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BTA 111 Set A

QuestionAnswer
What are Accrued expenses? expenses due, but we have not recorded them or paid them
What are Deferrals? cost or revenues recognize at a later date than the date when cash or the revenue was originally earned.
What are Prepaid expenses? expenses that expire with time or usage (eg: insurance, supplies)
What is Depreciation? used to determine was it used and what assets are unused
What is a Contra-Asset account? (What type of balance) Credit
Where does interest on mortgage goes? Interest Payable
What is the formula to calculate Interest? Face value of note (money you borrow)X Annual interest rate X time in terms of one year = Interest
What is Book value? the difference between the cost of any depreciable asset (an asset that could lose value) and its related accumulated depreciation (the amount that has been depreciated in the item as of a particular time period)
Temporary accounts include 1. Revenue Accounts 2. Expense Accounts 3. Drawing Accounts 4. Income Summary
Permanent Accounts include 1. All assets account 2. All liabilities account 3. Owner's capital account
The amount we use when closing income summary is the _ Net income amount
What are current assets? Assets that a company expects to convert into cash or use within one year or its operating cycle
Common types of current assets include _ A. Cash B. Short term investment C. Receivables (Notes rec, accounts rec) D. Inventories E. Prepaid expenses (Ins, supplies)
What goes under the category "Property, Plant and Equipment"? Assets with long lives that a company is currently using in operating the business
What kind of balance does Income Summary has? Credit
What is Income Summary? A temporary account used in closing revenue and expense accounts
What is liquidity? A company's ability to pay obligations expected to be due within the next year
Define: Long-term Liabilities Obligations the company expects to pay after one year
What is the standard balance sheet classification? a balance sheet that groups together similar assets and similar liabilities
What goes into the balance sheet? Assets, Liabilities, Owner's capital
To close Revenue account, we debit _ and credit _ debit: revenue credit: Income summary
To close expense account, we debit _ and credit _ debit: Income summary credit: Expense
To close Income summary account, we debit _, and credit _ debit: Income summary credit: Owner's capital
To close Drawing account, we debit _, and credit _ debit: Owner's capital credit: Owner's drawing
An accounting period that is one year in length is a _ Fiscal year
What is accrual basis accounting? companies record transactions that change a company's financial statement in the periods in which the event occurred
Under Cash-basis accounting, when do companies record revenue? When they receive cash
What does the revenue-recognition principle require companies to do? requires companies to recognize revenue in the accounting period in which it is earned. Basically, we record revenue when we provided the service
What is the expense recognition principle? states that whenever you record revenue, you should also record your expenses.
What is accrued revenue? revenue earned, but not recorded or we have not collected cash yet.
What is the purpose of the adjusted trial balance? To prove the equality of the total debits and credits in the ledger after all adjustments have been made.
Deferrals include _ Prepaid expenses and unearned revenue
Accruals include _ Accrued expenses and accrued revenues
What happens under the "Revenue-recognition principle"? Companies recognize revenue in the accounting period in which it is earned. It does not matter if we receive the money later.
What happens under "Cash basis Accounting"? Companies record revenue when they received cash and expenses when they pay out cash
Why does your net income amount goes into the Cr. side of the balance sheet? Because it increases your capital, and since Owner's capital has a credit balance, then that is the reason why it goes there.
Why do corporation don't have title of ownership? Because they don't buy ownership of land, but instead they buy shares.
How do you calculate current ratio? Current Ration= Current Assets/ Current Liabilities
What is a healthy current ration for a company? 1.5 or higher
Complete the following: Every adjusting entry will include one (1), and one (2) (What types of account) 1. Income summary account ( Revenue or expense) 2. Balance sheet account ( Asset, liability or owner's capital)
Under what condition can "Unearned revenue" account increase? When we receive cash in advance for future service. Note: As we perform the service, we debit this account to show that we owe less service to our customer
Why do we do adjustment for depreciation? To recognize the cost that has been used (expense) during the period, and to report the unused cost (an asset) at the end of the period
What does the "Interest Expense" account shows? It shows the interest charges for the month
What does the "interest payable" account shows? It shows the amount of interest a company owes at the statement date
How does unearned revenue become earned? Through the passage of time (like rent pay in advance becomes earned once the due date arrives) or through providing the service
Created by: erickson1092