211solutions-04[1] - CHAPTER 4 Accrual Accounting Concepts...

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Unformatted text preview: CHAPTER 4 Accrual Accounting Concepts 4-1 ANSWERS TO QUESTIONS 1. (a) Under the time period assumption, an accountant is required to determine the relevance of each accounting transaction to specific accounting periods. (b) An accounting time period of one year in length is referred to as a fiscal year. 2. The two generally accepted accounting principles that pertain to adjusting the accounts are: The revenue recognition principle, which states that revenue should be recognized in the time period in which it is earned. The matching principle which states that efforts (expenses) be matched with accomplishments (revenues). 3. The law firm should recognize the revenue in April. The revenue recognition principle states that revenue should be recognized in the accounting period in which it is earned. 4. Expenses of $4,500 should be deducted from the revenues in April. Under the matching principle efforts (expenses) should be matched with accomplishments (revenues). 5. No, adjusting entries are required by the revenue recognition and matching principles. 6. The financial information in a trial balance may not be up-to-date because: (1) Some events are not journalized daily because it is unnecessary and inexpedient to do so. (2) The expiration of some costs occurs with the passage of time rather than as a result of recur- ring daily transactions. (3) Some items may be unrecorded because the transaction data are not known. 7. The two categories of adjusting entries are prepayments and accruals. Prepayments consist of revenues and expenses paid before they are earned or incurred. Accruals consist of revenues and expenses earned or incurred prior to payment. 8. In a prepaid expense adjusting entry, expenses are debited and assets are credited. 9. No. Depreciation is the process of allocating the cost of an asset to expense over its useful life. Depreciation results in the presentation of the book value of the asset, not its market value. 10. Depreciation expense is an expense account whose normal balance is a debit. This account shows the cost that has expired during the current accounting period. Accumulated depreciation is a con- tra asset account whose normal balance is a credit. The balance in this account is the depreciation that has been recognized from the date of acquisition to the balance sheet date. 11. Equipment ................................................................................................. $12,000 Less: Accumulated Depreciation .............................................................. 7,000 $5,000 12. In an unearned revenue adjusting entry, liabilities are debited and revenues are credited. 13. Asset and revenue. An asset is debited and revenue is credited....
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211solutions-04[1] - CHAPTER 4 Accrual Accounting Concepts...

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