Cambridge College

1. a. Under cash-basis accounting, revenues are reported in the period in which cash is received and expenses are reported in the period in which cash is paid. b. Under accrual-basis accounting, revenues are reported in the period in which they are earned and expenses are reported in the same period as the revenues to which they relate. 2. The matching concept is related to the accrual basis of accounting. 3. Adjusting entries are necessary at the end of an accounting period to bri...

An account is a form designed to record changes in a particular asset, liability, owner’s equity, revenue, or expense. A ledger is a group of related accounts. 2. The terms debit and credit may signify either an increase or a decrease, depending upon the nature of the account. For example, debits signify an increase in asset and expense accounts but a decrease in liability, owner’s capital, and revenue accounts. 3. a. Assuming no errors have occurred, the credit balance in the cash ac...

. Some users of accounting information include managers, employees, investors, creditors, customers, and the government. 2. The role of accounting is to provide information for managers to use in operating the business. In addition, accounting provides information to others to use in assessing the economic performance and condition of the business. 3. The corporate form allows the company to obtain large amounts of resources by issuing stock. For this reason, most companies that requi...

In recent years, the removal of trade barriers and the growth in cross-border equity and debt issuances have led to a dramatic increase in international commerce. As a result, companies are of- ten reporting financial results to users outside of the United States. Historically, accounting standards have varied considerably across countries. These differences have been driven by cultural, legal, and political differences and resulted in financial statements that were not easily comparable and dif...

Ex. B–2 a. (1) Wages Expense ......................................................... 13,200 Wages Payable ..................................................... 13,200 Accrued wages ($66,000 ÷ 5 days). (2) Accounts Receivable ................................................ 25,000 Fees Earned .......................................................... 25,000 Accrued fees earned. b. (1) Wages Payable .......................................................... 13,200 Wages Expe...

1. No. A discounted note payable has no stated interest rate, but provides interest by discounting the note proceeds. The discount, which is the difference between the proceeds and the face of the note, is the interest and is accounted for as such. 2. a. Employee’s federal income taxes, social security, and Medicare b. Employees Federal Income Tax Payable, Social Security Tax Payable, and Medicare Tax Payable 3. The deductions from employees’ earnings are for amounts owed (liabiliti...

1. a. Property, plant, and equipment or Fixed assets b. Current assets (merchandise inventory) 2. Real estate acquired as speculation should be listed in the balance sheet under the caption “Investments,” below the Current Assets section. 3. $1,100,000 4. Capital expenditures include the cost of acquiring fixed assets and the cost of improving an asset. These costs are recorded by increasing (debiting) a fixed asset account. Capital expenditures also include the costs of ext...

1. Receivables are normally classified as (1) accounts receivable, (2) notes receivable, or (3) other receivables. 2. Dan’s Hardware should use the direct write-off method because it is a small business that has a relatively small number and volume of accounts receivable. 3. Contra asset, credit balance 4. The accounts receivable and allowance for doubtful accounts may be reported at a net amount of $661,500 ($673,400 – $11,900) in the Current Assets section of the balance shee...

a. The five elements of internal control are the control environment, risk assessment, control procedures, monitoring, and information and communication. The control environment is the overall attitude of management and employees about the importance of controls. Risk assessment includes evaluating various risks facing the business, including competitive threats, regulatory changes, and changes in economic factors. Control procedures are established to provide reasonable assurance that busines...

1. The receiving report should be reconciled to the initial purchase order and the vendor’s invoice before recording or paying for inventory purchases. This procedure will verify that the inventory received matches the type and quantity of inventory ordered. It also verifies that the vendor’s invoice is charging the company for the actual quantity of inventory received at the agreed-upon price. 2. A physical inventory should be taken periodically to test the accuracy of the perpetual re...