ACG 4101 FINAL CH 1-7 Questions and
Answers
Describe relevance - answer information has predictive or confirmatory value. Financial
info. is material if omitting or misstating could affect users' decisions
faithful representation - answer when there is an agreement between the a measure or
description and the phenomenon it purports to represent; enhanced by neutrality,
completeness, and free from error.
comparability - answer the ability of users to see similarities and differences between
two different business activities
consistency - answer same practices being used over time to permit valid comparisons
between reporting periods
when are adjusting entries necessary - answer for prepayments (deferrals), accruals
(accrued liabilities, accrued receivables), estimates
prepayments - answer the cash flow precedes either expense or revenue recognition.
accruals - answer involves cash flows that occur after either expense or revenue
recognition
example of accrued liability - answersalaries payable
what happens if accrued receivable is not recorded - answernet income, assets, and SE
will be understated
the adjusting entry to record accrued expense includes: - answera credit to a liability
reversing entries - answermade to adjust revenues and expenses at the end of the
accounting period when revenue and expenses are initially recorded upon payment of
cash
consequence of failure to accrue an expense/ revenue - answerif you do not accrue an
expense, you will overstate your income
when you accrue an expense, the other side is a liability - so if you do not accrue an
expense, you understate an expense and a liability
if you fail to record a revenue accrual - answeryou don't record an asset increase
, identify the permanent and temporary accounts - answerbalance sheet accounts are
permanent
temporary accounts are income statement accounts, which are closed to retained
earnings
dividends are what type of account - answertemporary
understand the purpose of closing entries - answer1. temporary accounts are reduced
to zero balance ; revenue and expenses are closed to income summary to measure the
activity in the upcoming accounting period
2. temporary accounts are transferred to retained earnings to reflect changes that have
occurred.
given a list of accounts, calculate current liabilities or current assets - answerif not given
specific instruction, unearned revenue is a current liability
prepaid expense is a current asset
what is a current asset - answerAssets that will be turned into cash or used up within
one year.
(i.e. Accounts Receivable, Inventory...)
list current assets - answercash and cash equivalents, short term investments, AR,
notes receivable, inventories, prepaid expense
cash equivalents - answermaturity date of less than three months from purchase date
ex. Money Market Fund, US Treasury Bills, commercial paper
short term investments - answerHTM, AFS, TS
noncurrent assets - answerPPE, intangible, investments not directly used in operations
current liabilities - answerexpected to be paid within one year or the company's
operating cycle, whichever is longer
current liabilities examples - answernote payable, accounts payable, deferred revenue,
current maturities of long term debt
identify the relationship among income statement, cash flow, and balance sheet
accounts: revenue/ cash receipts - answerbeg AR + purchases - COGS = ending
inventory
beg. unearned rev. + receipt - revenue = ending unearned revenue
identify the relationship among income statement, cash flow, and balance sheet
accounts: expenses - answer1.) beg. inv. + purchases - COGS = end inv.
2.) beg AP + purchases - payment = end AP
3.) beg prepaid + payment - expense = end prepaid
Answers
Describe relevance - answer information has predictive or confirmatory value. Financial
info. is material if omitting or misstating could affect users' decisions
faithful representation - answer when there is an agreement between the a measure or
description and the phenomenon it purports to represent; enhanced by neutrality,
completeness, and free from error.
comparability - answer the ability of users to see similarities and differences between
two different business activities
consistency - answer same practices being used over time to permit valid comparisons
between reporting periods
when are adjusting entries necessary - answer for prepayments (deferrals), accruals
(accrued liabilities, accrued receivables), estimates
prepayments - answer the cash flow precedes either expense or revenue recognition.
accruals - answer involves cash flows that occur after either expense or revenue
recognition
example of accrued liability - answersalaries payable
what happens if accrued receivable is not recorded - answernet income, assets, and SE
will be understated
the adjusting entry to record accrued expense includes: - answera credit to a liability
reversing entries - answermade to adjust revenues and expenses at the end of the
accounting period when revenue and expenses are initially recorded upon payment of
cash
consequence of failure to accrue an expense/ revenue - answerif you do not accrue an
expense, you will overstate your income
when you accrue an expense, the other side is a liability - so if you do not accrue an
expense, you understate an expense and a liability
if you fail to record a revenue accrual - answeryou don't record an asset increase
, identify the permanent and temporary accounts - answerbalance sheet accounts are
permanent
temporary accounts are income statement accounts, which are closed to retained
earnings
dividends are what type of account - answertemporary
understand the purpose of closing entries - answer1. temporary accounts are reduced
to zero balance ; revenue and expenses are closed to income summary to measure the
activity in the upcoming accounting period
2. temporary accounts are transferred to retained earnings to reflect changes that have
occurred.
given a list of accounts, calculate current liabilities or current assets - answerif not given
specific instruction, unearned revenue is a current liability
prepaid expense is a current asset
what is a current asset - answerAssets that will be turned into cash or used up within
one year.
(i.e. Accounts Receivable, Inventory...)
list current assets - answercash and cash equivalents, short term investments, AR,
notes receivable, inventories, prepaid expense
cash equivalents - answermaturity date of less than three months from purchase date
ex. Money Market Fund, US Treasury Bills, commercial paper
short term investments - answerHTM, AFS, TS
noncurrent assets - answerPPE, intangible, investments not directly used in operations
current liabilities - answerexpected to be paid within one year or the company's
operating cycle, whichever is longer
current liabilities examples - answernote payable, accounts payable, deferred revenue,
current maturities of long term debt
identify the relationship among income statement, cash flow, and balance sheet
accounts: revenue/ cash receipts - answerbeg AR + purchases - COGS = ending
inventory
beg. unearned rev. + receipt - revenue = ending unearned revenue
identify the relationship among income statement, cash flow, and balance sheet
accounts: expenses - answer1.) beg. inv. + purchases - COGS = end inv.
2.) beg AP + purchases - payment = end AP
3.) beg prepaid + payment - expense = end prepaid
