Chapter #2

Question 1

Arguments for and against accrual accounting

Answer 1

1. Reflects true operating results of the period and is not easily manipulated legally
2. Not able to meet obligations for smaller companies and easier manipulated illegally

Question 2

Accounting cycle steps

Answer 2

1. Journalize transaction in GJ
2. Post transactions to ledger
3. Prepare unadjusted trial balance
4. Adjusting entires
5. Prepare adjusted trial balance
6. Prepare income statement
7. Closing entires
8. Post closing trial balance
9. balance sheet and statement of cash flows
10. Reversing entires

Question 3

Reversing entries

Answer 3

Are optional
Are ALWAYS required for accrual, NEVER for amortization, and ALMOST ALWAYS for entires that inc/dec assets or liabilities

Question 4

SOX

Answer 4

Law that related to the internal controls, financial reporting, and audits of public companies

Question 5

Prepaid deferred expense

Answer 5

Cash is paid first, before the expense is used

Question 6

Unearned deferred revenue

Answer 6

Cash is received before revenue is earned