Scribd
Upload
107 views4 pages

LinkedIn Learning - Accounting Foundations (Understanding The Accounting Cycle and Accrual-Basis Accounting) (Sect. 3)

Uploaded by

vakhman
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
107 views4 pages

LinkedIn Learning - Accounting Foundations (Understanding The Accounting Cycle and Accrual-Basis Accounting) (Sect. 3)

Uploaded by

vakhman
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 4

LinkedIn Learning - Accounting Foundations

(Understanding the Accounting Cycle and Accrual-Basis


Accounting)
Sect. 3
A. Practice the Accounting Cycle using Accrual Basis Accounting –
1. Recording a Sale on Account –
A) Sale made for later payment to be received –
- Journal Entry –
Dr – AR
Cr – Revenue or Deferred

When Payment received –


Dr – Cash
Cr – AR
- FASB Rule –
1) Requires us to show an allowance in accounts receivable for a portion of
the account to never be collected from the customers
2) NOTE: This has to do with Allowance for Doubtful Account

2. Recording an Expense on Account –


A) Purchase made for later payment to be sent –
- Journal Entry –
Dr – Supplies / Expense (When Bill received)
Cr – AP

When Payment sent –


Dr – AP
Cr – Cash

When Supplies Used –


Dr – Supplies Expense
Cr – Supplies
3. Recording a Purchase on Account –
A) Purchase made for later payment to be sent –
- Journal Entry (Equipment Purchased) –
Cash
Dr – Equipment
Cr – Cash

Loan
Dr – Equipment
Cr – Notes Payable

Dr – Notes Payable
Cr – Cash

4. Recording an Income Tax Expense –


A) Paying Taxes at a later date –
- Journal Entry –
Dr – Income Tax Expense
Cr – Income Tax Liability / Payable

Dr – Income Tax Liability / Payable


Cr – Cash

5. Recording Deferred Revenue –


A) Recognizing revenue –
- Journal Entry –
Dr – Cash
Cr – Deferred Revenue

When recognized –
Dr – Deferred Revenue
Cr – Revenue
6. Recording a Prepaid Expense –
A) Prepaying for an Expense –
- (Ex.) Insurance, Rent, etc.
- Journal Entry –
June 1
Dr – Prepaid Rent
Cr – Cash

June 30
Dr – Rent Expense
Cr – Prepaid Rent

(Ex.)
Nov. 21
Dr – Supplies
Cr – Cash

Dec. 31
Dr – Supplies Expense
Cr – Supplies

- NOTE: Paying for it does NOT make it an Expense. Using it up does.

7. QUIZ –
1 – If, at the end of the year, deferred revenue that has been earned is not reclassified as
revenue, net income will be _____.

ANSWER:
Understated
If deferred revenue has been earned, it must be reclassified as revenue or net income
will be affected by the missed entry.

2 – If an accrual entry is not prepared for income tax expense and liability at the end of
the fiscal year, net income will be _____ and liabilities will be _____.

ANSWER:
Overstated; Understated
The adjusting entry to record estimated income taxes for the year will increase expenses.
If the entry is not prepared, expenses will be too low and net income will be overstated.
In addition, the liability for the taxes owed will be understated if the journal entry is not
prepared.
3 – If insurance is prepaid for the year for $120 on January 1, what is the initial entry and
end-of-year adjusting entry?

ANSWER:
Jan 1
Prepaid Insurance $120
Cash $120

Dec 31
Insurance Expense $120
Prepaid Insurance $120
The Jan 1 entry establishes the purchase of the insurance as an asset and the payment
of cash. The Dec 31 entry reclassifies the asset as an expense and removes the asset
because the resource has been used.

4 – Accounts receivable is an asset account that shows the promises we have collected
from customers to pay us later. Every period, we must estimate an amount that we don't
believe will be collected and record an estimated _____.

ANSWER:
Bad Debt Expense
The accounts receivable account represents the total amount of promises accepted. The
bad debt expense recorded at the end of the period represents an estimate of
uncollectible accounts.

5 – Maintenance was needed on the delivery truck. When it was complete, one of our
delivery drivers picked up the truck and said, "We'll send you a bill." What journal entry
is needed to document this transaction?

ANSWER:
Debit: Maintenance Expense Credit: Accounts Payable
This journal entry accurately documents the transaction with an increase to an expense
account for the maintenance received as well as increases a liability, Accounts payable,
for the amount owed to the service provider.

6 – The purchase of an asset may require financing. Which of the following accounts
would be used to account for the financing aspect of this transaction?

ANSWER:
Notes Payable
A promissory note would be the most common form of financing and the liability
account used would be Notes Payable.

You might also like