making because it provides predictive and/or confirming value.

Predictive value

Information that helps users predict future outcomes.

Confirming value

Information that helps users confirm or change previous expectations.

Normal balance of Assets

Debit.

Normal balance of Expenses

Debit.

Normal balance of Dividends

Debit.

Normal balance of Contra-revenues

Debit.

Normal balance of Revenues

Credit.

Sales Discounts

Contra-revenue account with a normal debit balance.

Prepaid Insurance

Asset account representing insurance paid for in advance.

Revenue recognition principle

Revenue should be recognized when it is earned.

What principle is violated when revenue is recorded before it is earned?

Revenue recognition principle.

What amount of $36,000 should be recognized if only 1/6 of the work is completed?

$6,000.

Temporary accounts

Revenues, expenses, contra-revenues, and dividends.

Which accounts are closed at the end of the period?

Revenues, expenses, contra-revenues, and dividends.

Which account is closed with a debit?

Revenues.

Why are revenues closed with a debit?

Revenues normally have a credit balance, so a debit closes the account.

Which accounts are closed with credits?

Expenses, contra-revenues, and dividends.

Why are expenses closed with credits?

Expenses normally have debit balances, so credits close them.

Why are dividends closed with a credit?

Dividends normally have a debit balance, so a credit closes them.

What happens to temporary accounts after closing?

Their balances are reduced to zero.

Retained Earnings after closing

Equals the ending balance reported on the Statement of Retained Earnings.

What affects Retained Earnings?

Net income and dividends.

Where is Discussion of market risk found?

Management's Discussion and Analysis (MD&A).