PARTI- TRUE/FALSE Answer the following five questions as to what you believe to
ID: 2567062 • Letter: P
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PARTI- TRUE/FALSE Answer the following five questions as to what you believe to be either TRUE OR FALSE by circling T for TRUE or F for FALSE. F 1· The Accrual method of accounting records the effect of each that is, revenues are recorded when earned and expenses transaction as it occurs - recorded when incurred. F 2. The matching principle (sometimes called the expense recognition T principle) guides accounting for expense and insures the following: (1) all expenses are recorded when they are incurred during the period and (2) expenses are matched against the revenues for the period. T F 3. An adjusting entries are completed at the end of the accounting period and records revenues when they are earned and expenses to the period in which they occur. T F 4. Accumulated Depreciation is a contra asset account because it has a normal credit balance. TF 5. The book value of an asset is calculated by taking its cost minus any accumulated dust PART II-Mini Problem Prepare in journal entry form, the following six (6) adjusting entries for the BMCC Educational Services at year ended 12/31/16: 6. BMCC Educational Services prepaid a year's worth of its insurance on July 1, 2016 amounting to $10,000 to pay lower insurance premiums. On July1, 2016 the bookkeeper recorded the prepaid insurance as follows: Prepaid Insurance To record a year's worth of insurance. $10,000 Cash $10,000 In the space below, prepare the adjusting entry for insurance expense at 12/31/16.Explanation / Answer
1.TRUE. Accrual basis of accounting attempts to match the revenues a company has earned in the period with the expenses that were incurred to generate the revenue. Simply put, if the revenue was earned in June, it is recorded to the income statement in June, regardless of when the company received payment from the customer. This method is unlike the cash method, which records revenues and expenses only when monies are exchanged.
2.TRUE.In accrual accounting, the matching principle states that expenses should be recorded during the period in which they are incurred, regardless of when the transfer of cash occurs.
3.TRUE.Adjusting journal entries are the journal entries that bring the accounts up to date at the end of the accounting period. All adjusting entries affect at least one income statement account and one balance sheet account and NEVER impact cash.
4.TRUE. (A debit balance in a contra asset account will violate the cost principle.) Since a credit balance in an asset account is contrary to the normal or expected debit balance the account is referred to as a contra asset account. The most commoncontra asset account is Accumulated Depreciation.
5.TRUE.Book value of an asset is the value at which the asset is carried on a balance sheet and calculated by taking the cost of an asset minus the accumulated depreciation.Book value is also the net asset value of a company, calculated as total assets minus intangible assets (patents, goodwill) and liabilities.
6.i.Prepaid insurance A/c Dr $10000
To cash $10000
ii. Insurance A/c Dr $10000
To Prepaid Insurance $10000
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