Questions and Answers of Essentials Accounting

Note that the names of the financial statements will likely change to reflect the new standards. B S. === Statement of Financial Position I S. = Statement of Comprehensive S of C. F Income =
As an example, the IFRS framework provides a description of the elements on the balance sheet (statement of financial position) similar to GAAP: == = = resources controlled by the entity that provide
Always keep in mind the fundamental accounting equation:The right-hand side of the balance sheet shows the sources of capital.The capital itself exists in the form of a _____ , which are reported on
Retained Earnings represents those amounts that have been retained in the entity after part of the company’s earnings (i.e., profits)have been paid to shareholders in the form of dividends.
The relationship between the current assets and current liabilities indicates the entity’s ability to meet its current obligations. A measure of this ability is the current ratio, which is the
Accounts are kept for entities, rather than for the persons who own, operate, or otherwise are associated with those entities. For example, suppose Green Company is a business entity, and Sue Smith
At the close of business on December 31, 2011, Dowling Company had $3,750 in its bank account. It owned other assets totaling$30,000. The company owed $11,750 to creditors. Its equity was$22,000.
The dual-aspect concept is the first of nine fundamental accounting concepts we shall describe in this program. The concept can be written as an equation, that is, a statement that something is equal
Here is the balance sheet of Garsden Company, greatly condensed so as to focus on the main elements:The total of the left side is $ __ , __ ,000, and the total of the right side is $ __ , ___,000.
The financial statements tell only a part of the story about an entity.Since nonprofit organizations have goals that are often nonfinancial in nature, [we can use the same analysis that a for-profit
A ratio is the relationship between the numerator and the denominator.Before measuring performance by using a r , we must ask if both the n _______ and the d _________ have meaning for the analysis
You also learned about the amount of capital tied up in inventory by looking at the inventory turnover ratio. Many nonprofit organizations do not use i in the way that corporations use it. Often the
In Part 10 you learned to use some tools to measure financial performance. Equity investors invest in a business to earn a profit.Non _____ organizations do not have equity investors, so the return
Nonprofit organizations must prepare a statement of cash flows to accompany the statement of f p and the statement of a . This statement of cash flows looks very similar to the ones you learned about
The financial statements of nonprofit organizations are similar to those of for-profit companies in almost as many ways as they are different. For example, nonprofit organizations are required to
Use the exhibit to show that revenues for the period 2012 increase net assets and expenses decrease net assets. The beginning amount of unrestricted net assets for 2012 is $ . The total of
In Exhibit 15b find the amount of the transfer from net assets released from restrictions to unrestricted net assets. The total amount of transfers is $ , and the net effect of the transfers
At the end of 2013, the un revenues account will close to un n a s.
In 2013 when the program takes place, the journal entry would be:Dr. (t r ) $Cr. R s (unrestricted) $
Now provide the journal entry to close the temporarily restricted revenue account to net assets at the end of 2012.Dr. R s (temporarily restricted) . . . . . . . . $Cr. N A (temporarily restricted) $
Complete the journal entry for a contribution of $5,000 to a nonprofit entity in 2012 for a program to take place in 2013.Dr. Cash (temporarily restricted) . . . . . . . . . . . . . . . . . . . . . .
You also learned that ultimately revenues [increase / decrease]the equivalent of equity and that expenses [increase / decrease] the equivalent of equity. This, too, will help you to understand how
To be certain you understand how the transfer process works, recall the closing process from Part 3 . In Part 3 (see Frame 3-62) you learned that [balance sheet / income statement] accounts are
Although the total amount of net assets will not change as a result of a transfer, the individual categories will change. Evidently the sum total of all t ______ s must be zero.
Current operating activities of a nonprofit entity are found in the unrestricted revenues and expenses on the s of a s. Therefore, contributions for activities that are to take place in the future
As restricted funds are used for their designated purpose, they must be transferred from their holding pattern to the unrestricted category on the statement of activities. This t _____ r of funds
Funds must remain in the temporarily restricted category of n _ a ___ s until the accounting period when they are used for their designated p _____ .
As you learned earlier, sometimes contributions from donors are recorded in the category of t ly restricted. This means that there is a designated purpose for the contribution specified by the d ___ .
If the financial statements for Mercer Community Services are typical for nonprofit organizations like Mercer, it is [customary that fees from services make up the majority of unrestricted revenues /
Unrestricted revenues from contributions amounted to percent of the total unrestricted revenues for the period ending June 30, 2012.
From Exhibit 15b, the total amount of revenue that Mercer received from fees from its services was $ . This is percent of the total unrestricted revenues for the period ending June 30, 2012.
Mercer apparently had both unr ed and realized g s on its long-term investments. In Exhibit 15b, the total net realized and unrealized gains on all categories of long-term investments is $ .
Also, evidently there were restrictions on some of the investment i . The income on Mercer’s long-term investments was[unrestricted / temporarily restricted / permanently restricted / some of each].
