AIPB EVALUATION ALL ANSWERS AND QUESTIONS
SET A+
✔✔Prior Period Errors - ✔✔Prior period errors are those discovered after the books for
that period have been closed. Correcting a prior period error requires a prior period
adjustment to the Retained Earnings account (or Prior Period Adjustments account).
✔✔Errors discovered before the books are closed - ✔✔Expenses:
! Omission of an accrued expense
! Too little expense accrued
! Too much expense accrued
Revenues:
! Omission of an accrued revenue
! Too little revenue accrued
! Too much revenue accrued
✔✔ Trial balance - ✔✔an ordered listing of all ledger accounts and their balances.
✔✔Accrued expenses - ✔✔1. Expenses that have been incurred, but not yet paid for.
To put it another way, an accrued expense is paid after being recorded on the books.
2. Every adjusting entry for accrued expenses debits an expense account, increasing
expenses on the income statement and reducing net income, and credits a payable
account, increasing liabilities on the balance sheet.
3. Failure to record an accrued expense will:
Liabilities will be understated on the balance sheet; Expenses will be understated on the
income statement; and, as a result, Net income will be overstated on the income
statement.
✔✔Cash Basis Accounting - ✔✔Generally, payments received (checks, cash, credit
card, etc.) are income, and payments made are expenses. Cash basis businesses can
almost produce an income statement from their checkbook, presenting total payments
from customers as revenue and total disbursements as expenses.
✔✔Accrual Basis Accounting - ✔✔This is the method required by generally accepted
accounting principles (GAAP). GAAP prohibits recording an incoming payment as
, revenue unless you have earned it. But if you have earned the revenue, you must
recognize it (record the revenue on your books) even if you have not received a single
dollar of payment.
✔✔ACCRUED REVENUE - ✔✔1. Uncollected revenue, that is, revenue earned but not
yet received. To put it another way, receipt of cash takes place after the revenue is
earned and recorded on the books.
2. Every adjusting entry for accrued revenue debits a receivable account, increasing
assets on the balance sheet, and credits a revenue account, increasing revenue and
net income on that period's income statement.
3. Failure to record accrued revenue will:
Assets will be understated on the balance sheet;
Revenues will be understated on the income statement ; and, as a result, Net income
will be understated on the income statement.
✔✔Unearned revenue (deferred revenue) - ✔✔The receipt of payment for services not
yet performed. There are two ways to record: 1) to debit Cash and credit a liability
account named Unearned Revenue, Revenue Collected In Advance, Revenue
Received In Advance, etc.; The adjusting entry at the end of the period simply transfers
the amount earned (recognized) from the balance sheet (Unearned Revenue) account
to the income statement (Revenue) account. 2) The second way to record revenue
collected in advance is to debit Cash and credit Revenue. The adjusting entry recorded
at the end of the period reduces the balance in the Revenue account to the amount
actually earned for the period. The unearned portion is transferred to Unearned
Revenue
✔✔Prepaid (or deferred) expenses - ✔✔expense paid before the expense is incurred
(that is, before the goods are used or the service is performed). There are two ways to
record: 1) To debit an asset account known as a prepaid expense account and to credit
Cash. The adjusting entry at the end of the period simply transfers the amount of the
expense that has been recognized (used up) from the asset account to the expense
account. 2) The second way to record the advance payment of an expense is to debit
the appropriate expense account and credit Cash. The adjusting entry recorded at the
end of the period reduces the balance in the expense account to the amount of the
expense incurred during the period. The unused portion is transferred to a prepaid
account.
✔✔Depreciable base - ✔✔The original cost less the residual value of a depreciable
asset.
✔✔Depreciable asset (operational asset) - ✔✔Depreciable assets must meet the
following conditions:
1. The asset must be tangible property, such as a building, equipment or furniture (land
is not depreciable);
2. The asset cannot be held for resale (such as inventory) or for investment purposes
(such as common stock);
SET A+
✔✔Prior Period Errors - ✔✔Prior period errors are those discovered after the books for
that period have been closed. Correcting a prior period error requires a prior period
adjustment to the Retained Earnings account (or Prior Period Adjustments account).
✔✔Errors discovered before the books are closed - ✔✔Expenses:
! Omission of an accrued expense
! Too little expense accrued
! Too much expense accrued
Revenues:
! Omission of an accrued revenue
! Too little revenue accrued
! Too much revenue accrued
✔✔ Trial balance - ✔✔an ordered listing of all ledger accounts and their balances.
✔✔Accrued expenses - ✔✔1. Expenses that have been incurred, but not yet paid for.
To put it another way, an accrued expense is paid after being recorded on the books.
2. Every adjusting entry for accrued expenses debits an expense account, increasing
expenses on the income statement and reducing net income, and credits a payable
account, increasing liabilities on the balance sheet.
3. Failure to record an accrued expense will:
Liabilities will be understated on the balance sheet; Expenses will be understated on the
income statement; and, as a result, Net income will be overstated on the income
statement.
✔✔Cash Basis Accounting - ✔✔Generally, payments received (checks, cash, credit
card, etc.) are income, and payments made are expenses. Cash basis businesses can
almost produce an income statement from their checkbook, presenting total payments
from customers as revenue and total disbursements as expenses.
✔✔Accrual Basis Accounting - ✔✔This is the method required by generally accepted
accounting principles (GAAP). GAAP prohibits recording an incoming payment as
, revenue unless you have earned it. But if you have earned the revenue, you must
recognize it (record the revenue on your books) even if you have not received a single
dollar of payment.
✔✔ACCRUED REVENUE - ✔✔1. Uncollected revenue, that is, revenue earned but not
yet received. To put it another way, receipt of cash takes place after the revenue is
earned and recorded on the books.
2. Every adjusting entry for accrued revenue debits a receivable account, increasing
assets on the balance sheet, and credits a revenue account, increasing revenue and
net income on that period's income statement.
3. Failure to record accrued revenue will:
Assets will be understated on the balance sheet;
Revenues will be understated on the income statement ; and, as a result, Net income
will be understated on the income statement.
✔✔Unearned revenue (deferred revenue) - ✔✔The receipt of payment for services not
yet performed. There are two ways to record: 1) to debit Cash and credit a liability
account named Unearned Revenue, Revenue Collected In Advance, Revenue
Received In Advance, etc.; The adjusting entry at the end of the period simply transfers
the amount earned (recognized) from the balance sheet (Unearned Revenue) account
to the income statement (Revenue) account. 2) The second way to record revenue
collected in advance is to debit Cash and credit Revenue. The adjusting entry recorded
at the end of the period reduces the balance in the Revenue account to the amount
actually earned for the period. The unearned portion is transferred to Unearned
Revenue
✔✔Prepaid (or deferred) expenses - ✔✔expense paid before the expense is incurred
(that is, before the goods are used or the service is performed). There are two ways to
record: 1) To debit an asset account known as a prepaid expense account and to credit
Cash. The adjusting entry at the end of the period simply transfers the amount of the
expense that has been recognized (used up) from the asset account to the expense
account. 2) The second way to record the advance payment of an expense is to debit
the appropriate expense account and credit Cash. The adjusting entry recorded at the
end of the period reduces the balance in the expense account to the amount of the
expense incurred during the period. The unused portion is transferred to a prepaid
account.
✔✔Depreciable base - ✔✔The original cost less the residual value of a depreciable
asset.
✔✔Depreciable asset (operational asset) - ✔✔Depreciable assets must meet the
following conditions:
1. The asset must be tangible property, such as a building, equipment or furniture (land
is not depreciable);
2. The asset cannot be held for resale (such as inventory) or for investment purposes
(such as common stock);
