What are cash equivalents?
- Very liquid, short-term investment instruments.
- Maturity date of less than 90 days.
- Easily converted into known amounts of cash without significant loss in value.
How are money market deposit accounts classified on the balance sheet?
Cash (if readily available), otherwise cash equivalents.
What is the impact of declaring a cash dividend on a company’s balance sheet?
- Reduces equity
- May be debited directly to Retained Earnings or to a separate Dividends account
What happens to the Dividends Account at year-end close if dividends are debited to a separate account?
It will be closed to the Retained Earnings account, reducing Retained Earnings by the amount of the dividends declared during the year.
What is the accounting treatment for insurance premiums paid in advance?
- Increase (debit) Prepaid Expense account
- Decrease (credit) Cash account
How is interest revenue from a Money Market Deposit Account recorded?
- Debit Cash Equivalents
- Credit Interest Revenue
What is the accounting treatment for a deposit received for goods or services to be provided in the future?
Credit Deferred Revenue
What is the effect of a principal payment on a long-term debt account?
The payment of the principal amount decreases the Long-Term Debt account.
How is the payment of a dividend recorded?
- Debit Dividends Payable
- Credit Cash
What is the classification of the Dividends account?
Contra-equity
What is the accounting equation?
Assets = Liabilities + Equity
The accounting equation provides the foundation for double-entry bookkeeping by showing the relationship between a company’s resources and claims against those resources.
When is a company required to prepare an adjusting entry?
When revenues or expenses have been incurred but not yet recorded by the end of the accounting period.
Adjusting entries ensure that financial statements comply with the accrual basis of accounting, accurately reflecting a company’s financial performance and position.
Define:
What is Deferred Revenue?
Revenue that has been received but not yet earned.
Deferred revenue is recorded as a liability on the balance sheet until the related goods or services are delivered.
Define:
Prepaid Expense
An expense paid in advance and recorded as an asset until it is used or consumed.
Prepaid expenses are initially recorded as assets because they provide future economic benefits.
What is the role of ‘Accounts Receivable’?
To represent money owed to a company by its customers for goods or services delivered on credit.
Accounts receivable are considered current assets on the balance sheet.
What does ‘Cost of Goods Sold’ (COGS) represent?
The direct costs attributable to the production of the goods sold by a company.
COGS includes the cost of materials and labor directly used to create the product.
Define:
Interest Revenue
Income earned from lending money or allowing another entity to use company funds.
Interest revenue is typically recorded in the period in which it is earned, in accordance with the accrual basis of accounting.
Define:
Long-term Debt
Debt obligations that are due to be paid after one year.
Long-term debt is recorded as a liability on the balance sheet and includes bonds, mortgages, and other long-term loans.
What is the purpose of ‘Dividends Payable’?
To represent the amount of dividends declared by a company that are yet to be paid to shareholders.
Dividends payable are recorded as a liability on the balance sheet until they are paid.
Which account is a contra-equity account?
Dividends
What type of account is ‘Cost of Goods Sold’?
Expense
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Accounting Foundations & Terminology46
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Recording Transactions & the Accounting Cycle13
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T-Accounts and Journalizing10
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Business Transactions in Practice14
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Trial Balances and Comprehensive Income6
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Subsidiary Ledgers and Revenue Examples24
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Advanced Transactions and Adjusting Entries21
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Adjusted Trial Balance to Year-End Close36
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Financial Statement Types and Elements28
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Statement of Cash Flows18
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Internal Controls18
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Managing Daily Finances45
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Valuing Assets, Liabilities & Equity42
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Revenue Recognition & Income Measurement12
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Financial Statement Analysis8
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Financial Ratios Overview43
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Budgeting Principles and Practices23
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Budgeting Methodologies and Cycles16
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Master Budget & Supporting Schedules24
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Cost Classifications & Costing Systems29
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Manufacturing Overhead and ABC22
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Variance Analysis23
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Performance Measurement & Decision Making27
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Business Ethics & Professional Conduct40
