Financial Accounting Part 3

Financial Accounting Part 3 - FINANCIAL ACCOUNTING PART 3...

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Unformatted text preview: FINANCIAL ACCOUNTING PART 3 Question 1 of 70 At the end of January, LJM, Inc. has accrued one month’s interest on the $4,000 loan it received from the bank at a yearly interest rate of 9%. Using a comma to separate the two answers, what type of account is debited and for how much? __________,_____ Expense, $30. The interest due is an expense, therefore the Interest Expense account is debited. The amount is calculated by finding out how much interest you would pay in a year, and then divide that by 12 to find the monthly interest ($4,000 x 9% / 12) which equals $30. Because the interest has not yet been paid (it is just being calculated to accurately reflect the financial position of LJM at the end of January) the amount is shown as a liability in an account called Interest Payable (may be called Accrued Expenses). The amount in this account represents LJM’s obligation to pay $30 in interest. Question 2 of 70 If an entity borrows $100,000 on August 1, 2002 from First Financial Bank and agrees to 8% interest on the 1-year note, what is the accrued interest on January 31, 2003? __________ $4,000. Interest has accrued for 6 months at 8%. Total interest owed over the 1-year period is $8,000 and 6/12 of that is $4,000. Question 3 of 70 Revenue and Expense accounts are closed to the _________ _________ account at the end of a reporting period. Income Summary. Revenue and Expense accounts are temporary accounts, whose net balance reflects the retained earnings of a period. The revenue accounts are “closed” to the Income Summary (also called Profit and Loss or Expense and Revenue Summary) as are the expense accounts. The Income Summary account then reflects the net income (or loss) for the period. Question 4 of 70 The __________ process involves transferring the balance of the Revenue and Expense accounts (temporary accounts) to the Income Summary account (clearing account). Closing. To close an account, its balance is made to equal zero. For example: to close a revenue account, the total of the credit balance is debited to the account which produces a zero balance. The offsetting credit entry is made to the Income Summary account. Essentially the credit balance in the Revenue account is transferred to the Income Summary account 1 while maintaining the rule that debits = credits. The same is done for Expense accounts – the balance is credited and then that amount is debited to Income Summary. Question 5 of 70 The balance in the Sales Revenue account for LJM. Inc at the end of January is $12,200. Using a comma to separate your answer, first indicate what account is debited and then what account is credited? _____________,___________ Sales Revenue, Income Summary....
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This note was uploaded on 04/27/2010 for the course MATH 327 taught by Professor Schultz during the Spring '09 term at Christian Brothers.

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Financial Accounting Part 3 - FINANCIAL ACCOUNTING PART 3...

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