| Question | Answer |
| What is accumulated amortization? How is it an example of a contra account? | It's the allocation of long lived asset costover time
It's the transfer from an asset to an expense
A contra account is an account deducted/offset from its counterpart on a balance sheet or income statement
Accumulated amortization offsets an account |
| definition of accured revenue | revenues earned but not yet received in cash |
| understated before accured revenue
overstated before accured revenue | understated
assets
revenues |
| debited for accured revenue
credited for accured revenue | debit Credit
asset revenue |
| definition of accured expense | expenses incurred but not yet paid in cash |
| understated before accured expense
overstated before accured expense | understated
expenses
liabilities |
| debited for accured expense
credited for accured expense | debit Credit
expense liability |
| definition of unearned revenue | revenue gained but not earned |
| understated before unearned revenue
overstated before unearned revenue | Overstated Understated
liabilities revenues |
| debited for unearned revenue
credited for unearned revenue | debit Credit
liability revenue |
| definition of prepaid expense | expenses paid for but not yet used up |
| understated before prepaid expense
overstated before prepaid expense | Overstated Understated
assets expenses |
| debited for prepaid expense
credited forprepaid expense | debit Credit
expense asset |
| Define Permanent Account | an account that does not close at the end of a financial period |
| Define Temporary Account | an account that closes at the end of a financial period |
| Examples Of Permanent Accounts | assets
capital
liabilities |
| Where do Permanent Accounts Go | balance sheet |
| Examples of temporary accounts | revenues
drawings
expense |
| Where do temporary accounts go? | income statement
statement of owner's equity |
| Why are closing entries made? | Closing entries are made to transfer the temporary accounts into permanent ones. |
| Explain the procedure of closing entries. | 1 revenue-dr revenue accounts balances, cr income summary total revenue
2 expense-dr income summary total expense, cr expense accounts balances
3 is-close the income summary dr/cr balance, dr/cr capital
4 draw-dr capital, cr draw balance |
| What is a post closing trial balance? What account balances remain? | A post closing trial balance is a trial balance updated after the closing entries are made.
The accounts that remain are the permanent accounts.
Permanent accounts are carried over to the next accounting period, they are displayed on the balance sheet |
| Identify the major sections of a classified balance sheet and give an example for each section. | Current Assets Current Liabilities
Long term investments Long-Term liabilities
Property, Plant and Equipment Equity
Intangible Assets |
| Define working capital | Working capital is a liquidity ratio between current assets and current liabilities
If current assets > current liabilities = company can pay its liabilities
current liabilities > current assets = short term creditors may not be paid |
| Define current ratio. | Current Ratio:liquidity ratio btwn current assets(ca)¤t liabilities(cl)
Ca>cl=company can pay its liabilities
cl>ca=short term creditors may not be paid
Ca/cl=current ratio
r:1=current ratio
r=current assets
current ratio is ca per $1 of cl |
| Explain why one measurement (wc) (cr) is considered more desirable. | Current ratio is better than working capital because it shows how easily they can pay off the debts, vs the amount they loose |
| How to calculate use of prepaid expense | cash / months it's worth = use |
| How to calculate earning of unearned revenue | cash / amount worth = # x amount earned = earned |
| How to calculate intrest on a note | Face value of note x annual interest rate x time in terms of 1 year = interest |
| How to calculate annual amortization | Cost / Useful life (years) = Annual amortization Expense |
| How to calculate Monthly Ammortization | Annual amortization Expense * months =monthly amortization |
