EXAM REVIEW
post closing
trial balance
1.
What is the accounting cycle?
know it and its order.
2. What is the definition of ACCOUNTING?
Accounting is the gathering
(and classifying), recording,
summarizing, and analysing of financial information.
3. a) What information does the balance sheet provide?
●
statement of financial position of person or business
●
value of assets (how much business owns)
●
value of debts or liabilities (how much business owes)
●
value of investment (also called net worth, capital or owner’s equity)
this is the difference between the value of what you own and what you owe.
b) Internal users include management External users include government, banks and
investors
4. Organize the following accounts in order of liquidity from most liquid to least liquid
Accounts receivable, Land, Supplies, Equipment, Bank, Truck
the order of liquidity should place assets in order of those first that are most liquid
meaning that they are shorter term, used up quicker, or most easily converted into cash.
for above this would be : Bank, Accounts Receivable, Supplies, Equipment, Truck,
Land
5. What is the Difference between a creditor and a debtor ?
Creditor – anyone that the business owes money to
Debtor – anyone who owes money to the business
6. Know the two forms of the fundamental accounting equation.
Assets – Liabilities = Owner’s Equity
Assets = Liabilities + Owner’s Equity
7. Given that a transaction is a financial event that will result in a change in financial
position of the business, decide Which of the following are business transactions?
a) Gas for your car was purchased for $40 YES a transaction
b) Ingrid paid $15 out her own pocket for her child’s lunch for school.
NO see BUSINESS ENTITY GAAP
c) Supplies were purchased on account (to be paid for later)
YES a transaction (we received asset worth $)
d) Sean hired 6 new employees, who will start next week.
NO (no contract/no source document see OBJECTIVITY
PRINCIPLE)
8. Which type of accounts will be affected by the following transactions?
(choose from Assets, Liabilities, Revenue, Expense or Drawings)
a) Repairs for your car were purchased for $40 on account.
Liabilities (A/P), Expense
b) Repairs for your car were purchased for $40 cash.
Assets (Bank), Expense
c) You sold $4000 worth of tree cutting service on account.
Assets (A/R), Revenue
d) You sold $4000 worth of tree cutting service for cash.
Assets (Bank), Revenue
e) You wrote a $100 cheque to yourself for personal use.
Assets (Bank), Drawings
9. The Debit/Credit theory state that Debits are on the__LEFT_ Credits on the
_RIGHT__
10. Fill in the following chart (using Debit or Credit)
Types of Accounts
Normal Value Side
Increases
Decreases
ASSET accounts
DEBIT
DEBIT
CREDIT
LIABILITY and
OWNER’S EQUITY
accounts
CREDIT
CREDIT
DEBIT
11. What is the General Ledger?
●
A group or file of accounts
(examples used in class: set of T – accounts, or book of balance column accounts)
12. Complete the following chart:
Debit
a. The left side of an account
X
b. The balance of an account receivable
X
c. The balance of a supplier’s account
Credit
X
d. A decrease in a liability
X
e. The normal balance of HST recoverable
X
f. The balance in an equipment account
X
g. The right side of an account
X
h. The normal balance of HST Payable
X
i. An exceptional balance in accounts payable
X
j. The larger side of a liability T account.
X
k. A creditor’s account.
X
l. A customer’s account.
X
m. An increase in an asset
X
n. A debtor’s account.
X
p. The effect on accounts payable when we pay on account
X
r. The effect on accounts payable when we purchase on
account
X
13. What information does the income statement provide?
●
Summarizes revenue and expenses and shows net income or loss of the business
●
revenues- money being earned as a result of fees or sales
●
expenses - Costs that are related to earning money (what is used up?)
●
Net Income or Net loss = Revenues - Expenses
14. What is a chart of accounts?
●
A list of the accounts in a business ledger and their numbers
15. Does a fiscal year always have to begin in January?
●
No, can begin any month as long as it is consistent from year to year (see Time
Period Concept)
16. What is Drawings?
●
A decrease in capital resulting from the personal withdrawal of funds or assets from
the business (has a debit balance in ledger)
17. Complete the following chart
Debit
X
a. The normal balance of drawings
b. Increasing a debit account
X
c. An increase in drawings account.
X
d. A decrease in capital.
X
Credit
e. An increase in revenue.
X
f. The normal balance of revenue
X
g. The normal balance of an expense.
X
18. Complete the following table:
Items
Opening Capital
Net Income
or
Net loss (-)
Drawings
Ending Capital
a.
b.
c.