The financial statements for Mercer Community Services in Exhibits 15a and 15b are typical of those for a nonprofit organization.Evidently Mercer had investments that provided income and realized and
Sometimes the organization does not sell stocks or bonds that have increased in value but decides to hold them for the future. At the end of each accounting period, the organization must determine
Investments may be made in stocks that don’t pay d ______ s or in bonds that don’t pay i _____ t.Investors hope that such investments will result in higher stock or bond prices at some time in
Funds may also be invested in stocks of private entities. Recall from earlier parts that some companies pay dividends to shareholders.Although a nonprofit organization does not have s s or owners, it
Unless the use of interest earned is restricted, it will be reported as r in the statement of a _______ s.
The investment portion of an organization’s assets derived from donations is called an endowment. An endowment can earn a return for the organization in several different ways. Funds invested in
This means that in addition to revenues from operating activities and from contributions, revenues from i ________ s will also appear as increases in unrestricted net assets. This can make the
Some nonprofits have funds invested in a way that will provide dividend, interest, or noncash returns. According to accounting regulations for nonprofit organizations, the gains and losses on such
Apparently, the accounting for many transactions for nonprofit organizations [is straightforward and easy / is more complex than forprofit accounting].
Some contributions do not qualify as revenues. For example, contributions of works of art, historical treasures, and similar assets need not be recognized as r s if the donated items are added to
Since revenues from services provided and revenues from contributions(with no restrictions) can both be considered un , both types of revenues will appear together on a statement of unrestricted
If a donor imposes a r ________ n on a contribution, the revenue from that contribution will ultimately increase t r ed net assets or p r ed net assets.
Similarly, expenses are considered d s in unrestricted net assets.
Revenues from contributions are different from revenues earned on services provided. Recall that all revenues ultimately increase net assets (similar to their role in increasing equity in a
The distinction between a revenue and an inflow of c __ is treated much the same way as it would be in a corporation. If services are provided in 2012 but are not paid until 2013, the revenue is
Revenues are realized for nonprofits in much the same way as they are in corporations. Remember the r concept, which states that r _____ is recognized when goods and services are [paid for /
The classification of net assets is thus either r or u , depending on the intentions of the d ___ .
If you receive a phone call from someone asking you to donate funds to your college and you agree to do so, those funds would probably fit into the category of [permanently restricted / temporarily
The donation of funds for a specific program to take place in May 2013, however, would fit into the category of [permanently restricted/ temporarily restricted / unrestricted] net assets because the
Likewise, the donation of works of art to a museum would be considered permanently restricted n a .
There are many examples of assets in each of the three categories.If a donor gave land to an organization to use as part of ongoing operations, this donation would fit into the category of
U ________ ed net assets are those that result from profitable operating activities or from donations with no r s.
Sometimes assets are donated for specific uses in a designated accounting period. Once used for the special purpose for which they were intended, they are no longer available. Thus, for the temporary
Some assets are donated so that they are maintained permanently by an institution rather than used up. Usually the donors allow the institution to use some of the income (or return) generated from
Net assets are classified based on the existence or absence of restrictions imposed by those who provide the funds. Three types of net assets must be reported on a statement of financial position for
One important difference in a balance sheet or statement of financial position of a nonprofit organization is the term n _ assets. This term represents the portion of the statement that is occupied
Some of a nonprofit’s g __ s can be measured by using financial statement information. For nonprofits, however, the surplus is not always an appropriate m . Performance measures need to be tied to
Nonprofit organizations are [the same as / very different from]corporations with respect to their purpose or m ____ n.If we seek to measure their performance using only the monetary amounts, we would
A primary goal of a corporation is to earn a p .The financial statement that measures this best is the [balance sheet /income statement / statement of cash flows.] You learned earlier that a good
Finally, a nonprofit entity reports the change in its cash and cash equivalents in a [balance sheet / income statement / statement of cash flows].
In a corporation, the operating expenses (or activities) portrayed on the income statement cause equity to increase or decrease. Similarly, in a nonprofit, the statement of a _______ s causes changes
Just like the b s , the statement of financial position reports amounts for the organization’s a ____ , l _________ , and equivalent of e ____ . Since there is no equity or ownership in a
Nonprofit entities also have three basic financial statements. The status report for a nonprofit is similar to the [income statement / balance sheet] and is called a s ______ t of financial
Since no dividends are paid in nonprofit organizations, the retained earnings are equal to the accumulated s ______ s. Some nonprofit organizations do receive contributions from persons outside the
Remember that the Equity section of the balance sheet reports the amount of capital that the for-profit entity has obtained from two different sources:1. The amount paid in by the owner(s), which is
In Part 2 you learned that the terms profit, earnings, and income all have the same meaning. They refer to the excess of r _____ s over e _____ s. Nonprofit organizations can have the equivalent of
Nonprofit organizations are also exempt from paying taxes in most states. The regulations to determine nonprofit status may differ from state to state. To qualify as a n ______ t organization,
Some examples of organizations with no ownership are museums, hospitals, colleges and universities, private schools, research organizations, churches and synagogues, cultural organizations,
Some entities have no ownership. Such entities do not obtain capital from shareholders and do not pay d . These entities are called nonprofit or not-for-p ____ organizations. For our purposes, both
In earlier parts you learned that when revenues are greater than expenses, the result of such profitable operations is net i ____ or p ____ . You learned also that the Equity section of the balance
When an entity acquires goods or services, it makes an expenditure. In August, Juarez Shop purchased goods for its inventory at a cost of $1,000, paying cash; it had an e ________ e of$1,000 in
On March 5, Harder Company purchased $6,000 of inventory, paying cash. Prepare a journal entry for this transaction below. Journal Transactions Dr. Cr.
