1
Q
What is the purpose of an unadjusted trial balance?
A
- Ensure the general ledger is in balance before adjusting accounts.
- Lists all general ledger accounts and balances
- Reviewed to determine adjustments needed
2
Q
What is the role of adjusting entries?
A
- Ensure accurate measurement of period’s revenues and expenses.
- Usually affect 1 balance sheet account and 1 income statement account
- Almost never affect cash
3
Q
How do you allocate unearned revenue to revenue?
A
- Amounts received in advance recorded as liabilities.
- Adjusted when the revenue is earned (e.g. prepaid membership).
4
Q
What are prepaid expenses?
A
- Payments for assets used over time (e.g. insurance, rent, supplies).
- Recognised as expense as the asset is used up.
5
Q
How is depreciation recorded?
A
- Allocation of asset cost to accounting periods.
- Recorded via a contra asset account (Accumulated Depreciation)
- Uses straight-line depreciation formula.
6
Q
How are accrued revenues recorded?
A
- Recognised when services or products are delivered but cash is not yet received.
- Increases both an asset (Receivable) and revenue account.
7
Q
What are accrued expenses?
A
- Expenses recognised before the payment is made (e.g. wages, interest).
- Increases both a liability (Payable) and an expense account.
8
Q
How is income before taxes calculated?
A
- Revenue minus all operating and non-operating expenses.
- Example formula: $7,600 - $5,580 (operating expenses) = $2,020
9
Q
How is income tax expense calculated?
A
- Income before taxes multiplied by tax rate.
- Example: Income of $2,020 x 25% = $505 tax expense.
10
Q
What is the process for closing temporary accounts?
A
- Happens at the end of the accounting period.
- Close revenue accounts (debit revenue, credit Retained Earnings).
- Close expense accounts (credit expense, debit Retained Earnings).
but what is it?
11
Q
What does the post-closing trial balance show?
A
- Prepared after closing entries.
- Only contains balance sheet (permanent) accounts.
- Temporary accounts (revenues, expenses) have zero balances.
