1 a. how does the time period assumption affect an accountant analysis of accounting transactions?

Many business transactions affect more than one of these arbitrary periods. So for example when a building or a new equipment purchase is made, the recorded transaction isnt made fully at the time of the purchase, because it will be used for a long period of time, generally several years. 1 b. explain the term fiscal year It is an accounting time period that is one year long. 2. Identify and state two generally accepted accounting principles that relate to adjusting the accounts. They are the revenue recognition principle and the matching principle. The revenue recognition principle, tells an accountant when to record revenue, which should be recognized in the accounting period it was earned or when its collection is assured. The matching principle says that expenses should be recorded in the period they helped generate revenues. 3. It should recognize revenues in the statement of april because it is the month that the engagement was performed, in accordance to the arevenue recognition principle. 4. it should record the $5000 in the month of april because it was the month the engagement was performed and the month the revenues for this engagement were recorded,, according to the matching principle. And expenses paid on May should be recorded in April, because they were incurred in April according to the matching principal. 13. For the Fiscal Year ending on December 31, 2007, the Income Statement will not show any improvement since the first $100,000 should be recognized as a liability, specifically unearned revenues, since the maintenance service has not been performed yet. Next fiscal year, these unearned revenues will become actual revenues as the maintenance work is performed. Given that the company produces yearly financial statements, then the income statement will show $100,000 increase in revenues for 2008. 14. It is not a good idea, at least for the current fiscal year. Since the company is near the end of the fiscal year, this promotion would have little or no effect on the companys net income of revenue targets, since the gift card would be considered as unearned revenue, a liability, when purchased by customers that most likely will be used during the next fiscal year. 23. a. accrual basis financial statements provide exact information as of exactly in what periods the transaction took place, while cash basis accounting provide information of when cash was received or expensed. b. Cash basis accounting tells us when information about when cash is received and when cash is expensed, while accrual basis financial statement provides information of what period an event or transaction.

DAY 2 6. Why may the financial information in a trial balance not be up-to-date and complete? a.- Because some events are not recorded daily. It is not efficient to do so. b.- Some costs are not recorded during the accounting period because these costs expire with the passage of time such as building and equipment, rent, and insurance. c.- Some items my be unrecorded. 7. Distinguish between the two categories of adjusting entries, and identify the types of adjustments applicable to each category. The two types of adjusting entries are Prepayments and Accruals For prepayments 1.- Prepaid expenses: Expenses paid in cash and recorded as assets before they are used or consumed. 2.- Unearned revenues: Cash received and recorded as liabilities before revenue is earned. For Accruals 1.- Accrued Revenues: Revenues earned but not yet received in cash or recorded. 2.- Accrued expenses: expenses incurred but not yet paid in cash or recorded. 9. Depreciation is a process of valuation that results in the reporting of the fair market value of the asset. Do you agree? Explain. Yes, because as time goes by, assets (such as building, equipment, etc) are being used to generate revenues, and this use is being expensed, lowering the original value to the market value. 10. Explain the differences between depreciation expense and accumulated depreciation. Depreciation expense, is the practice of allocating the cost of assets to a number of years while accumulated depreciation shows the total amount of depreciation that the company has expensed so far in the life of an asset. 11. Genesis Company purchased equipment for $15000. By the current balance sheet date, the company had depreciated $7000. Indicate the balance sheet presentation of the data. Genesis Company Balance Sheet. New current date. Assets:

Assets: Equipment Less: Accumulated depreciation Total Assets:

$15,000 ($7,000) -----------$8,000 ======

15. A company fails to recognize revenue earned but not yet received. Which of the following accounts are involved in the adjusting entry: (a) assets, (b) liabilities, (c) revenues, (d) expenses? For the accounts selected indicate whether they would debited or credited in the entry. Assets and Revenue would be affected. They would credit revenue and debit assets. 16. A company fails to recognize an expense incurred but not paid. Indicate which of the following accounts is debited and which is credited in the adjusting entry: (a) asset, (b) liability, (c) revenue, or (d) expense. Credit liability and debit expenses. 17. A company makes and accrued revenue adjusting entry for $800 and an accrued expense adjusting entry for $300. How much was net income understated prior to these entries? Explain. Net income is understated, because the company made $500 total in net income, but did not record it, so net income should show $500 more that what it had. 20. One-half of the adjusting entry is given below. Indicate the account title for the other half of the entry. (a) Salaries expense is debited. Salaries payable is credited. (b) Depreciation expense is debited. Accumulated depreciation is credited. (c) Interest payable is credited. Interest expense is debited. (d) Supplies is credited Supplies expense is debited. (e) Accounts Receivable is debited. Service revenue is credited (f) Unearned Service Revenue is debited. Service revenue credit BE4-2 The ledger of T.J. Barh company includes the following accounts. Explain why each account may require adjustment. a) period. b) Depreciation expense. Because the value of the asset may or may not depreciate during the financial period. c) Unearned service revenue. Because you may or may nor perform the service. Prepaid insurance. Because you may incur an expense by the end of the financial

d)

Interest payable. Because you may or not pay interest, or pay an extra amount of the required amount. BE4-3 Lena Company accumulates the following adjustments data at December 31. Indicate (1) the type of adjustment (prepaid expense, accrued revenue, and so on) and (2) the status of the accounts before adjustment (overstated or understated).

a. (1) (2) b. (1) (2) c. (1) (2) d. (1) (2) BE4-9 a. b. c. d. e. f. g.

Supplies of $400 are on hand. Supplies account shows $1,900 balance. Pre-paid expense. Supplies are overstated. Service Revenue earned but unbilled total $700 Accrued Revenue. Service Revenue understated. Interest of $300 has accumulated on a note payable Accrued expense Note Payable is understated. Rent collected in advance totaling $1100 has been earned. Unearned revenue. Unearned revenue in overstated.

Accounts Receivable. (1) Accrued revenue. (2) Revenues. Prepaid insurances. (1) Prepaid expense (2) Expense Equipment. Does not need adjustment. Accumulated depreciation. (1) Prepaid expense. (2)Depreciation expense. Notes Payable. (1) Accrued expense. (2) Expense Interest Payable. (1) Accrued expense. (2) Expense. Unearned Service Revenues. (1) Unearned Revenue. (2) Revenue.