On March 10, Harder Company made a $15,000 sale to a customer who paid $6,000 cash and agreed to pay the other $9,000 in 30 days. The merchandise sold had cost $8,000. Prepare a journal entry for the
On March 10, Harder Company made a sale for $15,000 for merchandise that had cost $8,000.Prepare a journal entry to record the cost of the sale below. Journal Transactions Dr. Cr.
Post the journal entries from the previous frame to the ledger accounts below.Asset accounts: Cash Bal. 25,000 Bal. Accounts Receivable Bal. 11,000 Bal. Inventory Bal. 40,000 Bal. Property and Plant
Suppose that Sherbrooke Company purchased a supply of fuel oil in 2011, paying $20,000 cash. No fuel oil was consumed in 2011. In 2012, $16,000 of fuel oil was consumed, and in 2013, $4,000 was
On December 31, 2011, Bailey Corporation has $12,000 cash on hand and in the bank. It owns other things of value, totaling $25,000. Its only debt is a bank loan of $10,000. Prepare a balance sheet
Post the journal entries from Frame 5 to the ledger accounts below.Liability and Equity accounts: Accounts Payable 16,000 Bal. Paid-in Capital 60,000 Bal. Revenues Expenses
Complete the following table by selecting Debits or Credits. Increases in asset accounts are Decreases in asset accounts are Increases in liability accounts are Decreases in liability accounts are
Refer back to Frames 6 and 7.Prepare a balance sheet for Harder Company as of March 31. Cash Accounts receivable Inventory Property and Plant Total Assets HARDER COMPANY Balance Sheet as of March 31
Refer back to Frame 7.Prepare an income statement for Harder Company for March. for
Sherbrooke Company purchased $20,000 of fuel oil in 2011, consumed $16,000 of it in 2012, and consumed $4,000 of it in 2013. At the end of 2011, the total expenditure of $20,000 was an [asset /
In February, McHugh Company agrees to sell a table to a customer for $600, and the customer makes a down payment of $100 at that time. The cost of the table is $400. The table is delivered to the
Give an example of each of the following types of assets, and give the name of the process used in writing off the cost of the second and third type. Asset type Example PPE Asset m b Wasting asset C
The amount of revenue for House A is measured by two transactions.List these below and find the revenue for House A. Date May 2 June 5 Transaction* Amount Revenue from House A $ *Write a brief
Two of the cash payments related specifically to the sale of House A.What were these cash decreases? Date Transaction Amount May July. Total
Refer to Frames 5-59 through 5-64 and complete the income statement for Homes, Inc., for the month of June, applying the realization concept and the matching concept. Sales Revenue Expenses: Cost of
According to Exhibit 7, cash transactions in June were:In June, Cash increased by a net amount of $ . This increase [was approximately the same as / had no relation to] the $7,500 net income for
Calculate the gross margin percentage for Garsden Company in 2012. Gross margin $ Sales revenue $ *
An even more important percentage is the net income percentage .Calculate it for Garsden Company. Net income $ %* Sales revenue $ "Show the nearest percent.
On January 2, Dan Bailey started the BaileyCompany. In January, Bailey Company did the following things:(a) It received $5,000 cash from Dan Bailey as its capital.(b) It borrowed $10,000 from a bank,
The amount of Retained Earnings shows the amount of capital generated by operating activities. It is not cash. Cash is an asset.On Decem ber 31, 2012, the amount of Cash was $ .The amount of Retained
Retained Earnings are additions to equity that have accumulated since the entity began, not those of a single year. Therefore, unless Garsden Company has been in business only 1 year, the $14,662,000
The other equity item, $14,662,000, shows the amount of equity that has been earned by the profitable operations of the company and that has been retained in the entity; hence the name, R ______ E
Individual shareholders may sell their stock to someone else, but this has no effect on the balance sheet of the corporation. The market price of shares of Apple, Inc. stock changes almost every day;
The paid-in capital is reported as two separate amounts:$1,200,000, which is labeled , and $11,256,000, labeled Additional - .The reasons for this distinction are described in Part 8 . The important
Paid-in capital is the amount of capital supplied by equity investors.They own the entity. The details of how this item is reported depend on the type of organization. Garsden Company is a

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