$30 000
50 000
70 000
$15 000
-2 000
32 000
$10 000
7 000
$26 500
$35 000
$41 000
75 500
d.
e.
$36 700
56 000
16 000
$14 000
19 500
30 000
33 200
40 000
19. Know your source documents.
Cash Sales Slip, Sales Invoice, Purchase Invoice, Cash Receipts Daily Summary, Cheque Copy, Bank Debit
Memo, Bank Credit Memo…… (Check your notes for summary of source documents and related journal entries)
20. Luka Lois Mary, a lawyer, has decided to open her own law office on June 1, 2035. On that date she
commences her business with the following assets and liabilities:
Assets
Liabilities
Bank
La w Library
Office Equipment
Automobile
$2 500
3 500
8 250
16 500
Acme Finance Co.
The Stationary Store
$8 750
3 250
Record the opening entry for Ms. Lois Mary’s Law business.
Date
2035
Particulars
June
1
Bank
2 0 0 0
-
Law Library
3 5 0 0
-
Office Equipment
8 2 5 0
-
Automobile
16 5 0 0
-
PR
DR
CR
A/P Acme Finance
8
7 5 0
-
The Stationary Store
3
2 5 0
-
L. Lois Mary, Capital
18
2 5 0
-
Opening entry
21. Complete the following Table for the HST data provided.
(Remember: You remit an HST payment only if HST Payable is greater than HST
Recoverable. If HST Payable is less than HST recoverable than we receive a refund from
the government)
End of
Period
HST
HST
Recoverable Payable
Jan. 31
456.25
2 653.89
Dec. 31
825.00
400.00
Apr. 30
1000.00
1800.00
Amount of
Remittance
paid to
government
Refund
Claimed
$2197.64
$425.00
$800.00
22. Record the transaction for a Purchase invoice that shows you bought $500 worth
of equipment. (we will assume today’s date Jan 19, 2015)
Date
2015
Particulars
PR
DR
CR
Jan
19
Equipment
5 0 0
-
Accounts Payable
Purchased equipment on account
23.
Update the Bank and A/R Jim Larue accounts by posting the appropriate
information from the journal below to their ledger accounts provided :
Loan
LEDGER
5 0 0
-
IMPORTANT NOTE : make sure you are filling in the information that belongs in the PR
column of both the Journal and the Ledger.
Classify the following Accounts as a Current asset, Fixed asset, Current liability, or
Long term liability, Revenue or Expense, or part of the Capital section of the Balance Sheet
24.
Account
Classification
a) Bank
Current Asset
b) Bank Loan (due within the year)
Current Liability
c) HST Payable
Current Liability
d) Accounts Receivable
Current Asset
e) Truck
Fixed Asset
f) Mortgage Payable
Long Term Liability
g) Office Supplies
Current Asset
h) Fees earned
Revenue
i) Accounts Payable
Current Liability
j) Repair supplies
Current Asset
k) HST Recoverable
Contra Liability (in current liabilities married to HST Payable)
l) Wages
Expense
m) Prepaid Insurance
Current Asset
n) Insurance Expense
Expense
o) Mr. O, Drawings
Part of Capital Section
p) Accumulated Depreciation
Contra Asset (in fixed assets married to a fixed asset such as
Auto)
Expense
q) Bank Charges
25. a) A truck was purchased for $30 000. The truck is expected to last 5 full years with a salvage value of
$10,000. Using the straight line method of depreciation calculate the depreciation expense relating to the truck for
each of the next 5 years.
_________$30000 – 10,000 = $20,000/5= $4,000 per year______________.
b)
Complete the adjusting entry that would appear at the end of each year.
Date
2021
Dec
31
Particulars
Depreciation expense - truck
Accumulated Depreciation - truck
Adjust for depreciation
26. More Adjusting journal entries
PR
DR
CR
4 0 0 0
4
0 0 0 -
The year end trial balance dated December 31, 2021, for J & S Industries showed Supplies at
and Prepaid insurance are preadjustment. The senior accountant was given the following
additional information:
A. An inventory of supplies revealed $500 to be on hand at the end of the yr.
thus Used Up $1074 - $500 = $574
B. The prepaid insurance account consisted of one 12-month policy purchased on
Nov 1, 2013 (i.e. two months had been used up)
$2800/2 years = $1,400 per year
C. The building is depreciated on a straight line basis with an estimated of 25 years of useful life
and a $3,500 salvage value.
