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Date Submitted: 11/12/2011 05:06 PM
Chpt. 3Textbook Exercises
2. State two generally accepted accounting principles that relate to adjusting the accounts?
* The revenue recognition principle, which states that revenue should be recognized in the accounting period in which it is earned.
* The matching principle, which states that efforts (expenses) be matched with accomplishments (revenues).
3 Rick Marsh, a lawyer, accepts a legal engagement in March, performs the work in April, and is paid in May. If Marsh’s law firm prepares monthly financial statements, when should it recognize revenue from this engagement? Why?
* The law firm should recognize the revenue in April because the revenue recognition principle states that revenue should be recognized in the accounting period in which it was earned.
4. Why do accrual-basis financial statements provide more useful information than cash-basis statements?
* Companies recognize revenues when earned rather than when they receive cash.
* Only accrual accounting generates reliable information on the full range of assets and liabilities.
* Full cost of providing a service can be compared with outside suppliers.
* A better indication of the sustainability of government policy.
* Improved accountability.
* Better financial management.
* Greater comparability of management performance results.
8. Distinguish between the two categories of adjusting entries, and identify the types of adjustments applicable to each category.
* The two categories of adjusting entries are deferrals and accruals. Deferrals consist of prepaid expenses and unearned revenues. Accruals consist of accrued revenues and accrued expenses.
E3-7 The ledger of Piper Rental Agency on March 31 of the current year includes the following selected accounts before adjusting entries have been prepared.
DEBIT CREDIT
1) Depreciation Expense (400x3) 1,200
Accumulated Depreciation - Equipment 1,200
(To...