Homework: Completing the Account Cycle
By successfully completing this homework, you will demonstrate your proficiency in the following course competencies:
I. Competency I: Prepare financial statements from accounting system data.
1. Answer 4-5 accounting cycle questions correctly.
II. Competency II: Communicate effectively and professionally.
1. Convey clear meaning through appropriate word choice and usage.
This homework focuses on the need for adjusting entries including:
1. The difference between the cash and accrual bases of accounting.
2. The concept of adjusting entries and how they are prepared.
3. How to classify adjusting entries.
4. The concept of asset depreciation and its effect on book values.
Respond to the following seven questions using grammatically correct language.
I. How are revenues and expenses reported on the income statement under the cash basis of accounting and the accrual basis of accounting?
II. Which events during an accounting period trigger the recording of normal journal entries and which event triggers the making of adjusting entries? Please explain why adjusting entries are necessary at the end ofan accounting period.
III. Give an example of an adjusting journal entry for each of the following transactions.
1. Equal growth of an expense and a liability.
2. Earning of revenue that was previously recorded as unearned revenue.
3. Equal growth of an asset and revenue.
4. Increase in an expense and decrease in an asset.
IV. The balance in the equipment account is $1,375,000, and the balance in the accumulated depreciation equipment account is $725,000. What is the book value of the equipment and does that amount mean that the equipment has a loss in real value of $725,000? Explain your response.
V. After the Adjusted Trial Balance columns of a work sheet have been totaled, which account balances are extended to the Income Statement columns, the Statement of Retained Earnings columns, and theBalance Sheet columns?
VI. Current assets and current liabilities for a Company are:
1. Current assets: 2013-$262,500; 2014-$310,500.
2. Current liabilities: 2013-$150,000; 2014-$172,500.
Determine the current ratio for 2013 and 2014. Does the change in the current ratio from 2013 to 2014 indicate a favorable or unfavorable trend?
VII. Rearrange the following steps in the accounting cycle in proper order:
1. Financial statements are prepared.
2. An adjusted trial balance is prepared.
3. Adjustment data are assembled and analyzed.
4. Adjusting entries are journalized.
5. Closing entries are journalized and posted to the ledger.
6. An unadjusted trial balance is prepared.
7. Transactions are posted to the ledger.
8. Transactions are analyzed and recorded in the general journal.
9. An optional end-of-period work sheet is prepared.
10. A post-closing trial balance is prepared.