($50,000-3500)/25 years = $1,860 per month
d. If the prepaid insurance account consisted of a year policy and purchased on
Sept. 1, 2021. (i.e. Four months had been used up)
$2800/12 months = $233.33 per month
( $233.33 * 4 = $933.33 for 4 months)
Prepare the adjusting entries for Dec. 31 2021, in the general journal on the next page:
General Journal
Date
Particulars
2021
Page: 55
PR
DR
CR
Part A
Dec
31
Supplies Expense
5 7 4
-
Supplies
5 7 4
-
1
4 0 0
-
1
8 6 0
-
Adjusting entry
Part B
31
Insurance Expense
1 4 0 0
-
Prepaid Insurance
Adjusting entry
Part C
31
Depreciation expense
Accumulated depreciation
Adjusting entry
1 8 6 0
-
Part D
31
9 3 3 33
Insurance Expense
9 3 3 33
Prepaid Insurance
Adjusting entry
28. Complete the Closing entries for J & S Industries on December 31, 2021
General Journal
Date
2021
Dec
31
Particulars
Fees earned
Page: 55
PR
DR
CR
70 7 2 1 19
70
Income summary
7 2 1 19
Closing entry
In conjunction with part A to C from question 26
above
Dec
31
Income Summary
37 1 0 6 51
Supplies Expense
5 7 4
-
Insurance expense
1 4 0 0
-
Depreciation expense - building
1 8 6 0
-
3 1 6 25
Telephone expense
Truck expense
11 9 0 1 32
Utilities expense
2 5 0 6
Wages expense
18 5 4 8 94
-
Adjusting entry
31
Income Summary
33 6 1 4 68
33
J. Budd, Capital
31
J. Budd, Capital
8 9 0 0
-
6 1 4 68
8
J. Budd, Drawings
9 0 0
29. Assuming all entries have been posted, calculate the ending capital balance for
Dennison Delivery Service as of June 30, 2021. Use the account provided below.
Account: J. Budd, Capital No. 300
Date2021
Particulars
PR
Debit
Credit
DR
CR
Balance
1
Jan.
1 Opening entry
J1
54,231.66
Cr
54,321.66 1
2
Dec
31
J3
33,614.68
Cr
87,936.34 2
31
J3
Cr
79,036.34 3
3
8,900.00
4
4
31. Know how to interpret the results of the following 3 Financial Ratios:
a)
Working Capital (also called Current) Ratio.
This measures the company's ability to pay off short term liabilities.
(interpret according to results see your homework and notes)
b)
Debt Ratio
This measures what percentage of the assets is financed through debt and what
percentage is financed by the owner's equity
(interpret according to results see your homework and notes)
c)
Return on Equity
This measures how much profit a company makes based on the amount
have invested.
shareholders
-
(interpret according to results see your homework and notes)
33. What is Merchandise Inventory? What is the difference between beginning
merchandise inventory and ending merchandise inventory?
Merchandise Inventory
goods that have been acquired by a distributor, wholesaler, or retailer from suppliers, with the intent
of reselling the goods to third parties.
Beginning Inventory
amount of goods for resale that we start with at the beginning of the year
(this will get added to cost of goods purchased to arrive at Cost of Goods Available for Sale)
Ending Inventory
Unsold goods at the end of the year
(This will get subtracted from Cost of Goods available for sale to arrive at Cost of Goods Sold)
34. What does Cost of Goods Sold represent?
This is the cost of the inventory that you sold during the fiscal period it is the
largest expense of a merchandising business.
35. What is Gross Profit?
This is equal to the Net Sales – Cost of Goods Sold
36. COST OF GOODS SOLD (the largest expense of a Merchandising
Business)
Calculate the Cost of Goods Sold as it would appear on an income statement for
this Merchandising Business.
$457,000,
Beginning Inventory
Ending Inventory
$ 388,000
Freight In
$11,000
Purchases
$434,000
Cost of Goods available for sale,
Purchase Discounts
$14,500
Purchase Returns and Allowances $17,500
Cost of Goods Sold
1. Beginning Inventory
2. Purchases
$457,000
$434,000
3. Purchase Discounts
14,500
4. Purchase Returns
17,500
5. Freight In
11,000
6. Cost of Goods Available for Sale
870,000
7. Ending Inventory
388,000
8. Cost of Goods Sold
$482,000
34. KNOW YOUR GAAP!!!!!!!!!!!!!