ACC 225 ACC225 Module 2 Check Your Understanding Answers (AAU Online)

ACC 225 ACC225 Module 2 Check Your Understanding Answers (AAU Online)

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ACC 225 Module 2 Check Your Understanding (AAU Online)

1.What are the three steps in the accounting cycle?

2.How has technology affected the first three steps of the accounting cycle?

3.When owners invest money in their business, what is the investment’s effect on the accounting equation?

4.How does the purchase of inventory on credit affect the accounting equation?

5.A revenue account is increased with a:

6.What does the term “compound entry” mean?

7.Wagner Inc. had a beginning cash balance of $14,000 on January 1, 2011.  During January, the company recorded debits of $23,000 and credits of $25,000 to the cash account.  What would the ending cash balance on January 31 be?

8.What is the matching principle?

9.During 2011, Lavina Corporation had cash and credit sales of $94,000 and $91,000, respectively.  The company also collected accounts receivable of $53,400 and incurred expenses of $137,000, 80 percent of which were paid during the year.  In addition, Lavina paid $48,000 for a 12-month building rental, beginning on July 1, 2011.  What was Lavina’s accrual-basis net income (loss) for 2011?

10.What is unearned revenue?

11.What are unrecorded liabilities?

12.When preparing an adjusting entry for an unrecorded liability, how is the transaction normally recorded?

13.Hammond Inc. had a credit balance of $1,800 in the unearned rent account on January 1, 2011.  At the end of 2011, the credit balance in that account was $1,400.  Hammond’s income statement reported rent revenue in the amount of $32,500 for the year.  How much cash was received from rentals during the year?

14.What procedures are conducted by an external auditor?

15.What is the accounting equation? For each part of the equation, list whether the normal balance is debit or credit, and the effects of debits and credits on each?

16.Which one of the following statements is true with respect to periodic reporting?

17.In which one of the following situations should revenue be recognized?

18.A lawn care company started business on January 1, 2012.  The company billed clients $105,000 for lawn care services completed in 2012.  By December 31, the company had received $84,000 cash from customers, with the $21,000 balance expected to be collected in 2013.  During 2012, the company paid $68,000 cash for various expenses.  At December 31, the company still owed $41,000 for additional expenses incurred that have not yet been paid in cash.  These expenses will be paid during January 2013. How much income (or loss) should the company report for 2012?  Note: The company computes income using cash-basis accounting.

19.The company pays its employees at the end of the day Friday for work done during that five-day work-week.  Total wages for a week are $16,000.  In the current year, December 31 occurred on a Tuesday. 

20.Closing Entries: Expenses


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